It appears that the planned government cuts to UK corporation tax may cost even more than expected. In fact, it is possible that it will cost the public billions of pounds more in lost revenue.
The current tax rate on overall company profits is 19%, but it will soon be lowered to a mere 17%. This will result in one of the lowest corporation tax rates in the Western world.
A Look at the Data
Experts have previously said that this decision would be a big expense for the public purse – but a new analysis from HMRC data has found that the loss of revenue could end up costing over six billion.
The estimate from HMRC was recently raised by 1%, which increased the cost from £2.8 billion per year up to £3.1 billion per year. This means that the current plan to reduce taxes by 2p for every £1 will cost around £6.2 billion per year in total.
The estimates for this cut have been rising ever since they were first announced in 2016. In fact, the initial estimate was much lower, at around 4 billion. Other experts thought the number could be even lower, with some experts suggesting the tax cuts would cost the public around £2 to £3 billion. This shows a significant increase in costs to the public, which has caused a ripple of worry across the country.
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Issues with the Planned Tax Cuts
The rising costs have seen mounting opposition, and the new figures could lead to even more opposition. This is because the UK’s public finances are already under strain from a disorganised Brexit, so further tax cuts could cause even more strain.
This is especially true for Labour financial advisors; Rupert Harrison (who was George Osborne’s former advisor) stated that “hard to see why” these corporation tax cuts “are good value”.
Labour have also said that they would reverse the tax cuts to ease the strain on public spending. However, the current government believe that they will collect more corporation tax in 2020 than they expected a year ago – even with the planned cuts.