The UK is set to introduce a new tax break for companies investing in the country as it has announced an increase in corporate tax rates to 25% of profits from 2023, as part of an annual budget set on Wednesday.
Treasury Secretary Rishi Sunak pledged to use “full measures of our fiscal firepower” to save jobs and household businesses in an attempt to combat the devastating economic impact of the COVID-19 pandemic.
The UK’s Office of Budgetary Responsibility (OBR), which advises the government, now expects the UK economy to return to pre-COVID levels in mid-2022 – six months earlier than forecast in November. The OBR predicts the UK economy will grow 4% this year before growing 7.3% in 2022 – the highest annual GDP growth since 1941.
However, Chancellor of the Exchequer Sunak warned the UK of a “moment of crisis” as he updated the country’s finances and pledged billions more to help those hardest hit by the pandemic, but also signaled some tax hikes to help the finances to repair .
Sunak announced plans:
Increase corporate tax rates from 19% to 25% by 2023 for companies with profits over £ 250,000 ($ 349,000).
Extension of the vacation program for jobs that supports workers affected by the pandemic.
Introducing a new tax break for companies investing in the country over the next two years.
Extend your stamp duty leave until June 30th.
Create a new infrastructure bank.
Bring an additional £ 5 billion in grants to help pandemic-hit businesses.
Relax in London.
“Given the significant support announced at the 2020 Spend Review, it means our total COVID support package this year and next is £ 352 billion,” Sunak said, adding that the measures announced last year are overall £ 407 billion.
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The government is projected to borrow £ 234 billion over the next year. However, Sunak said that “we cannot allow debt to rise any further,” and identified two first steps to reduce borrowing.
Sunak announced plans to raise corporate tax from its current 19% to 25% of profits in April 2023. There would then be a rejuvenation for companies earning more than £ 50,000, Those who earn more than £ 250,000 are taxed at a maximum of 25%. Smaller businesses earning less than £ 50,000 are exempt from the increase and stay at 19%.
The tax hike will affect all global companies making profits in the country, including tech giants like Facebook FB (+ 4.09%) and Google parent Alphabet Alphabet (+ 1.64%),
and such as the coffee shop chain Starbucks SBUX (+ 1.45%) and the online retailer Amazon AMZN (+ 3.76%)..
“Raising corporate tax to 25% in one go will take a sharp breath for many businesses and send a worrying message to those planning to invest in the UK,” said Tony Danker, director general of the Confederation of UK Industries.
The government will also freeze personal tax thresholds (the amount of tax-free income people receive) from next year through April 2026. The question of whether or not to raise personal taxes has been closely watched in the run-up to the budget Prime Minister David Cameron urges the Chancellor to suspend tax increases.
“This government is not going to raise income tax, social security or sales tax rates. Instead, our first step is to freeze personal tax thresholds, ”Sunak told parliament on Wednesday.
To encourage companies to invest in the UK as it recovers from the pandemic, Sunak has put in place plans for a “super deduction” that will allow them to reduce their tax burden. If companies invest over the next two years, they can cut their tax burden by 130% of the cost of that investment.
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David Owen, Jefferies’ Chief Economist for Europe, said: “The previously announced corporate tax increase to 25% will hit the headlines – but the corporate investment super allowance is interesting – especially when there is £ 100 billion of excess cash on the corporate balance sheet exists (since before COVID). ”
Measures that Sunak announced in the 2021 budget included extending the vacation program until the end of September. Under the program, the government pays up to 80% of a worker’s salary for hours not worked due to the pandemic. In July employers will have to contribute 10% as state support drops to 70%, and in August and September state contributions will decrease to 60% when employer support increases to 20%. 4.7 million workers were on leave at the end of January.
In addition to extending a stamp duty vacation – stamp duty is a property tax on homebuyers – the budget will help improve home ownership through the end of June through a new mortgage guarantee plan that cuts deposits to 5%. The Chancellor said that lenders HSBC HSBA, + 0.01%,
Barclays BARC, -0.68%,
Lloyds LLOY, -0.60%,
Santander SAN, -2.47%,
and NatWest NWG, -0.40%, will offer 95% mortgages from April.
The budget also supports Prime Minister Boris Johnson’s ambitious plan for a “green industrial revolution” through massive investments in infrastructure for a green transition, including building new port infrastructure for offshore wind projects. The £ 40 billion investment will start in the spring with an initial capitalization of £ 12 billion.
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This is Rishi Sunak’s second budget, shown here with Prime Minister Boris Johnson in the background.
(Photo from video footage of the UK Parliamentary Recoding Unit / Agence France-Presse / Getty Images)