The UK Corporation Tax is scheduled to increase next year. This increase will bring the tax burden for many types of companies, but especially the ones in the sectors which are directly related to the tourism industry. As it is, many people will be looking at this news as a possible reason to leave the UK.
It can’t be helped that there has been an increase in the cost of living in the UK over recent years. Many companies have found that the rise in fuel costs has made their current product prices rise significantly. This increase comes at a time when inflation is already high in the UK and is forecast to get higher in the coming months and years. So, the company’s operational costs are already high, so any further rise is going to be hard for them to absorb. This has resulted in many people considering making the choice of moving abroad to one of the countries which are economically stronger and offer better salaries.
The increase in the UK corporation tax comes at a time when the country is undergoing a period of economic recovery, after the global credit crunch that occurred a few years ago. And this recovery has meant that the wages of many workers in the UK are now higher than those countries where they came from. Even with the recovery taking place, the cost of living in the UK is still high by international standards, so for many companies this means an increase in their operational costs. This increase in costs will result in some companies having to reduce staff numbers and this may lead to redundancies in some sectors of the economy.
This means that the corporation tax rate is likely to increase, because they will be paying more in taxes to the UK government. When this happens, the increased rate of taxation will bite into the company’s profits. A company can offset some of the tax increases by reworking some of their activities. However, when the UK government decides to increase its rate it usually results in a cut down in investment in research and development, infrastructure and new business models that could lead to new jobs being created in the UK.
This means that an increase in the UK corporation tax rate could mean that a company in the UK will have to increase its capital, so that it can allow for the additional costs that will be incurred due to the rate increase. The company may decide to move some operations to countries that have lower corporation tax, or they may choose to shut down some of their UK operations and focus their efforts elsewhere. There is also a risk that the UK government will not be able to find money to fund the corporation tax rate hike, so this could lead to an increase in the deficit – which the Bank of England and the government are both trying to avoid at all costs. If this happens then interest rates on official UK loans and credit cards will rise as the Bank of England will be forced to increase interest rates, leading to a further tightening of the financial bubble.
This means that as things stand now with corporation tax, the UK economy could be vulnerable to a severe recession, especially if it is meant to follow the next rate increase. The Bank of England already indicated that it may raise interest rates before the end of the year in order to stimulate the economy. It seems likely that the UK economy will suffer more cuts and blows than they are ready to take due to the lack of political will in the present government. However, by acting swiftly and acting responsibly, the effects of the corporation tax increase on the UK economy can be limited, although it will most definitely affect businesses in the medium term.