Call to plan

Firms face ‘crippling’ £1.5bn corporation tax hike

Nicola Campbell: serious implications

Scotland’s businesses are facing a potentially crippling £1.5 billion hit under forthcoming changes to corporation tax rates.

The corporate sector will be forced to stump up an additional £1.2bn when the current 19% rate rises to 25% on 1 April and experts say this will rise to £1.5bn by 2025/26.

It is estimated that Scotland currently contributes around £5bn in corporation tax per annum – the UK figure is around £68bn per annum, equating to 2.9% of UK GDP.

An SME expert is warning that the additional tax burden could lead to a significant reduction in investment and the risk of businesses closing.

“Last October the Government announced that it will persevere with an increase in the baseline Corporation Tax from 19% to 25% for businesses with annual profits of more than £250,000,” said Nicola Campbell, accounts and business advisory services partner at Azets.

“Businesses across the UK will be paying an additional £18bn per annum by 2025/26 and we estimate that Scotland’s annual share by that point will be nearly £1.5bn.

Ms Campbell added: “It is a significant increase and some businesses may not yet be fully aware of the implications.

“There is concern that the scale of the tax increase along with rising interest rates and inflationary pressures will restrict inward investment opportunities and in turn growth.

“The tax burden on business has become higher than we have seen in the last two decades across the board, from NIC to corporation tax. 

“My greatest worry though is the impact on owner managed businesses who can’t invest in tax planning as they need the profits to pay the household bills.”

She concluded: “With an increase on this scale it is more important than ever that companies across Scotland actively manage their corporation tax liabilities. 

“Cash and liquidity are critical for every business so we would encourage owners and directors to take full advantage of available tax reliefs, including the following examples:

  1. Maximise the Annual Investment Allowance (AIA) of £1m
  2. Claim R&D tax relief
  3. Maximise pension contributions
  4. Maximise staff benefits and invest in staff well-being
  5. Buy electric vehicles

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