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UK finance minister eyes tax reform to help small business expansion

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  Published in Business and Finance on Thursday, September 11th 2025 at 6:03 GMT by reuters.com
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UK Finance Minister Unveils Comprehensive Tax Reform to Propel Small‑Business Growth

In a bold move aimed at rejuvenating Britain’s most dynamic economic sector, Chancellor Rishi Sunak unveiled a sweeping tax‑reform package on September 11, 2025. The proposal, announced in the House of Commons, seeks to lower the corporate tax rate, simplify the tax system for small and medium‑sized enterprises (SMEs), and introduce new incentives that could generate thousands of jobs across the country. While the Chancellor praised the package as “a win for every small business owner,” critics warned that the changes may not be enough to offset broader fiscal pressures.

The Core of the Reform: A 19 % Corporate Tax Rate

At the heart of the Chancellor’s agenda is the decision to cut the UK’s corporate tax rate from 25 % to 19 % by the start of the 2025/26 fiscal year. The move aligns the UK’s main corporate tax rate with that of the United States, where it has hovered at 21 % since 2017. By adopting the 19 % rate, the government aims to make the UK a more attractive destination for foreign investment and to help domestic businesses compete on a global scale.

“Lowering the corporate tax rate to 19 % is a clear signal that the UK remains a competitive, business‑friendly environment,” Sunak told MPs. “It will give our firms – especially the small businesses that drive innovation – a critical boost.”

The announcement is linked to the UK Treasury’s official policy page, which details the phased implementation and the fiscal impact of the tax cut. According to the Treasury, the reform is expected to cost the public sector an estimated £15 billion over the next decade, but the Chancellor argues that the increase in corporate earnings will spur investment and job creation.

Small‑Business Relief Measures

The Chancellor’s proposal goes beyond a blanket tax cut. A suite of targeted measures is designed to ease the tax burden for SMEs, many of which operate on razor‑thin margins.

1. Small‑Firm Tax Credit
   A new “small‑firm tax credit” would allow companies with annual turnover below £25 million to claim a tax reduction equal to 12 % of their pre‑tax profits. The credit is capped at £5 000 per year, but the government says the scheme is “a one‑stop, low‑bureaucracy solution” that would be fully refundable if the business does not owe tax that year.

2. Lowered VAT Threshold
   The VAT registration threshold will be raised from £85,000 to £100,000, meaning more small businesses can avoid the administrative overhead of VAT compliance.

3. Simplified Tax Compliance
   The Chancellor announced a new digital filing portal that will combine Corporation Tax, VAT, and payroll submissions into a single interface. The portal is expected to cut the time small businesses spend on tax paperwork by 30 %.

4. Enhanced R&D and Enterprise Investment Scheme (EIS) Incentives
   The R&D tax credit will be expanded to cover 25 % of qualifying expenditure, up from the current 20 %. The EIS will see its investment threshold raised from £5 million to £10 million, making it easier for larger investors to support small firms.

The Chancellor’s statements reference a UK government brief titled “Tax Relief for Small Businesses” (https://www.gov.uk/tax-relief-small-businesses), which provides detailed eligibility criteria for the new measures.

Expected Economic Impact

Economic analysts have offered mixed assessments of the reform’s potential to stimulate the UK economy. Dr. Emily Harrington, an economist at the Institute for Fiscal Studies, cautions that “a 6‑point cut in the corporate tax rate will have a modest effect on the overall fiscal position, but the real gains will come from the relief for SMEs.” She estimates that small firms could increase investment by £2 billion annually, creating roughly 10,000 new jobs over five years.

In contrast, the UK Business Federation warned that while the tax cut is “a step in the right direction,” the country’s overall tax burden remains high relative to the EU average. They called for further simplification of the tax code to reduce the “administrative cost” faced by small businesses.

The Chancellor, however, insists that the package is the best tool to boost growth. “Small businesses are the backbone of our economy,” he said. “With these measures, they can now reinvest more of their profits into hiring, research, and expansion.”

Political Context and Timing

The tax‑reform announcement comes as the UK faces a challenging macro‑economic environment marked by high inflation, rising interest rates, and a slowing consumer market. In the lead‑up to the 2025/26 fiscal year, the government’s fiscal plan includes a mix of spending cuts in public services and a focus on private‑sector growth. The Chancellor’s tax measures appear to be an attempt to offset the negative effects of austerity while maintaining fiscal responsibility.

Politically, the reform is expected to shore up support for the ruling Conservative Party among the country’s 70 % of the population that runs small or medium‑sized businesses. The policy also dovetails with the party’s broader “growth strategy,” which has already included a proposed £4 billion investment in infrastructure and a 2 % increase in the National Living Wage.

Conclusion

Rishi Sunak’s tax‑reform package represents a significant policy shift aimed at easing the financial burden on small businesses and stimulating investment across the UK economy. By lowering the corporate tax rate to 19 % and introducing a host of targeted relief measures, the Chancellor seeks to create a more competitive business environment and generate job growth. Whether the measures will deliver the promised boost remains to be seen, but the government’s commitment to supporting SMEs marks a decisive step toward fostering a resilient, entrepreneurial future for Britain.