HM Revenue & Customs (HMRC) has recently reported a significant increase in Corporation Tax receipts for 2022/23.
The receipts have risen by £17.3 billion, reaching a record £84.7 billion. This represents a 26 per cent increase on the previous tax year, which is a substantial figure by any measure.
This rise in takings occurred in the year before the increase to the main rate of Corporation Tax and the introduction of marginal tax relief, so a further surge may be recorded in the current tax year.
Cash flow concerns
One of the immediate impacts of increased Corporation Tax receipts could be on the cash flow of businesses. Higher tax liabilities mean that companies will have less cash available for other operational needs, such as expansion, recruitment and/or research and development.
When cash flow becomes a concern, it is important to be reviewing your numbers regularly, and to understand what exactly they are telling you.
Talking to your accountant can ensure that you have the right processes and strategies in place to respond to cash flow challenges, and to take advantage of the tax reliefs and advantages that may be available to you.
The increase in Corporation Tax could also affect investment decisions. Businesses might be more cautious about making significant investments in new projects or technologies due to reduced cash flow. In turn, this could potentially slow down innovation and growth in the long term.
With support to manage your finances effectively, and to look at the bigger picture, you can begin to identify opportunities for growth where you may not have previously thought growth would be possible.
Working alongside your accountant, you should be able to ensure that any growth or development you pursue is sustainable and a good business decision.
Strains on smaller businesses
Small and medium-sized enterprises (SMEs), which often operate on slim margins, could be hit harder by the rise in Corporation Tax.
The added financial burden could potentially give rise to layoffs, the need to consider reduced hours or, in extreme cases, closures.
If you have concerns about the impact of increasing tax liabilities on your business, it is essential that you seek advice early on to avoid unnecessary consequences.
The outcomes of higher tax receipts for the nation
The increase in Corporation Tax receipts is a double-edged sword; while it indicates a stronger economy and provides the Government with additional revenue, it also poses challenges for businesses.
In order to accommodate the increase, businesses should ensure that they are prepared for additional Corporation Tax payments, and that they take steps to maintain their financial health.
To discuss the recent changes to Corporation Tax, and how your business has been or may be impacted, contact us today.