Prime Minister Liz Truss has announced that corporation tax will rise to 25 per cent this spring, abandoning one of her key tax cut policies.
Rishi Sunak had scheduled corporation tax to rise to 25 per cent in April 2023 when he was chancellor. Cancelling the £18bn corporation tax hike was something she campaigned on to become Tory leader. The rise will now go ahead as planned.
Speaking this afternoon, Prime Minister Liz Truss said: “People across this country rightly want stability. It is clear that parts of our mini-Budget went further and faster than markets were expecting.”
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However, scrapping the hike in National Insurance contributions and cutting the income tax rate by a penny in the pound will go ahead.
Separately, Jeremy Hunt has been appointed Chancellor, replacing Kwasi Kwarteng, whose radical mini-Budget so spooked the financial markets.
Chris Denning, corporate and international tax partner at MHA, says the decision to keep the corporation tax increase is “a big blow” for businesses that the Government’s pro-growth tax policy has been blown off course.
Denning said: “Corporation tax is their only wiggle room and the impact of changing course here is large enough to affect the markets.”
The accountancy firm pointed out that prior to Covid-19 and the Ukraine war, the Government was on track to having the lowest corporation tax rate in the G20 at 17 per cent in order to encourage investment.
“A U-turn would now be a significant setback,” said Denning.
Chancellor Jeremy Hunt will now deliver the Government’s medium-term fiscal plan on October 31.
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