With the country’s deficit increasing, Rishi Sunak said that it was necessary to raise money buy increasing corporation tax.
Small businesses will be protected by the tax hike, however, as the government looks to protect businesses worst impacted by the spread of Covid-19 and the subsequent introduction of social distancing measures.
Here's everything you need to know about the changes to corporation tax.
What is corporation tax?
Corporation tax is required to be paid on profits made as either: a limited company; any foreign company with a UK branch or office; a club, co-operative or other unincorporated association, eg a community group or sports club.
Corporation tax must be paid on the following: trading profit; investment; selling assets.
What is the current level of corporation tax?
Currently, businesses in the UK are required to pay 19% in corporation tax.
The tax was set to be reduced further to 18% and then 17%.
How much has corporation tax increased by?
From 2023 businesses will be required to pay 25% in corporation tax.
This will come into force from April 2023.
Despite the rise, the Chancellor underlined that the UK will still have the lowest corporation tax rate in the G7.
What about smaller businesses?
Sunak announced the introduction of a Small Profits rate.
Businesses with profits of £50,000 or less will continue to pay the current rate of corporation tax.
1.4m of businesses will be unaffected by the tax rise, according to the government.
A taper has also been introduced, with businesses paying the full corporation tax amount only if they’re earning profits over £250,000.
What did the Chancellor say?
Rishi Sunak said: “even after this change the UK will still have the lowest corporation tax rate in the G7 – lower than the United States, Canada, Italy, Japan, Germany and France.”
He added: “First, this new higher rate won’t take effect until April 2023, well after the point when the OBR expect the economy to have recovered. And even then, because corporation tax is only charged on profits, any struggling businesses will, by definition, be unaffected.”
“Second, I’m protecting small businesses with profits of £50,000 or less, by creating a small profits rate, maintained at the current rate of 19%. This means around 70% of companies – 1.4 million businesses – will be completely unaffected.”