UK companies to get £27bn investment tax relief

British companies will receive PS27bn tax relief over the next three year to encourage investment. This is part of the government’s efforts to kick-start economic growth.

Jeremy Hunt, chancellor, laid out plans to make the UK the best place for European companies to locate, invest, and grow in his Budget. He also included incentives to offset the largest rise in corporation taxes in over four decades.

Hunt was criticised by some Conservative MPs because he proposed to raise the corporation tax rate, but he tried to convince more skeptical voices by announcing PS9bn a full year of “full expense” for capital investments by UK companies.

Businesses will be able to deduct all investment costs from their tax liability over three years, which will take effect April 1.

Companies can save up to 25p per PS1 on their taxes if they invest in qualifying expenditures until March 31, 2026.

Fiscal watchdog the Office for Budget Responsibility stated that the policy would increase business investment by around 3% every year for the life of the program.

Matthew Fell, interim director general of the CBI, stated that full expensing would keep the UK at “the top table for investment attraction and put us on a necessary path to a more productive economic economy.”

According to the employers’ group, a permanent version — Hunt stated Wednesday that he would implement it “as soon” as he can responsibly — could increase gross domestic product by up 2 percent, or PS50bn by 2030-31.

Kitty Ussher (chief economist, Institute of Directors), a business group, stated that the scheme simplifies the system, removes the confusion, and incentivises investments by reducing upfront cash flow risk.

The government believes that tax cuts will reverse the slowdown of business investment after Brexit. Executives warn of the negative effects of this decline on economic growth, and they are working to improve productivity.

According to government statistics, business investment in the UK accounted 10 percent of the GDP, compared with the OECD average 12.5 per cent in 2021.

Hunt confirmed Wednesday that he plans to increase corporation tax from 19% to 25% in April. A 130 per cent “super deduction” tax credit for capital investment, which has been in place since 2021 will also end.

Business leaders had warned before the Budget that the UK would be one of the most inefficient countries in the OECD for business investments. They lobbied for a replacement for the super-deduction system.

The government stated that the UK would have the highest net present value of capital allowances in OECD countries, alongside the US, under full expensing.

Hunt was a key figure in encouraging companies to have economic optimism, and to incentivise them in investing in their operations in a time when there were rising supply and labour costs and worries about consumer spending.

The Federation of Small Businesses stated that Hunt’s announcement was not final and small businesses would continue to face the highest tax burden since 1948.

Martin McTague was the national chair of the group. He stated that Hunt had “high expectations” for small businesses during difficult times, but the Budget would leave many feeling “shortchanged” and “left behind”, compared to big companies.

Stephen Phipson is the chief executive of Make UK. He said that while he appreciated the government’s efforts to increase investment, he was disappointed that the government did not extend support for energy bills to companies.