The UK’s decision to raise corporation tax by 6% next year means the country will face a fall of 16 places in the global corporate tax league tables, from 6th place to 21st, according to a new study by UHY.
The UK’s corporation tax rate has been at an historic low of 19% since 2017, with just Poland, Croatia, Belarus, Romania and the Republic of Ireland ahead of it in the rankings of this global study of 30 countries.
However, with 2023’s planned increase being granted Royal Assent in June 2021, the UK will be just below the global average, though still more competitive than many similar sized economies.
UHY said the UK government has been pursuing a regime of tax increases in order to manage its post-Covid deficit. It added, confidence in British businesses will be “sure to take a hit” with the upcoming 6% increase, as well as the introduction of the new Health and Social Care levy resulting in employers contributing an extra 1.25% in tax for every employee.
Andrew Snowdon, head of Tax at UHY Hacker Young in the UK said, “For years the UK has been known as an established locale for international business, and these upcoming tax hikes may lead investors to question the UK as a place to set up shop.
“The Government is undertaking a fine balancing act between keeping the UK attractive for business owners large and small, as well as remain competitive in the global arena. Companies are still feeling the sting of the last two years, therefore a sensible corporate tax policy is crucial to maintain confidence in the UK economy.”
He added: “While the UK has spearheaded one of the most dramatic corporate tax increases globally, many countries are likely to follow suit now the competition for rock bottom tax rates appears to have ended.”
With the Covid-19 pandemic leaving a challenging deficit in the UK’s finances, UHY said that it is “understandable” the Government has made the decision to up rates for companies with the biggest profits. From April 2023, companies with profits under £50,000 will continue to pay corporate tax at 19%, and a tapered rate will be in place for companies with profits between £50,000 and £250,000.
UHY added that keeping lower rates in place for smaller and struggling businesses will “still encourage the economy to grow”, while ensuring the “tax burden is placed on those more able to withstand the economic shock”.
Subarna Banerjee, chairman of UHY, added: “SMEs are a crucial component of international economies. In light of many countries’ post-covid recovery plans, it is encouraging to see so many continuing to support these smaller enterprises which form sustainable foundations of their economies.”