From 1 April 2023, the UK will increase the main rate of corporation tax from 19% to 25%. April also sees the introduction of a 19% small profits rate of corporation tax for companies whose profits do not exceed £50,000.

On 14^th October 2022, the UK Government announced that Corporation Tax will increase in a move expected to raise around £18 billion towards its full Medium-Term Fiscal Plan.

According to Gov.uk, the decision to increase taxes for businesses was taken “in recognition of the need to ensure the UK’s economic stability and reassure markets of its commitment to fiscal discipline”.

What does it mean for UK business?

UK-based businesses have responded. In answer to the news of the increase, the CEO of influential BritishAmerican Business, Duncan Edwards, said, “Raising taxes on businesses and employment will reduce Britain’s ranking in the global competition for investment.” Adding, “It is disappointing to see today that corporation tax will indeed rise to 25% in April next year.”

The Times newspaper also reported that “Companies ‘will quit UK’ over Sunak’s corporation tax rise” in an article that warned of ‘grave risks’ to the UK’s competitiveness. In a piece published in December, The Financial Times forecast a gloomy outlook for 2023 and predicted further tax rises, “Business leaders need to start talking about the fact that big tax rises, beyond the ones already in the pipeline, are quite likely.”

Tax rise hits investment

The impact of the corporation tax rise is beginning to show. Drug maker AstraZeneca says the UK’s business climate is deterring pharma companies from investing in the country. In a recent statement, its Chief Executive Pascal Soroit gave a list of reasons for the decision to shift plans for a new manufacturing plant from UK to the Republic of Ireland. At a news conference, he said: “We want to invest in the UK... “In fact, lately, we’ve made a $400 million [€372 million] investment in a state-of-the-art manufacturing facility which we wanted to make in this country and we made in Ireland because the tax rate was discouraging,” he told the briefing.

In mid-February, seven top Tory backbenchers and business owners, including Wetherspoons boss Tim Martin have written to the Prime Minister urging him to scrap the planned six per cent rise. In the note, written by former Brexit minister David Jones, the seven MPs say the rise will see the UK lose out on “potential new jobs and higher national output”.

UK Economic slowdown

On January 31^st 2023, The Telegraph reported the “UK is on course to be the only major economy to shrink this year owing to Jeremy Hunt's tax raid and higher borrowing costs, according to the International Monetary Fund.” Their article was off the back of the IMF’s decision to downgrade the UK growth forecast by more than any other G7 nation.

Lower corporate tax rate abroad

Many countries have opted for a similar rate of corporation tax as a strategy to accumulate large tax revenues. But not all countries have opted to raise taxes. Certain countries - typically smaller jurisdictions – that charge lower rates of corporation taxes, like the British Overseas Territory Gibraltar, specialise in attracting inbound investment. These smaller countries understand that increasing tax rates doesn’t translate into increased tax revenues.

Gibraltar’s corporate tax rate is 12.5% on profits that accrue or derive in Gibraltar. In addition to the low base corporate tax rate, there are many other advantages to relocating your business to Gibraltar. Alongside its corporate tax offerings, Gibraltar has a number of personal residency packages, too, making it an attractive option for many.

There are a number of options available when it comes to relocating a business to Gibraltar, including moving part of its UK-based operation if moving the entire business is not possible. The Gibro Group has been advising individuals and businesses on Gibraltar Residency for over 40 years and can advise on all tax-related matters.