Autumn Budget 2026 for businesses

The Chancellor remained focused on his commitment to back British businesses by maintaining the full expensing regime, along with some additional changes from April 2027:

• A reduction in the main rate of writing down allowances from 14% to 12% from April 2027 (note the rate changed from 18% to 14% from April 2026 following the Autumn 2025 Budget).

• An increase in the main rate first year allowance (FYA) from 40% to 50% for qualifying expenditure incurred on or after 1 January 2027 (which is also available for unincorporated businesses).

Following the consultation on the tax treatment of pre-development costs, which considered the implications of the Supreme Court’s decision in Orsted West of Duddon Sands (UK) Ltd and others v HMRC [2026], the government also published its response.

The government has confirmed that it will not make immediate changes to the capital allowances legislation. Instead, it will work with stakeholders to consider improvements to HMRC guidance, with the aim of providing greater clarity and certainty on how the existing capital allowances rules apply to pre-development expenditure.

Key takeaway

The government is continuing to steer investors towards making capital allowances claims with the benefit of first year allowances. While investors with large main pool balances will feel the impact of the reduction of the main pool writing down allowance, investors should plan to optimise the investment incentives that are available to be claimed from year one.

While the main rate of corporation tax remains unchanged at 25%, the Budget included a range of announcements affecting companies.

Permanent establishment exemption

For accounting periods beginning on or after 1 January 2027, the foreign branch exemption will become mandatory for UK resident companies with overseas branches (previously optional). This means that profits and losses of foreign branches will be excluded from UK corporate tax.

Key takeaway

Companies with overseas branches should review their existing structures, loss utilisation, cash-tax forecasts and related deferred tax assets, particularly as loss relief from branches will no longer be available.

Investment life insurance contracts

For accounting periods beginning on or after 1 January 2027, the corporation tax exemption for payouts from investment life insurance contracts will be restricted to contracts that are not held for the purposes of a trade.

Company payments to participators

Following a consultation on the proposed reporting framework for transactions between close companies and their participators, the government has decided not to proceed with the new reporting requirements at this stage. HMRC will continue to engage with stakeholders to address the concerns raised and ensure taxpayers have the information needed to meet their obligations.

Government seeks views on simplifying corporation tax for business investment

The government has published Corporate Tax Simplification for Business Investment, a consultation on how the UK corporation tax system could be simplified to provide greater certainty and support business investment, growth and competitiveness.

The consultation focuses on three main areas: financing and international activity, investment and innovation, and the wider corporation tax experience. It forms part of the government’s wider programme to create a more stable and predictable corporation tax environment. The consultation closes on 21 November 2026, giving businesses and advisers a relatively short period in which to respond.

Pillar 2: Side-by-Side Package and further amendments

The government has confirmed that Finance Bill 2026-27 will amend the UK’s Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) rules to implement the OECD’s Side-by-Side package, alongside further technical changes to the existing Pillar 2 legislation.

The package introduces a number of simplifications and safe harbours, including the Side-by-Side and Ultimate Parent Entity Safe Harbours, a Simplified Effective Tax Rate Safe Harbour, a safe harbour for certain substance-based tax incentives, and an extension of the Transitional Safe Harbour.

The Side-by-Side Safe Harbour can remove UK MTT exposure for qualifying groups and is expected to be particularly relevant to US-parented multinational groups. Importantly, the Side-by-Side Safe Harbour does not switch off the UK’s Domestic Top-up Tax. Qualifying groups, including US-parented groups, will therefore still need to consider whether UK entities have a DTT liability.

The Side-by-Side package will apply for accounting periods beginning on or after 1 January 2026, while the further technical amendments will mainly apply for accounting periods beginning on or after 31 December 2026.

Key takeaway

Groups within Pillar 2 should revisit their 2026 calculations and compliance processes. The new safe harbours could materially simplify Pillar 2 compliance and reduce MTT exposure, particularly for qualifying US-parented groups, but they do not remove the need to consider UK DTT.

