UK to hike corporation tax to 25% in first rise since 1970s

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Britain's Chancellor of the Exchequer Rishi Sunak holds the budget box outside his office in 11 Downing Street in London, Britain March 3, 2021. REUTERS/Toby Melville

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LONDON, March 3 (Reuters) - Britain will raise its corporation tax on big companies to 25% from 19% from 2023, the first hike in nearly half a century, but will temper the burden with a two-year "super deduction" for investment to spur a fast recovery from the COVID-19 crisis.

Finance minister Rishi Sunak, a Conservative unveiling the first corporation tax rise since Labour raised it 1974, said the future tax hikes on companies were a fair way to start recouping the cost of vast state support to business during the pandemic.

"The government is providing businesses with over 100 billion pounds of support to get through this pandemic so it is fair and necessary to ask them to contribute to our recovery," Sunak told parliament.

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"Even after this change, the United Kingdom will still have the lowest corporation tax rate in the G7," Sunak said.

The corporation tax rise - by far the biggest tax increase announced by Sunak in the budget - will take effect from 2023, when the economy is expected to regain its pre-pandemic size.

The measure is forecast to raise 11.9 billion pounds in the 2023-2024 tax year, rising to 17.2 billion pounds in 2025-26.

In the meantime, Sunak announced a measure to encourage businesses to invest their cash reserves in new machinery and plants, with a so-called "super deduction" that let businesses reduce their tax bills by 130% of the cost of investments. The measure is forecast to give businesses back around 12.3 billion pounds this coming year and 12.7 billion pounds in the next.

Still, the Confederation of British Industry, the lobby group for big British companies, said the hike in corporation tax was sending a worrying signal to investors.

"Moving corporation tax to 25% in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK," CBI Director-General Tony Danker said.


The United Kingdom introduced corporation tax at a rate of 40% in 1965. It rose to a high of 52% in the early 1970s and has been cut ever since. It was trimmed to 19% from 2017 and plans to cut it further were scrapped.

Law firm Clifford Chance said the hike in corporation tax - which in Britain is particularly broad with fewer deductions than elsewhere - would make the effective rate higher than that of Germany or the United States and on a level with France.

Britain would pass Sweden, Denmark, Israel, Ireland and Portugal in corporation tax revenue as a share of national income.

Sunak said small businesses with profits of less than 50,000 pounds a year would be charged only 19%, meaning around 70% of businesses would be unaffected, and a taper would mean only those with profits above 250,000 pounds - around 10% of companies - would be taxed at the full 25% rate.

The super deduction, Sunak said, would let a construction firm cut its tax bills by 13 million pounds if it bought 10 million pounds of new equipment. He quoted the Office for Budget Responsibility as saying it would boost investment by 10%.

Martin Sorrell, executive chairman of advertising group S4 Capital and former CEO of WPP, said Sunak could have delayed the hike for longer, but it was sweetened by relief for smaller companies, the super deduction and other measures.

"On balance, I think it was okay," he said, adding the super deduction would unlock investment. "Consumers are a bit of coiled spring at the moment and companies are too; companies have been preserving their resources in COVID."

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Reporting by Guy Faulconbridge, editing by Estelle Shirbon

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