How Will Increasing Corporation Tax to 24% Affect Businesses Over the Next Year?
There has recently been a report in the Sunday Times that the Chancellor, Rishi Sunak, may look towards an increase in corporation tax in order to help pay for the substantial amount of money that the treasury has had to make available to keep businesses afloat during the Covid-19 pandemic. The suggestion is that the small business rate will be increased from the current rate of 19% to a new rate of 24%, a 5% hike. The report goes on to say that the tax rate increase would look to raise £12bn in the next year, rising to £17bn in 2023-24.
The question small business owners may well ask is how are they going to afford higher tax bills when many are already struggling to make ends meet as a result of substantially reduced income streams over a number of months since lockdown started towards the end of March. Furthermore, many have had to seek external financing either by way of Coronavirus Business Interruption Loans (CBILS) or Bounceback Loans to keep their business going during these unprecedented times. The repayments of those loans will commence in the middle of next year meaning that business owners will already have to budget for further outgoings over the coming years. The announcement from the chancellor last week that loans can now be funded over a 10 year period will help, they do still however need to be repaid though and factored into future cashflow forecasts of businesses.
The cessation of the Coronavirus Job Retention Scheme (CJRS) and introduction of the new Job Support scheme will also put further onus on small business owners to pay towards keeping their employees in a job rather than making them redundant. In many cases, the cost of redundancy would also be substantial leaving them with some very difficult decisions over the coming months. The last thing that small businesses will therefore need is to have to pay more tax.
As stated above, the suggested increase is intended to raise a further £12bn next year. The likelihood is however that it may push may businesses that are already teetering on the edge over it and force them into liquidation at which point the government and HMRC are likely to receive very little of the liabilities that are owed to them.
Quoting from the article, Mike Cherry, national chairman of the Federation of Small Businesses, said that hiking taxes would send completely the wrong message to those who have lost their jobs due to COVID-19 and were thinking about setting up on their own. Cherry said: “Given we’re in a recession, the last thing policymakers should be doing is hiking taxes on those we need to invest, create jobs and generate growth over the crucial months ahead.”
It is hard to argue with those thoughts. Whilst there is clear understanding in the business community that the funding businesses have received from the government through the CJRS will need to be repaid, the government and chancellor have to be very careful at the options they look at to assist in doing so, and also the timescale that put in place to commence increasing the tax take. Gradual stepped increases would seem to be a better option, taxpayers are more likely to accept smaller increases as the effect will be far lesser on their cashflow and will allow them to continue trading. Whilst this option will take far longer for funds to fill the government’s coffers, receiving more over a longer period of time is surely a far better option than not receiving anything.
I will continue to monitor the situation and follow up if any further information on this topic becomes known. Based on the most recent announcements in respect of tax times to pay, it is likely that this has been put on the back burner for now but is a topic that we should be keeping an eye on in the coming months.
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