UK chancellor announces reversal on corporate tax, other measures

The UK's new Chancellor of the Exchequer said Monday that he will undo "almost all" of the tax cuts that the government announced less than a month ago. This includes the reinstatement of an increase in the corporate tax for some businesses.

Jeremy Hunt, who replaced Kwasi Kwarteng in the Treasury role last week, said that he and Prime Minister Liz Truss remain committed to cutting the corporation tax. However, they agreed that, for now, they won't proceed with the cut to the corporation tax that previously was announced in the mini budget.

In addition, they will reverse "almost all the tax measures announced in the Growth Plan three weeks ago that have not started Parliamentary legislation," Hunt said in a statement.

The corporate tax, set to increase to 25% in April from the current 19%, will stay on course at 25%. Kwarteng had said that the tax rate would not increase in April and instead would remain at 19%. At 25%, Great Britain's corporate tax rate remains the lowest in the G7.

"As part of the forthcoming tax review, the government will look at how the tax system can go further to promote growth and investment," Hunt said.

The previously announced small profits rate of corporation tax will be maintained. Smaller or less profitable businesses will not pay the full 25% rate. The 19% rate will remain in effect for a majority of companies — those with less than £50,000 of profit.

These reversals are "designed to ensure the UK's economic stability and provide confidence in the government's commitment to fiscal discipline," Hunt said.

The reversal on tax measures in the Growth Plan means the new plan will not proceed with:

• Cutting the basic rate of income tax to 19% from April 2023. Instead, the basic rate will remain at 20% indefinitely, saving around £6 billion a year.
• Cutting dividends tax by 1.25 percentage points from April 2023. The 1.25 percentage points increase, which took effect in April 2022, will now remain in place, saving around £1 billion a year.
• Repealing the 2017 and 2021 reforms to the off-payroll working rules (also known as IR35) from April 2023. The reforms will now remain in place. This change will cut the cost of the government's Growth Plan by around £2 billion a year.
• Introducing a new VAT-free shopping scheme for non-UK visitors to Great Britain. Not proceeding with this scheme is worth around £2 billion a year.
• Freezing alcohol duty rates from 1 February 2023 for a year. Not proceeding with the freeze is worth approximately £600 million a year.

All these decisions will raise about £32 billion annually, Hunt said.

Changes that remain in effect include the government's reversal of the National Insurance increase that the government had said would, on average, save 920,000 businesses almost £10,000 next year.

The Energy Price Guarantee, which was the biggest single expense in the Growth Plan, will continue through April 2023 to help people get through the winter. Treasury then will review how the government can support energy bills after that date. The goal is to find a method that costs taxpayers less money but also ensures support of those in need.

Hunt will discuss the measures in detail when the Medium-Term Fiscal Plan is officially announced on 31 October.

Meanwhile, all government departments must find savings, Hunt said, adding that some spending will be cut.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.