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Using the data in Extracts B and C, assess the likely effects of decreases in UK corporation tax rates in March 2020 on UK restaurant chains, such as Jamie Oliver’s. - Edexcel - A-Level Business - Question 1 - 2022 - Paper 3
Question 1
Using the data in Extracts B and C, assess the likely effects of decreases in UK corporation tax rates in March 2020 on UK restaurant chains, such as Jamie Oliver’s.
Worked Solution & Example Answer:Using the data in Extracts B and C, assess the likely effects of decreases in UK corporation tax rates in March 2020 on UK restaurant chains, such as Jamie Oliver’s. - Edexcel - A-Level Business - Question 1 - 2022 - Paper 3
Step 1
If corporation tax rates fall from 19% (2019), this might allow more profits to be retained.
Answer
Decreasing the corporation tax rate can result in higher retained earnings for businesses, including restaurant chains like Jamie Oliver's. This can enable restaurants to reinvest in their operations, which may involve enhancing their menu offerings or improving customer service. These improvements could help attract more customers and utilize the savings to cover other operational costs.
Step 2
Extra revenues could be used to support staff training.
Answer
With lower tax burdens, restaurants may have additional funds available to invest in staff training programs. Improved training could enhance service quality, which is vital in the hospitality sector, potentially leading to increased customer satisfaction and loyalty.
Step 3
Unless businesses are making a profit, the reduction in corporation tax will have no direct positive effects.
Answer
It's important to note that if a business, such as Jamie Oliver's restaurant chain, is operating at a loss, a decrease in corporation tax will not provide any immediate benefits. Profit is essential for any tax reduction to positively impact operations, as reduced tax liabilities will not alleviate the fundamental issues causing losses.
Step 4
Support from the UK Government is crucial.
Answer
The UK Government's recent initiatives to support the hospitality sector are essential, especially during challenging times like the pandemic. The effectiveness of lower corporation tax rates will also depend on continued governmental relief efforts, along with customer patronage returning to pre-pandemic levels. If consumer demand does not recover, the benefits of tax reductions might be minimal.