Yahoo Finance Budget 2021: UK government unveils tax rise plans and dates
Watch: Chancellor announces that corporation tax will increase from 19% to 25% in 2023
UK chancellor Rishi Sunak unveiled a raft of tax hikes across multiple areas and what dates they will be implemented.
Corporation tax and capital gains tax are central to the government's plan to help address the deficit that is on its way to £400bn ($559bn) this year.
Corporation tax
In the budget announced on Wednesday, he revealed corporation tax will increase from 19% to 25% in 2023.
"This new higher rate won’t take effect until April 2023, well after the point when the Office for Budget Responsibility expect the economy to have recovered," he said.
According to Sunak, because corporation tax is only charged on profits, any struggling businesses will automatically be unaffected.
He said he is also protecting small businesses with profits of £50,000 or less, by creating a small profits rate, maintained at the current rate of 19%.
"This means around 70% of companies — 1.4 million businesses — will be completely unaffected," he said.
The government will also introduce a taper above £50,000, so that only businesses with profits of £250,000 or greater will be taxed at the full 25% rate.
"Our response to coronavirus has been fair, with the poorest households benefiting the most from our interventions. And our approach to fixing the public finances will be fair too, asking more of those people and businesses who can afford to pay and protecting those who cannot," said Sunak.
Capital gains tax
Meanwhile, the capital gains tax, which it was thought would be increased and brought in line with income tax, will not be hiked imminently.
The chancellor also said he will not raise income tax, national insurance or VAT, and will freeze the personal tax threshold
Capital gains changes hit the wealthy, including those who own shares and second homes.
Income tax and VAT thresholds
Sunak confirmed that the threshold for paying the basic rate will rise to £12,570 next year while higher-rate payers will have a threshold of £50,270.
Both rates will stay the same until 2026.
The VAT registration threshold will remain at £85,000 until 2024.
“The fact that we have not seen an increase in capital gains tax rates will no doubt be a cause for relief for many taxpayers," noted Helen Coward, Partner at law firm Charles Russell Speechlys.
"However, given the unprecedented public finance situation it does not seem likely that this situation will continue forever. Taxpayers should look ahead to future possible rate rises and consider how any such change might impact on them," she warned.
Earlier, The Treasury Select Committee, the Labour party, and many leading economists had said now is not the right time to increase taxes. They believed the chancellor should wait until a recovery is underway.
“With our public finances on an unsustainable long-term trajectory, our clear message is that Budget 2021 is not the time for tax rises or fiscal consolidation, which could undermine the economic recovery," committee chair Mel Stride MP said earlier in the week.
"But we will probably need to see significant fiscal measures, including revenue raising, in the future," he added.
Back in November, the UK Office for Tax Simplification had urged the chancellor to raise taxes on stock sales, second home disposals, and inherited property, in a radical overhaul that could help pay for the government’s COVID-19 response.
READ MORE: Targeted tax rises won't derail COVID recovery, UK chancellor told
It said the government should overhaul capital gains tax to bring it in line with income tax. The report also called for the current annual capital gains tax allowance to be drastically reduced.
Sunak has said in the past he is keen to begin addressing the UK's £400bn budget deficit and £2tn national debt as soon as possible.
"Well the right thing to do right now is to support the economy, but I also want to level with people about the challenges we face," Sunak told the BBC's The Andrew Marr Show earlier in the week.
"Coronavirus has had an enormous shock both to our economy and our public finances and I think it’s right to be honest with people about that challenge and be clear about what our plan to address that is."
Think tank IPPR said last week that increases to wealth taxes, capital gains tax, corporation tax, and land value tax would not derail any economic recovery.
Wednesday's budget marks a pivot point as the government begins to shift focus from protecting the UK's economy towards fostering a bounce back.
Watch: Why UK tax hikes seem inevitable
