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Increase in corporation tax. Unintended consequences.

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Gerry557
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Increase in corporation tax. Unintended consequences.

#392977

Postby Gerry557 » March 6th, 2021, 8:30 am

The budget announcement on a rise in corporation tax appears to fly in the face of previous noises regarding lowering the tax. Mainly becoming a more attractive for companies, increased investment and overall more actual tax brought in.

I know this rise is kicked down the road a bit and lots of water can flow under the bridge by then but how true are some of the claims. The tax did appear to be bringing more money in over the years at the lower rates. Although, as its percentage based if the economy does better then tax take will rise. Would it have been even higher? Had the rate not dropped.

I can see that less tax means more available to potentially invest (or up my dividend) Again any evidence in support of this.

Now onto Unintended consequences. The accounting and tax departments tend to find many legal ways to reduce the overall tax bills and I suspect that this will be give a greater focus in future planning.

Will debt now be increased because it can reduce the tax bill and we end up with distorted companies. It looks like shareholders and the public might both lose out.

I'm sure there are other aspects I've not thought of or taken account of, super deduction or politics. Being seen to do something or steal a position to force the opposition into a different corner.

I have looked at some of my own share holdings and the actual tax had increased so maybe its true. Debenhams or several other companies I could name are unlikely to be paying more or even any at whatever rate is announced.

Views welcome

odysseus2000
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Re: Increase in corporation tax. Unintended consequences.

#394851

Postby odysseus2000 » March 12th, 2021, 10:19 am

This raise in Corporation tax is likely to hit the smaller faster growing companies. As far as I know in the local area, Ireland now has the lowest rates of Corporation tax and these UK moves might cause some business to re-locate to Dublin.

There are long standing debates over the need for growth and lower Corporation tax, verses the need to recover revenue. The Chancellor has sided with the "recover revenue" brigade and has growth forecasts that are circa 1%-ish were has the growth rates in the periods of recovery after the second war were more like 3%-ish.

If the Chancellors measures are enacted and the predictions of low growth rates are correct it will take the UK a very long time to recover from the economic trauma of the pandemic unless the new free ports become great engines of growth.

It looks to me like the Chancellor is not being bold enough and that revisions, such as lower Corporation tax, will be needed to encourage growth.

Regards,

Gerry557
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Re: Increase in corporation tax. Unintended consequences.

#394918

Postby Gerry557 » March 12th, 2021, 1:48 pm

Unless he can then use the argument that the higher tax is resulting in lower revenue and therefore lower the rates again at a later date whist keeping some sort of creditability going about doing the right thing. Plus less opposition from the opposition.

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Re: Increase in corporation tax. Unintended consequences.

#394931

Postby absolutezero » March 12th, 2021, 2:33 pm

There is a possibility these higher corporate tax rates will never see the light of day.
A large amount of lobbying is taking place and if the numbers show the recovery is 'faster than we had forecast so we no longer need to raise tax' then that's that.
Would be very handy just before an election, wouldn't it?


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