Value of UK business tax breaks hits record £105bn in past year alone

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Plans to slash inheritance tax at the Autumn Statement are reportedly being drawn up by No10 and the Treasury.
Plans to slash inheritance tax at the Autumn Statement are reportedly being drawn up by No10 and the Treasury.

The value of business tax reliefs in the UK hit £105.3bn in the past year, up from £100.3bn in 2020-21, shows new research shared with Morning Wire this morning.

The £105.3bn figure represents the combined cost estimated by HMRC for the 58 significant tax reliefs available to corporates.

However, these represent just a fraction of the hundreds of tax breaks that are available to UK corporates. The value of many of these is deemed to be so low as to be negligible, according to the data by Thomson Reuters.

Tax breaks

Making full use of tax breaks will become even more important for UK corporates, which are preparing for an increase in their tax liabilities due to the proposed jump in corporation rate.

The Government announced in the 2021 Spring Statement that the rate of corporation tax would increase from 19 per cent to 25 per cent for businesses with annual profits greater than £50,000 from April 2023.

This is projected to bring in an additional £22bn of revenue for the Treasury, with corporation tax receipts estimated to increase from £48.8bn in 2022-23 to £71.3bn in 2023-24.

Jas Sandhu Dade, Head of Corporates Europe at Thomson Reuters, said this morning that, should the planned rate increase come into effect, corporates will be looking to make the most of tax reliefs that are available to them.

The increasing complexity of the UK’s tax system, which has seen the number of available tax reliefs fluctuate in recent years, has led to calls for greater simplification of the regime.

However, there are concerns that eliminating lesser-used reliefs could put some smaller businesses at a considerable disadvantage and add to their tax burden.Jas Sandhu Dade, Head of Corporates Europe at Thomson Reuters

“The UK’s corporate tax system has undergone numerous changes in recent years and some businesses are struggling to keep up,” Sandhu Dade explained.

“Corporates are only just getting to grips with an increase in National Insurance and now they are having to prepare for a planned increase in corporation tax.”

Jas Sandhu Dade, Head of Corporates Europe at Thomson Reuters

“Tax reliefs play a significant role in incentivising investment and boosting our economy, Sandu Dade continued. “As corporates contend with rising inflation and interest rates, making full use of the various available reliefs will become even more important.”

Examples of tax reliefs that are available to UK businesses are:

  • Capital investment incentives – Various incentives for businesses to invest in capital infrastructure under Annual Investment Allowances (AIA) and additionally enhanced allowances on specific environmentally friendly expenditures
  • Tax grouping – Many mechanisms and reliefs to allow connected companies to transfer losses and assets between member companies, in a tax efficient manner
  • Research and Development – A significantly growing area giving substantial tax benefits to companies doing on-shore research and development activities
  • Creative Industries – Reliefs and credits to encourage the development of UK resident activities around Film, TV, museums, computer games, music etc.
  • Double taxation relief – Mechanisms to give credit to UK businesses for taxes uncured overseas.