By Scott Wright

CHANCELLOR Rishi Sunak’s decision to hike UK corporation tax to 25 per cent from 2023 took business groups by surprise with the scale of the increase.

Mr Sunak declared the rise in the tax, currently set at 19%, would mean that the UK still had the lowest rates within the G7 group of countries, telling the House of Commons that the 25% rate is lower than in the US, Canada, Italy, Germany and France.

However, while a rise in corporation tax had been anticipated, the level of the increase caught business lobby groups off guard.

Mr Sunak moved to soften the blow with the introduction of a new, tapered system for taxing the profits of small businesses. The Chancellor announced firms with profits of £50,000 or less would continue to be taxed at 19% under a tapered system which will mean that only those which achieve profits of £250,000 or more will be taxed at the 25% rate.

And he also unveiled a “super-deduction”, a tax incentive to stimulate flagging levels of business investment in the UK. Heralded by Mr Sunak as the “biggest business tax cut in modern British history”, it will allow firms to reduce their taxable profits by 130% of the cost of capital investments for the next two years.

Tracy Black, director of the Confederation of British Industry in Scotland, said: “The super-deduction should be a real catalyst for firms to green-light investment decisions. The boldness of the Chancellor on this measure is to be admired. But moving corporation tax to 25% in one leap will cause a sharp intake of breath for many businesses and sends a worrying signal to those planning to invest in the UK.”

The CBI’s concern over the rise in corporation tax was echoed by British Chambers of Commerce, though director general Adam Marshall said the blow would be softened by other measures to support business. He said: “While no business will relish paying higher rates of corporation tax in future, the impact of the Chancellor’s tough decision is blunted by the big new incentives for investment, lower rates for the smallest firms, and the extension of coronavirus support measures in the short term.”

Business groups were supportive of measures announced by Mr Sunak to help firms and their employees through to the end of the crisis.

The extension of the furlough scheme to the end of September, with employers to pay 10% of employee costs from July, rising to 20% in August and September, was welcomed, as was the move to extend the reduction of value-added tax for the hospitality sector.

The rate of VAT for the hospitality industry will remain at 5% until the end of September, before reducing to an interim rate of 12.5% for a further six months after that. It will return to 20% in April 2022.

A new scheme to replace bounce back loans and coronavirus business interruption loans was also launched.

The Chancellor said businesses of any size will be able to apply for loans from £25,000 up to £10 million this year, with the Government providing lenders a guarantee for 80% of the value.

Donald Boyd, partner at accountancy firm Azets, said the new scheme “will help those businesses who have either not borrowed enough cash under the existing CBIL arrangements or where they depleted their cash reserves over the last 12 months.”