The rise in corporation tax will force many Midlands companies to delay business investment, according to new research from accountancy and business advisory firm, BDO LLP.
Half of Midlands businesses (50%) say they will pause future investment, after the headline rate of corporation tax rose to 25% at the beginning of April 2023, up from 19% in the 2022-23 tax year.
BDO’s bi-monthly Economic Engine survey of more than 500 mid-market businesses has revealed that 33% of respondents will either have to make redundancies or take on fewer people, with the recent rise in corporation tax leading to a reduction in profits paid out to shareholders for 40% of businesses. Worryingly, nearly half (42%) said the uplift in corporation tax had prompted them to consider leaving the UK.
While many businesses had hoped the Chancellor would publish a roadmap at the Spring Budget setting out a phased reduction in corporation tax rates, no such announcement was forthcoming. The much-debated move follows years of tax-cutting by the Conservatives, from a high of 28% in 2011 to 19% in 2017. In his March 2021 Budget, then Chancellor Rishi Sunak announced plans to increase the headline rate in a bid to aid the country’s financial recovery post-pandemic.
Claire Hudson, tax partner at BDO LLP in the Midlands, said: “Pre-Budget, many Midlands businesses made their feelings clear that they would like to see a reversal of the rise in corporation tax. The Government has so far stood firm, but the Chancellor’s recent remarks on business taxes being too high suggests he might reconsider this position at the next Budget.
“Our survey indicates that the recent rise in the headline corporation tax rate will dampen current business investment plans and potentially hamper growth in the region as businesses pull back on spending.
“It has also highlighted a high degree of concern about the international competitiveness of the UK’s corporate tax regime. However, the new ‘full expensing’ capital allowances regime has been positively welcomed, suggesting the knock-on effect of the tax hike may only be short-term.”
According to Economic Engine survey, 68% of Midlands businesses say that the new capital allowances rules, which give businesses a 25% subsidy to buy new plant and machinery, would lead them to invest more in equipment.
Hudson added: “While it’s encouraging to see businesses planning to capitalise on the rule changes, there will be a swathe of service-led companies that will get little benefit from the new regime. Ensuring that service sector businesses are also incentivised to invest in growth, with subsidies being delivered in other ways, will be key to long-term, sustainable growth across the board.”
