As it stands, we already know that, thanks to Rishi Sunak, Corporation Tax is increasing on businesses with profits above £50,000 from April 2023.  The first £50,000 will still be taxed at the existing CT rate of 19%, but then the next £200,000 will be taxed at 26.5%, before the rate reduces to 25% on profits above £250,000.  And there is already a 1.25% dividend tax increase on business owners from April 2022.

This is a massive increase for many self-employed workers and family businesses (imagine the reaction if the government put 7.5% more tax on wages above £50,000!) yet it has received fairly little attention in the wider media.  The exception to this was when the short-lived Liz Truss government tried to cancel the increase on the grounds it was a bad idea to raise business taxes on the verge of a recession.  After the collapse of her government, this type of thinking was described as dangerous or irresponsible and the Corporation Tax increase was reinstated.

The implications are fairly obvious.  Businesses will have to find more money to pay the extra taxes whilst already struggling to pay higher interest charges, higher energy bills, higher overheads as suppliers instigate inflation-led price increases, and higher wages to keep/attract staff in a very tight labour market.  Some businesses will have to make do with less staff, some will need to increase prices to survive, some will go bust, and all will have to tighten their belts.

Another consequence of the tax rises is that once profits exceed £50,000, small companies will know that £1 spent after April 2023 saves more tax than £1 spent before April 2023.  This partly depends on a company’s year end, but I can imagine there will be a motivation to recognise income sooner (perhaps via overly optimistic stock valuations) and costs later (by making purchases later) to potentially save 7.5% tax on a chunk of profit.  This is because when tax changes, behaviour changes.

And finally, people pay taxes because they believe that it is fair that we all put in to pay for things like the NHS, the schools, the police etc.  But when people believe that things are unfair, they sometimes start looking to avoid paying taxes.  We saw this a lot after the MP’s expenses scandal a few years ago, and we might see it again as businesses that had little support during lockdown are being asked to pay the brunt of the resulting tax increases, whilst employees who were generally paid in full – in work or on furlough – during lockdown had their National Insurance increase cancelled.   There is a feeling that we aren’t all in it together.