McDermott Comment I Rishi Sunak Eyes UK Corporation Tax Rises in His March Budget
Sarah Gabbai, attorney at law firm McDermott Will & Emery, said:
“While £12bn is not an insignificant number in terms of revenue, one would also need to consider the potential deterrent effect that a corporation tax hike would have on inward investment into the UK, and related consequences for the economy.
Also, while the measure would only affect profitable companies, such as those in the technology sector or with highly digitalized businesses, many larger loss-making UK companies and groups that become profitable again in the next few financial years will be hurt by it. Even if they have significant accumulated brought-forward losses due to COVID-19 business disruption, the ability to utilize those losses may be limited, particularly if they also have significant amounts of debt, whose interest deductions may also be restricted under UK rules.
The move could also be perceived as inequitable by owner-managed businesses. Even if they have sufficient brought-forward losses to shelter taxable profits, business owners have generally been ineligible to benefit from the SEISS or the CJRS, so they may view this measure as potentially paying a price for a benefit that they have not received.”
James Ross, partner at law firm McDermott Will & Emery, added:
“The corporation tax rate cuts in recent years have been accompanied by significant broadening of the tax base, so the overall tax burden for many companies has not been reduced. So it is not fair to characterise a corporation tax rate increase as putting us back to where we were before the rate cuts of the last ten years – many companies will be paying significantly more tax on the same profits than they would have done then.”