It has been widely reported that he will increase corporation tax from 19% to as high as 25% when he announces his budget tomorrow. The move will, in effect, return the UK to levels of corporation tax not seen for nearly a decade.

The increase will place the main burden of paying the coronavirus measures, including the furlough scheme and hospitality grants, onto businesses. Whilst it has been met with some scepticism from Conservative backbenchers and business leaders, this increase may also deter successful enterprises from reinvesting large proportions of profits back into healthy businesses.

The importance of understanding innovation

We spoke to our Senior Financial Advisor, Rob Elliot, to see how he thought the budget announcement may impact businesses and, of course, the R&D Tax Credit Scheme.

“Although there is an argument this will harm the UK’s recovery by discouraging inwards investment and hitting net profits; it will put greater emphasis on the importance for businesses to look to tax relief schemes already in play.”

“Vast numbers of UK companies will be unaware that the activities they are undertaking can qualify them for R&D tax relief. Either they are simply unaware of the scheme or they think it is only accessible by companies in certain industries.”

The rise in corporation tax will also make the existing scheme more lucrative. “Under current R&D tax relief rules, profit-making companies would be able to claim back nearly 30% of their qualifying costs by 2024 when CT reaches 23%.

As a result of the pandemic, many firms will have changed their business model altogether to cope with the new environment.

Businesses will have needed to improve efficiencies or reduce costs or seek innovative ways to grow their business in a recovering economy.”