Two years' ago I wrote a post entitled "Has the Chancellor really just announced a UK corporation tax rise of over 30%?" the gist of which was that by putting the headline rate of corporation tax up from 19% to 25% without narrowing the tax base the Chancellor was predicting an increase in corporation tax receipts of c. 30% per year. And that contrasted with the approach taken each time the tax rate was gradually cut from 30% to 19%, where each cut was accompanied by a widening of the tax base to ensure that the total corporation tax take remained flat.

So for me the eye catching quote in today's Budget 2023 Red Book was this:

"The UK has one of the most pro-business tax regimes in the world. At 25%, the UK will still have the lowest rate of Corporation Tax in the G7".

Closely followed by this:

"At Spring Budget, the government is going further and announcing a policy of full expensing which will mean that the UK has the joint most generous capital allowance regime in the OECD with a Net Present Value (NPV) of 100%."

Let's unpick the numbers a bit.  

In absolute terms the capital allowance changes (see this post for details) are projected to offset about two-thirds of the impact of the rate rise. The Budget 2021 Red Book projected increased corporation tax receipts as a result of the rate rise of £11.9 billion for 23/24 and £16.3 billion for 24/25. And the Budget 2023 Red Book projects decreased corporation tax receipts as a result of the capital allowance changes of £8 billion for 23/24 and £10.7 billion for 24/25. So a narrowing of the base which partially offsets the rise.

But what's also interesting about the Red Book numbers is that in 2021 the corporation tax take for 23/24 was forecast to be £71.3 billion (as against a range of £40-48bn for the previous 4 years), taking into account the rate rise.  Whereas the forecast take for 23/24, taking into account the latest changes, is now up to £82 billion. We are still on course for a bigger increase in corporation tax receipts in percentage terms than before. As ever for companies and their investors it is the effective tax rate they pay which is key, not the headline rate.  

And that's before you get to the fact that the changes announced at Spring Budget only last for 3 years until March 2026. Hence the impact is predicted to have mostly worn off by 26/27 and then starts to result in increased tax receipts in 27/28 as the timing benefit starts to unwind. Unless the regime is made permanent then it is not going to affect medium to long term investment decisions and the bulk of the relief will go to expenditure which was already committed and would have happened anyway.