Corporation tax changes in the Budget 2021: What is it and when will it increase?

4 March 2021, 11:50

Corporation tax increases will start in 2023 following the new budget announcement
Corporation tax increases will start in 2023 following the new budget announcement. Picture: PA

By Zoe Adams

What is corporation tax in the UK and how did it change in the Budget? Here’s everything you need to know about the changes including what Rishi Sunak’s super deduction scheme is.

Rishi Sunak delivered his 2021 Budget on 3 March and the increase in corporation tax was one of the biggest delivering points as he plans to help the UK recover from the financial Covid crisis.

Bringing in a ‘super deduction’ policy for big businesses and the tax increase changes in 2023, a lot of questions have arose around the new budget announcement.

Related article: What did Rishi Sunak announce in his Budget 2021?

From what exactly is corporation tax, to when it will increase, here’s all the important questions answered:

Rishi Sunak confirmed increased to corporation tax to help the UK recover from the Covid financial crisis
Rishi Sunak confirmed increased to corporation tax to help the UK recover from the Covid financial crisis. Picture: PA

What is corporation tax?

Corporation tax is what is paid on profits made from doing/running a business, so if you are a limited company, any foreign company with a UK branch or office or a club/association.

Corporation tax is paid on profits from doing business, investments and selling assets.

If you are a company based in the UK, you will pay this tax on all your profits where as if you are a foreign company running branches in the UK, you will only pay it on UK business.

Currently, corporation tax stands at 19%.

When will corporation tax increase?

Rishi Sunak confirmed in his announcement corporation tax will increase to 25% in 2023 with lower rates for smaller businesses.

If your company makes profits of £50,000 or less, you will remain on the “small profits rate” of 19%.

There will also be a taper above £50,000 profits so that only businesses who earn £250,000 or more will pay the full 25% tax increase.

The Chancellor said at the Budget: “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 per cent. This means around 70 pre cent of companies – 1.4 million businesses – will be completely unaffected.”

Businesses earning over £250,000 will pay the full 25% tax bill
Businesses earning over £250,000 will pay the full 25% tax bill. Picture: PA

What is the ‘super deduction’ tax?

A temporary tax relief, businesses can invest in plants and machinery between April 2021 and March 2023 to help reduce their tax bill.

Companies will be able to offset the full cost of new equipment against tax.

Sunak confirmed he hoped this upfront tax would encourage companies to create jobs and help drive our economic recovery.