Capital allowances

From 1 April 2026 for corporation tax and 6 April 2026 for income tax, main rate writing-down allowances will reduce from 18% to 14%. A hybrid rate will apply for any businesses with a chargeable period that spans these dates. The government will introduce a new 40% first year allowance (FYA) for main rate expenditure. The new FYA will be available for expenditure incurred from 1 January 2026. Unlike full expensing, the new allowance will be available for unincorporated businesses and assets used for leasing.

• Further information

Penalties for late filing of corporation tax returns

The government has doubled fixed penalties for late filing in a bid to restore their original value in real terms as the penalties have not been increased since they were set in 1998. The old and new rates are as follows:

• Further information

Increase in limits for venture capital reliefs

The venture capital reliefs - the enterprise investment scheme (EIS), seed EIS (SEIS) and venture capital trusts (VCT) – are designed to help small and medium-sized companies to attract investment. Where the conditions are satisfied, investors who are subscribing for shares in the companies can benefit from tax reliefs.

Caps apply to the amount a company can raise from investments made under the EIS and VCT scheme (relevant investments) in the 12 months before a share issue and overall. The government has announced that the caps for the VCT company will increase with effect from 6 April 2026, as shown in the tables below. 

In addition, the gross asset test that applies to determine if a company is a qualifying company will increase as follows:

Income tax relief that can be claimed by an individual investing in a VCT will be reduced from 30% to 20% from April 2026. The government hopes that the reduction in income tax relief rate for the VCT will better balance the amount of upfront tax relief compared to EIS, which does not offer dividend relief, and incentivise funds to seek out higher returns, to ensure they are targeting the highest growth companies.

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Advance tax certainty for major projects

The government has announced that it will introduce a new advance tax certainty service from July 2026. The service will apply to projects with in-scope expenditure exceeding £1bn, excluding financing costs and expenditure related to the acquisition of share or ownership interests in other businesses or entities. This threshold will be reviewed once the service has been in operation for 12 months. Both UK and non-UK resident entities will be eligible to apply.

Issues relating to corporation tax, VAT, stamp taxes, PAYE and the construction industry scheme will be within scope. However, clearances will not be offered on issues relating to transfer pricing, purpose tests or hypothetical scenarios.

Any clearances provided will represent a binding decision on the government’s view of the law, as applied to fully disclosed facts. However, the clearance will not bind the government against changes in case law or legislation.

The government considers that early engagement prior to an application will be key to providing businesses with the opportunity to explore eligibility. Pre-application discussions will help to address any concerns and provide opportunity for modifications to minimise the risk of applications being rejected.

HMRC’s ambition is for an average turnaround time of 90 days from submission of a formal application to issuance of the clearance.

The government has decided that clearances will not be published externally and will not initially charge for this service, although this will be assessed at its one-year review.

The government welcomes applications from any eligible projects and intends to identify a pipeline of projects that are interested in applying for a clearance from July 2026.

Reform of UK law in relation to transfer pricing, permanent establishment and diverted profits tax

Following consultation beginning in 2023, the government will be introducing a package of measures effective from accounting periods beginning on or after 1 January 2026.

The changes to transfer pricing include:

• a new form of direct participation where two persons are subject to an agreement for common management and it is reasonable to suppose this results in a prescribed alignment of economic interests;
• the removal of transfer pricing from UK-to-UK transactions where there is no risk of tax loss; and
• confirmation that the OECD model tax convention (MTC) and transfer pricing guidelines are interpretative aids, regardless of whether  there is a treaty in place.

The primary change relating to permanent establishments (PEs) is to align the definition of a PE with that set out in article 5 of the 2017 OECD model tax convention. A number of changes are also being made to the investment manager exemption.

Diverted profits tax (DPT) is being repealed and replaced with a new charging provision for unassessed transfer pricing profits. The new charge will be simpler than DPT and as it will form part of the corporation tax system, businesses will be able to access the UK’s treaty network, including access to the mutual agreement procedure to remove double taxation.

• Further information

Business rates

The budget includes a comprehensive package of changes to the business rates system, designed to reduce rates liabilities overall, with targeted relief for smaller companies and those operating in the retail, hospitality and leisure (RHL) industries.

The standard multiplier used to calculate rates liabilities will decrease from 55.5p in 2025-26 to 48p in 2026-27. The small business multiplier will similarly fall from 49.9p to 43.2p.

Transitional relief will also ensure that the impact on businesses is restricted where their rates liabilities rise as a result of increased property valuations from 2026. The transitional relief caps will be as follows:

• Up to £20,000 (£28,000 in London): in 2026/27 – 5%, in 2027/28 – 10% (plus inflation), in 2028/29 – 25% (plus inflation).
• £20,001 (£28,001 in London) to £100,000: in 2026/27 – 15%, in 2027/28 – 25% (plus inflation), in 2028/29 – 40% (plus inflation).
• Over £100,000: in 2026/27 – 30%, in 2027/28 – 25% (plus inflation), in 2028/29 – 25% (plus inflation).

In addition, increases in liabilities for the smallest businesses losing some or all of their small business rates relief (SBRR) or rural rate relief will be capped at the higher of £800 or the relevant transitional relief caps. SBRR will be extended from one to three years so that business will remain eligible for SBRR on their first property for three years after expanding into a second property.

The government has also set permanently lower business rates multipliers for eligible RHL properties with rateable values below £500,000, which will be 5p lower than the standard and small business multipliers respectively.

Finally, the government has published a call for evidence on the role business rates play in investment.

Further information

• Budget 2025
• Effects of the business rates retail, hospitality and leisure multipliers and high-value multiplier
• Business Rates and Investment: Call for Evidence