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UK Corporation Tax Cuts to Cost the Economy Billions

Contributed by Sussex SEO
May 2, 2019

In 2020, there will be a corporation tax reduction which was agreed upon in 2016. This will come into full force in the new financial year starting on 1 April 2020. But, a year out, there have been many questions as to the benefit of this tax cut (from 19% to 17%) and the effect it will have on the British economy.

Some estimates, notably made by HMRC, have put the cost of this tax reduction at around GBP6.2 billion - per year. For something that has been stated by the government to create revenue, the concern surrounding the impact of this tax reduction is more than understandable.

Why Will the Tax Cut Cost?

Though it will save businesses across the country money, the cost to the public will, apparently, be great. But, why is this the case?

The fact is that a lower corporation tax will inevitably lead to lower receipts. Though the counter-argument to this is that it will make the UK a more attractive investment opportunity which may benefit commercial property management opportunities and so on (leading to more revenue), or is a reflection of the belief that corporate profits are growing at a steady enough rate to support this cut.

Why is Corporation Tax Being Cut?

In the developed world, the UK already has one of the lowest corporation taxes at 19%. But, this further cut does reflect a seemingly overall trend towards such cuts. Since 2000, corporation tax across nation's has fallen on average by around 8%. So, why is it being cut even further?

The long-term aim of a lower corporation tax is to reinvest money into business, secure the creation of more jobs and allow for a wage increase. All of which will then be cycled back into the economy - meaning this supposed GBP6.2bn loss will not be as massive as forecast. Stronger business makes the UK a more investible entity for international business as well, which is then hoped to bolster the economy even further. But, despite government claims there is no firm evidence that this will actually be the case in the long run.

The increase to corporation tax is also being accompanied by clamping down on corporation tax evasion. Another way in which the forecast will be reduced when it comes to the figures in reality.

Are Businesses Paying More Corporation Tax Than Ever Before?

No. At least, not if inflation is taken into account according the The Independent. For example, in 2008 corporation tax amounted to GBP47bn paid by businesses in the UK. Taking inflation into account, this amounts to GBP61bn. And last year corporations only paid GBP56.2bn in corporation tax. Meaning, relatively, they are actually paying less than ever before. This cut, then, rather than a boon to companies being affected by heavier rates is only improving an already positive economy in which to run a business.

Final Thoughts

Overall, though the estimates are quite astonishing, there is no way to know the true effect of the new corporation tax until it comes into effect. But, it is important to be well aware of it before the fact. So, save the date: 1 April 2020.


Tags: United Kingdom | corporation tax



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