Corporation tax

Corporation tax – the tax companies pay on their profits – has been a hot topic in Scotland over the past few years. Although corporation tax rates are set by the UK Government (making it a reserved matter rather than devolved to Holyrood), the effects are keenly felt by Scottish businesses and industries. From the first hike in the headline rate in almost half a century to intense debates over windfall taxes on North Sea oil profits, recent developments between 2023 and 2025 have sparked discussions about competitiveness, public finances, and Scotland’s economic future.

A Historic Tax Rate Rise and Policy Shifts

In April 2023, the UK’s main corporation tax rate jumped from 19% to 25% for companies with large profits. This was the first increase in 47 years. The policy had been legislated back in 2021, but its journey was dramatic. A 2022 “mini-budget” tried to cancel the rise before market turmoil forced a U-turn.

From the 2023/24 tax year, firms earning over £250,000 in profit now face a 25% tax on those profits. Smaller businesses are shielded: companies with profits below £50,000 continue to pay the Small Profits Rate of 19%. This two-tier system softened the blow on SMEs, and ministers highlighted that most companies would not see any increase at all.

Despite the 6-point jump, business groups noted the UK remains competitive internationally. At 25%, the rate is still below the G7 average and significantly lower than the US, France, or Germany. The Treasury estimated the rise would generate about £18 billion extra per year for public finances.

To offset the higher rate, the government introduced generous investment incentives. A 130% “super-deduction” was available until 2023, followed by a new “full expensing” regime allowing firms to deduct 100% of qualifying capital spending immediately. Originally temporary, this was made permanent in the Autumn 2023 statement, forming part of a new “Corporation Tax Roadmap” which promised stability by capping the main rate at 25% and preserving key reliefs such as R&D credits.

Economic Implications and Scottish Business Reactions

The rise sparked debate about its impact. The Office for Budget Responsibility warned that, in isolation, higher rates would reduce investment. However, thanks to the new allowances, investment levels held up better than expected.

In Scotland, large companies have had to factor in the higher rate, while many smaller ones continue at 19%. Corporate tax receipts rose by almost 30% in 2022/23, boosting government budgets but also raising business costs.

Scottish business groups voiced mixed opinions. The Scottish Chambers of Commerce said the rise was significant but noted it was introduced gradually and left the UK competitive. At the same time, surveys revealed taxation had become the top concern for Scottish firms by late 2024, overtaking inflation.

Trade unions welcomed the rise. The STUC argued that profitable firms should contribute more, particularly those that thrived during the pandemic. Some even suggested going further with higher rates linked to conditions such as job creation and wage growth.

Meanwhile, entrepreneurs like Sir Tom Hunter called for tax cuts to make Scotland more attractive for investment, pointing to Ireland’s low rates as a model. Former First Minister Humza Yousaf echoed this in early 2024, suggesting an independent Scotland could use targeted lower rates for high-growth industries. Since mid-2024, however, John Swinney has led the Scottish Government with a more cautious focus on economic stability rather than bold tax changes.

North Sea Windfall Taxes and the Oil Sector

The North Sea oil and gas industry has faced its own extraordinary changes. In response to record profits from high energy prices, the UK Government introduced a windfall tax – the Energy Profits Levy. Initially set at 25%, it rose to 35% in 2023 and 38% in 2024. Combined with the sector’s existing 40% rate, this has pushed the effective rate on North Sea profits to 78%.

Supporters argued this was fair, with companies making windfall gains while households struggled with energy bills. Billions in extra revenue helped fund support schemes.

But in Aberdeen and across the oil sector, the response has been fierce. Business groups warned of lost jobs, paused investment, and companies redirecting capital overseas. The Aberdeen & Grampian Chamber of Commerce called the tax burden crippling, reporting tens of thousands of job losses. Even some trade unions criticised the policy for undermining the workforce needed for a green energy transition.

The government introduced a mechanism to scale the levy back if oil prices fell, but as of 2025 the high rates remain. The industry continues to lobby hard for change, warning of long-term damage to the North Sea economy.

Looking Ahead

Scotland cannot set its own corporation tax rate, but the debate is alive. Business leaders call for stability and competitiveness, while unions and campaigners call for fairness and higher contributions from big firms. The SNP has floated the idea of using corporation tax strategically in an independent Scotland, but for now it remains a reserved matter.

What is clear is that tax policy has real consequences. From SMEs in Glasgow to oil firms in Aberdeen, decisions made in Westminster shape Scotland’s economy. Striking the right balance between raising revenue and supporting growth will remain a central challenge in the years ahead.

Sources

• Aberdeen & Grampian Chamber of Commerce (2025) ‘UK Government to blame as Harbour Energy cuts 250 North Sea jobs’. AGCC News. moraychamber.co.uk

• BDO (2025) ‘Scottish family firms brace for “Seismic” tax changes’. Scottish Financial News. scottishfinancialnews.com

• Confederation of British Industry (2024) “Autumn Budget 2024: the CBI impact”. CBI Insight. money.co.uk

• Glasgow Chamber of Commerce (2025) ‘Over 80% of Scottish SMEs see risk to viability over next 12 months’. glasgowchamberofcommerce.com

• HM Treasury (2022) “Government update on Corporation Tax”. Gov.uk. money.co.uk

• Newsquest Scotland Events (2021) “Pause for thought as corporation tax hike takes business by surprise”. Herald Events. moraychamber.co.uk

• Office for Budget Responsibility (2023) “The impact of corporation tax changes on business investment”. OBR, London. money.co.uk

• Paul, M. (2024) “SNP leader looks to Republic in bid to free Scotland from Britain’s flagging economy”. The Irish Times. thebusiness.scot

• Scottish Chambers of Commerce (2025) ‘Quarterly Economic Indicator Q2 2025: rising cost pressures for businesses’. moraychamber.co.uk

• Scottish Parliament Information Centre (2024) “Pre-Budget Scrutiny 2025-26: Summary of Evidence.” SPICe. money.co.uk

• Reuters (2024) “North Sea oil and gas producers say UK windfall tax is a ‘wrecking ball’”. moraychamber.co.uk