Corporation Tax, paid on UK company profits, will rise next month, chancellor Jeremy Hunt has confirmed to Parliament. It will go up from 19% to 25% for companies with over £250,000 in profits, Mr. Hunt told the Commons.
He also announced a new scheme to allow every pound invested by businesses in IT equipment, plants or machinery to be deducted in full from taxable profits.
The tax hike, first announced in 2021 when Rishi Sunak was chancellor, has been a source of much political debate.
Ex-PM Liz Truss attempted to scrap the policy in her mini-budget last September and some Conservative MPs still oppose it.
Delivering his Spring Budget, Mr Hunt said the UK would still have the lowest headline rate of corporation tax in the G7, a group of the world's seven richest nations, even after the rise in April.
He said only 10% of businesses would pay the full rate and anticipated that his new full capital expensing policy was equivalent of a corporation tax cut worth an average of £9bn a year.
He told the Commons it would lead to a 3% increase in business investment a year and without it, the UK would have fallen down international league tables on tax competitiveness and damaged growth.
The full capital expensing policy will mean companies can deduct spending on investment from profits, meaning they have to pay lower amounts of corporation tax.
The policy would be in place for three years initially but the government hoped to make it permanent as soon as we can responsibly do so, the chancellor said.
Independent analysis by the Office for Budget Responsibility (OBR) said that as a temporary measure, it provided a strong incentive for businesses to bring forward any investment that had been planned for a later date.
At its peak, the scheme could see business investment up by about 3%, the OBR report said. However it also pointed out that this was lower than the 5% rise under the super-deduction scheme which this policy replaces.
Mr Hunt made the announcement after he confirmed the OBR forecasts the British economy is to avoid a technical recession in 2023 but contract by 0.2%, before returning to growth in 2024.