With the Budget fast approaching and as the UK recovers from the coronavirus (COVID-19) pandemic, Chancellor Rishi Sunak has some tough decisions to take as national debt is 100% of GDP. Tax rises are never popular, but Mr Sunak will have to take action to balance the books. 

Here we consider what we already know is going to happen and some things the Chancellor may have on his agenda. 

Corporation tax hike

The current rate of corporation tax is set at 19%. For the Financial Year beginning from 1 April 2023, the corporation tax main rate for will be increased to 25% applying to profits over £250,000.

A small profits rate (SPR) will also be introduced for companies with profits of £50,000 or less so that they will continue to pay corporation tax at 19%. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective Corporation Tax rate.

National insurance rises

The government previously announced a 1.25 percentage point increase in NICs with the extra contributions being ear marked to pay for increased spending on health and social care. Changes to the rules will also bring those who continue to work past retirement age within the scope of NICs.

Dividend tax rates increasing

The government has previously announced a 1.25% increase in dividend tax rates from 1 April 2022, taking rates to: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers. Taxpayers will continue to receive the £2,000 dividend allowance.

Changes to basis periods

The government is consulting on proposals for income tax basis period reform, which would mean changes for unincorporated businesses that do not have either 31 March or 5 April year ends. This change is being suggested to make the introduction of Making Tax Digital for Income Tax, implementing quarterly returns from 6 April 2024, more straightforward.

Business rates system set for reform

The government is expected to publish the Business Rates Review later this year, the publication having been delayed due to COVID-19. It will be interesting to see what the government announce on this reform.

VAT rate for the tourism and hospitality sectors

The VAT rate for restaurants, pubs and holiday accommodation increased from 5% to 12.5% on 1 October. This 12.5% rate is due to increase to the standard rate of 20% from April 2022. Businesses in the hospitality and tourism sector have asked for the rate to be frozen at the current rate of 12.5% to support recovery from the Covid-19 pandemic.

Read our Budget Newsletter on the announcements the Chancellor makes, and what these changes will mean for you and your business later this week.