Almost half (46%) of mid-sized businesses will delay business investment as a result of the recent rise in corporation tax, but the Budget announcements on childcare and capital allowances have been warmly welcomed, according to the latest survey from accountancy and business advisory firm BDO.

In BDO’s survey of more than 500 mid-market businesses, around two fifths (39%) of respondents also reported that the recent rise in corporation tax would lead to either redundancies or a slowdown in hiring. The same percentage warned that the tax hike would lead to a reduction in profits paid out to shareholders. Worryingly, almost a third (31%) said the uplift in corporation tax had prompted them to consider leaving the UK.

The headline rate of corporation tax rose to 25% at the beginning of April 2023, up from 19% in the 2022-23 tax year. While many businesses had hoped the Chancellor would publish a roadmap at the Spring Budget setting out a phased reduction in corporation tax rates, no such announcement was forthcoming.

However, other Budget measures were more warmly welcomed by the mid-market business community.

Almost nine in 10 (88%) of mid-sized businesses surveyed thought that the proposals for enhanced childcare support announced in the Spring Budget will make it easier for them to recruit once the new rules take effect. The current plan is for the policy to be rolled out in stages and by September 2025, it is envisaged that all working parents in England will be able to access 30 hours of free childcare per week, for 38 weeks of the year, from when their child is nine months old to when they start school.

The reaction to the new capital allowances regime has also been positive with over two thirds (68%) saying that the new rules which give businesses a 25% subsidy to buy new plant and machinery would lead to them to invest more in equipment.

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Over half (57%) of businesses also welcomed the one-year extension to R&D rules which will enable them to continue to claim tax relief for the costs of R&D work subcontracted out overseas. The fact that only one third of businesses (32%) said they had switched their R&D work back to the UK suggests a majority were prepared to continue outsourcing overseas for cost reasons despite not getting any UK R&D relief for it. 

BDO tax partner, Paul Falvey, said: “Pre-Budget, many in the business community made their feelings clear that they would like to see a reversal of the rise in corporation tax. The Government has so far stood firm, but the Chancellor’s recent remarks on business taxes being too high suggests he might reconsider this position at the next Budget.

“Our survey indicates that the recent rise in the headline corporation tax rate will dampen current business investment plans although the positive reaction to the new ‘full expensing’ capital allowances regime suggests this may only be a short-term effect. It has also highlighted a high degree of concern about the international competitiveness of the UK’s corporate tax regime.

“That said, the survey does show an enthusiastic reception from businesses to the plans for greater childcare support for working parents. This should be a game changer for businesses seeking to recruit and retain talent.”