£1.5 Billion Corporation Tax Hike Could Cripple Struggling Scots’ Businesses Warns Expert

Date Posted: 3 Mar, 2023

Scotland’s business community will be under pressure to find an extra £1.5 billion per year of Corporation Tax payments by 2025/26 following a 31.58% proportionate increase in the Corporation Tax rate due to take effect in April.

Corporation Tax, which is currently 19%, will rise to 25% on 1st April and will raise an estimated additional £1.2 bn in the first year, rising to £1.5 by 2025/26.   It is estimated that Scotland currently contributes around £5 bn in corporation tax per annum – the UK figure is around £68 bn per annum, equating to 2.9% of UK GDP.

A leading 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 £18 bn per annum by 2025/26 and we estimate that Scotland’s annual share by that point will be nearly £1.5 bn.

Nicola 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 2 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.”

Nicola Campbell 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

If you have any questions on the Corporation Tax increase or utilising any of the reliefs mentioned above, contact Nicola Campbell, nicola.campbell@azets.co.uk or call 0141 886 6644.