Chancellor’s £32bn hit for big business as tax cut is cancelled

Chancellor’s £32bn hit for big business as tax cut is cancelled to free up cash for the coronavirus fightback

There was a sting in the tail for British businesses as large corporations were told to stump up for extra spending on the coronavirus fightback and the NHS.

Rishi Sunak won praise for a £12billion package of measures to shield the economy from the pandemic, including £7billion of support for small firms, the self-employed and the vulnerable, and an extra £5billion for the NHS.

But big business was hit when the Chancellor confirmed that a planned cut to corporation tax would be scrapped – handing firms a £32billion bill over the next five years.

Big business was hit when the Chancellor confirmed that a planned cut to corporation tax would be scrapped – handing firms a £32bn bill over the next five years

Changes to two tax reliefs will raise a further £11billion, taking the bill to £43billion.

Critics said firms were only provided with piecemeal tax cuts in return for funding the biggest fiscal loosening since Norman Lamont’s budget in 1992. 

Cancelling the reduction in corporation tax from 19 per cent to 17 per cent – in line with the Conservatives’ election manifesto vow – will raise £7.5billion per year by 2024-25.

The lifetime cap on entrepreneurship relief, which allows company founders to pay 10pc capital gains when they sell their firm, instead of 20 per cent, was cut from £10million to £1million, raising £1.8billion that year.

Tax relief on red diesel – a fuel used in machinery and off-road vehicles – was also axed for sectors other than rail, home heating and agriculture, raising £1.6billion a year by the middle of the decade.

But Sunak’s Budget allayed some concerns about the impact of coronavirus on demand and businesses’ cash flow.

To help prevent businesses toppling, the 39-year-old announced a one-year rates holiday for small businesses and a £1billion Government-backed loan scheme.

This will support businesses hit by short-term cash flow problems. There will also be £2.2billion provided for grants for the country’s 700,000 smallest businesses to meet ongoing costs.

The Government will also cover the cost of statutory sick pay for 14 days for those off work because of the virus, at a cost of £2billion.

The measures come on top of an £18billion spending, unrelated to the virus, injected into the economy in the next 12 months. 

The CBI director-general Dame Carolyn Fairbairn said the response ‘will help ensure firms can weather the storm’, while the Federation of Small Businesses said the Budget showed a ‘real commitment to supporting small businesses’.

Critics said the wider tax regime for business offered only ‘piecemeal’ handouts in return for the £43billion tax grab. 

There was £1billion in tax relief when they invest in buildings, and a further £1billion of relief for firms putting money into research and development.

A further £1billion ‘jobs tax’ cut was handed to small businesses via a boost to the employment allowance from £3,000 to £4,000.

Nikhil Oza, at accountancy group UHY Hacker Young, said the corporation tax hike was a ‘missed opportunity to attract investment following Brexit’.

He added: ‘It could end up costing the Exchequer more than it raises.’

The Institute of Directors’ chief economist Tej Parikh said: ‘[The Budget] might have done more to spur investment, which will be crucial to speed up the recovery.’

Business groups hailed the Chancellor’s focus on investment in infrastructure, research and development.

Public spending on research and development will increase to £22billion per year by 2025, the Chancellor said.

Online levy risks wrath of Trump 

The Chancellor is levying a digital services tax – risking the wrath of Donald Trump.

Digital businesses such as social networks, search engines and online marketplaces must pay a 2 per cent tax on their UK revenues from April 1, which is expected to raise £500million a year by 2023-24.

It comes after anger over the amount of tax paid by US firms such as Amazon and Google, with critics saying they shift profits to minimise bills.

Trump claims such levies unfairly target American businesses and has threatened to retaliate by imposing trade tariffs.

 

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