Chancellor Rishi Sunak has announced he is increasing corporation tax from 19 per cent to 25 per cent.

In the Budget today, Sunak outlined that corporation tax will rise to 25 per cent from April 2023.

Given the amount of government support for businesses during the Covid-19 crisis, Sunak said it was “fair and necessary” to ask them to contribute to the recovery.

He acknowledged that such moves “might not be popular but are honest” given the state of the public finances.

Even after this change the UK will still have the lowest corporate tax rate in the G7, Sunak said.

For firms with profits of £50,000 or less, there will be a special rate, remaining at 19 per cent, which will cover some 1.4 million businesses.

There will also be a taper above 50,000, so only businesses with profits above £250,000 will be taxed at the 25 per cent rate, meaning some 10 per cent of companies will pay the full higher rate.

Sunak claimed this meant “any struggling business will by definition be unaffected”.

An increase in the corporation tax rate to 25 per cent was previously expected to raise an additional £12bn a year.

A scheduled 1 per cent increase set to come into place from autumn this year and will raise an additional £3bn. Sunak said this money will help to repay the deficit from government schemes put in place, including furlough, VAT cuts and other loans.

The corporation tax is paid on profits from trading and applies to a limited company or a foreign company with a UK branch or office.

The hike will reverse the cuts previously made under former chancellor George Osborne, which saw corporation tax fall from 28 per cent to 19 per cent.

In the Finance Act 2020, Sunak scrapped a planned reduction in the rate of corporation tax from 19 to 17 per cent, which had been legislated by then-chancellor Osborne in the Finance Act 2016.

Furnley House IFA Paul Fazackerley says: “While not everyone will support raising the rate of corporation tax, the reality is that it’s the right thing to do.

“Corporation tax is a tax on profits, not turnover, so it is only a tax on businesses that are thriving. Businesses have had a lot of support over the last year and there have been more winners than perhaps some people realise. 

“Even after the raise, the UK’s rate of tax cannot be considered high on a global scale, and this change is also one of the simplest to implement, so avoids creating confusion or uncertainty elsewhere.

“The worst thing we could have had was more changes to pensions or savings legislation, particularly with so many people having to adjust their retirement plans due to the pandemic. So a tax that puts more burden on successful businesses without impacting ordinary savers or retirees makes a lot of sense.”