Craig Simpson, Tax Partner at Bates Weston considers whether the Chancellor will use Corporation Tax as a means of reducing business taxation in the Autumn Statement.
In a much anticipated Autumn Statement Jeremy Hunt is expected to deliver pre-election tax cuts. Corporation Tax could well be on his radar. Corporation Tax receipts are now at a record high and in 2022/23 a total of £78bn was collected by HMRC. This is before the increase in the main rate of Corporation Tax to 25% from the previous 19%. It is possible that receipts in 2023/24 will break £100bn.
The Chancellor has some scope to reduce the main rate of Corporation Tax or extend the small company rate for small businesses. Currently if profits are below £50,000 per annum the 19% rate of Corporation Tax applies. The main rate of Corporation Tax of 25% is paid by businesses with profits in excess of £250,000 per annum. Companies with profits in between £50,000 and £250,000 pay Corporation Tax at 25% but this is tapered to reduce the rate of overall tax paid using marginal relief.
So what might be on the cards on Wednesday?
Reducing the main rate of Corporation Tax – I will stick my neck out and predict a main rate of 22% across the board. There is much to be said to using the business tax system to attract businesses to the UK and to encourage people to reinvest profits. Politically there is always a balance but we know the Tory party are seen by many as pro-business.
Keep the main rates of Corporation Tax at 19% and 25% but extend the bands to which these rates apply. We used to have a system of £300,000 lower rate limit and £1.5m higher rate limit. We could see a return to this. Politically this would favour small and medium sized businesses and not the large corporates where the inevitable headlines of criticism would result.
Full Expensing is extended, whereby 100% of the capital cost of qualifying capital expenditure can be written off against profits chargeable to Corporation Tax. The relief is due to expire on 31 March 2026 and it is possible this will be made permanent.
It is worth pointing out that overall tax revenues in the UK are now £788bn. Contrast that to pre-pandemic revenues of £621bn, there is a sharp increase in the last 3 years. There is definitely scope to cut taxes without overall tax revenues reducing. HMRC tax receipts and National Insurance contributions for the UK (annual bulletin) – GOV.UK (www.gov.uk)
This guidance is generic in nature and does not constitute advice. You should take no action based upon it without consulting ourselves or your own professional advisor.