What is corporation tax? How much is it and who pays it? Liz Truss U-turns on corporation tax reversing mini-budget
What is corporation tax?
Corporation tax describes the money paid to the government by limited UK companies or foreign companies which also have UK offices. It is paid according to the company’s profits and selling of shares, land, property or other such assets that have increased in their value.
How much is corporation tax?
Corporation tax rates were cut significantly by Conservatives after the party came into power in 2010 seeing it slashed from 28% to 19% as of April 2017. There has been a single rate of corporation tax since 2015 while before there were two rates according to the individual company with a lower rate offered to those making under £300,000 yearly.
What was meant to happen with corporation tax?
Former chancellor and Prime Minister candidate Rishi Sunak had intended to raise the corporation tax to 25% in April 2023. However, the recently sacked chancellor Kwasi Kwarteng rejected this increase and effectively froze the rate at 19% allowing companies to retain more profit.
What is happening with corporation tax now?
Prime Minister Liz Truss confirmed she will continue with an increase to corporation tax which she rejected previously. Due to the tax cuts announced with the mini-budget there were problems caused in financial markets especially as this move also affected National Insurance and the top rate of income tax.
The pound also fell in value dropping to lower than the US dollar and the cost of government borrowing and mortgages also increased. This pressure compelled Liz Truss and her government to reverse the mini-budget in what is being called a ‘U-turn’ on corporation tax.
On October 14, the Tory leader said corporation tax would rise by 25% by April 2023 while also announcing that she was sacking Kwasi Kwarteng, her former chancellor now replaced by Jeremy Hunt.
How high is corporation tax in other countries?
The government has said its corporation tax is “significantly lower than G7 counterparts” as the rate stays at 19%. The next lowest corporation tax rate belongs to France which is set at 25.8% - Germany and Japan have the highest rates at around 30%.
However, what taxes companies actually pay can differ greatly to the public rates displayed due to many loopholes. For example, a company could pay less tax if they set up their business in certain parts of a country.
Want to join the conversation? Please or to comment on this article.