Spring 2023 Budget - Chancellor must act on Corporation Tax and Super Deduction

Following on from Chancellor outlining his economic plans for the upcoming Spring 2023 Budget on 15 March, Chris Denning, Head of Corporate International Tax at MHA, calls for a reversal of the government’s proposed corporation tax rise and for a replacement for the soon-to-expire super deduction to prevent the UK’s economy stagnating in 2023.

Unless the Chancellor drastically revaluates the proposed hike in corporation tax and replaces the super deduction (which expires at the end of March), the UK risks generating little to no growth in GDP this year.

Raising corporation tax to 25% may boost the treasury’s coffers, however it is a short-sighted measure that will ultimately dampen investment and productivity at a time when the UK faces high inflation and an impending recession. To restore confidence across the economy and incentivise greater investment from businesses, corporation tax must be depoliticised, with the UK put back on the roadmap to 17% corporation tax and certainly not more that 20%.

There may be some debate as to whether the super deduction increased investment or simply prevented people deferring expenditure until tax relief could be obtained against a higher corporation tax rate but, notwithstanding, tax relief on capital expenditure is a key factor in making investment decisions. Credible studies have concluded that a fully expensed deduction for capital expenditure (i.e. 100% write off in year of expenditure) will increase investment so the Chancellor should be bold and introduce an uncapped, fully expensed deduction for expenditure on plant and machinery. The same level of tax relief should also be extended to include building structure investments (excluding dwellings), which make up a significant proportion of the UK’s capital stock.

Both reversing the corporation tax rise and filling the void from the end of super-deduction would reduce the effective tax rate on investment and increase investment and wages across the economy boosting GDP. The Chancellor must prioritise both in the March budget and to restore some semblance of confidence to UK businesses.

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