In the latest showing of the current level of instability in taxes and politics, Prime Minister Liz Truss was forced to reverse the decision to cancel the increase in Corporation tax to 25% on companies with taxable profits above £50,000 from April 2023. This marks the second such U-turn by the government in the last 2 weeks, following on from the decision to reverse the scrapping of the reduction in the additional higher rate of income tax to 40% from 45%.

The 23rd Sept mini-budget announced a host of tax cuts to the tune of £45 billion which were expected to be funded by debt which sent the market for government bonds, also known as gilts, into turmoil. Investors are concerned about the financial stability of the UK and the market rise in yields on gilts, which are inversely correlated to gilt prices, demonstrates the sell-off of gilts. The Bank of England had initiated a bond-buying programme which was intended to stabilize the prices, but this is due to end today. This is despite pension funds urging the BoE governor Andrew Bailey to continue it at least until 31st Oct when the government is planning to release a plan on bringing down the level of debt.

Today’s decision to re-assure the markets of the financial credibility of the UK by reversing the decision to scrap Corporation Tax rises was still insufficient given that the reaction to the reversal was a continued sell-off in gilts. This indicates markets and investors believe the decision doesn’t go far enough to ensure the books will be balanced. Further action will need to be taken by the new Chancellor Jeremy Hunt following the sudden sacking of Kwasi Kwarteng.

Businesses have been concerned about how they will cope with the decision to return to the decision to have Corporation Tax at 25% from April given no simultaneous incentive for investments to be made such as the Super-Deduction scheme which is due to end in April 2023. It offered businesses the opportunity to claim 130% of the cost of their investment in plant and machinery against taxable profits. The current instability in policy has also created a problem for business planning as firms with investment plans based on the earlier decision to maintain Corporation Taxes at 19% must now reconsider whether they wish to commit their finances to the UK long-term.

Banks have also argued that the decision to increase Corporation Tax to 25% should lead to a review of the Banking Surcharge of 8% which makes their effective rate of Corporation Tax 27% (33% from April 2023 unless the surcharge is reduced). They have argued that previous Chancellor Rishi Sunak had proposed reducing the surcharge to 3% from 8% once the higher rate of Corporation Tax kicked in from April 2023 to maintain the competitiveness of the UK Financial Industry. However, no such decision has been made by the extant government.

Struggling to navigate and plan your business’s future amidst the current instability? Seeking the help of a qualified accountant who understands the impact of taxes on your business and can enable you to optimise your tax strategy? Then look no further than Cheylesmore Accountants. With over 100 5-star reviews on Google and a proven track record for client satisfaction through high-quality work and excellence in customer service, you can rest assured that your accounts are in safe hands.

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Guilt market operation, an attempt to restore market condition!