Sharla Dandy, a Partner at Cirencester and Malmesbury accountancy firm, McGills Chartered Accountants, has warned of the “catastrophic” effects of raising Corporation Tax before the economic recovery is cemented.
She said: “Raising the Corporation Tax rate by almost a quarter could have catastrophic effects, possibly shattering the economic backbone of the UK.
“Increasing the rate may result in some businesses closing their doors. For many owner-managed businesses, a tax hike could be the difference between whether they can afford to pay themselves or not, especially after the devastating impact of the pandemic.
“Owner-managers who can no longer afford to pay themselves are likely simply to close their businesses, which is bad for employment, bad for the economy and bad for future tax revenues.
“Meanwhile, even those who can still afford to pay themselves will have less money available to re-invest in their businesses – something that is important for economic growth and employment.”
She said that while she understood why an increase in Corporation Tax might be attractive to the Chancellor as a way of raising revenues, there might be fairer alternatives available that do not penalise crucial small businesses.
“It is time for the two-tier system of Corporation Tax to be reintroduced. There should be a lower rate for small owner-managed businesses and a slightly higher rate for large companies.
“Many small owner-managed businesses have had little to no financial support during the pandemic and to ask them to shoulder a large proportion of the cost of narrowing the deficit is unfair.
“There is also a large difference between the shareholder of large corporates and small owner-managed businesses.
“For the large corporates who may have thousands of shareholders or institutional shareholder, the effect will be slight as investors’ dividend returns reduce.
“However, for small owner-managed businesses where dividends are a shareholder’s main source of income, the effect could be catastrophic,” added Sharla.