Advance Tax Certainty Service: threshold reduction

The government has announced a package of changes to the Advance Tax Certainty Service (ATCS), designed to broaden access to the service and refine its operation following its launch in July 2026.

The key change is a significant reduction in the minimum investment required for a project to qualify, from £1 billion to £300 million. This should materially increase the number of major investment projects able to obtain advance certainty from HMRC on their tax treatment.

The government will also:

• Change the procedure for future amendments to the definition of a ‘qualifying investment project’, so that changes can be made using the negative statutory instrument procedure, rather than the draft affirmative procedure, and
• Ensure penalties for failure to provide information will apply only where the failure relates to a clearance that has actually been issued. The other existing penalty provisions remain unchanged.

The £300 million threshold and penalty changes will take effect from 4 November 2026, while the change to the statutory power will take effect from 1 April 2027.

Key takeaway

The reduction in the threshold from £1 billion to £300 million is the most commercially significant change. It substantially widens access to advance tax certainty for large UK investment projects, potentially making the service relevant to a much broader range of infrastructure, real estate and other capital-intensive developments. The government has also indicated that the service will remain under review, suggesting there may be scope for further expansion in future.

The Budget included proposals to reform the taxation of company distributions and repayments of capital, alongside technical changes intended to make venture capital tax relief schemes easier to use.

Modernising the distributions framework

Following consultation earlier this year, the government intends to proceed with a number of changes to reform the taxation of company distributions and repayments of capital.

The key headline is that the government intends to proceed with all seven proposals as a package, with a technical consultation and draft legislation in 2027, and implementation intended from April 2028.

The government’s intention for these reforms is to reduce inconsistency between economically similar transactions and to counter avoidance where income is otherwise extracted as capital. The most significant points include:

• Capital reductions: the amount capable of being treated as a repayment of capital following a share reorganisation will broadly be limited to the capital originally subscribed by shareholders. The change will be prospective, and companies will not be required to reconstruct historical share capital/share premium. Listed companies are intended to be excluded.
• Capital reduction demergers: the proposals could significantly constrain the existing capital reduction demerger route. In response, the government intends to make the statutory demerger regime substantially more flexible (see below), but it appears that this may not go far enough, and older Section 110 liquidation demergers may need to be used in many cases.
• Statutory demergers: the government says the relief will apply in a much broader range of circumstances, including potentially permitting qualifying demergers ahead of an onward third-party sale after 5 years.
• The Section 455 anti-avoidance rule, which gives rise to a dividend tax charge on a loan to a shareholder of a close company, will be extended to offshore companies. In this case the recipient of the loan will need to pay the tax.
• Non-UK companies: the government intends to align the income tax treatment of distributions from non-UK resident companies more closely with UK company distributions, despite significant concerns from the funds/private-capital sector. This is likely to mean that certain offshore distributions will cease to be taxed as capital gains but instead will be subject to income tax.
• Changes will be made to the rule which allows company share buy backs to be taxed as capital gains – specifically the subjective ‘benefit of the trade’ test will be replaced with objective tests. These may involve a minimum shareholding requirement, a requirement to have been an employee, and a requirement to fully exit within two years.

Key takeaway

These changes could impact on a wide range of corporate and shareholder transactions, including group restructuring, demergers, purchases of own shares and structures involving overseas holding companies.

Changes to venture capital schemes

The government has announced it will make a number of technical changes to make the Venture Capital Trust (VCT), Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) easier to use. These include allowing EIS relief to remain available where an investment only partly exceeds the annual or lifetime investment limits, permitting SEIS and EIS or VCT investments on the same day and ensuring one investor’s late payment does not prejudice relief for other investors.

There will also be a discretionary power for HMRC to treat shares as fully paid up where the payment is received after the share issue due to exceptional and unavoidable circumstances.

The government will also engage with investors and companies on improvements to the Advance Assurance service.

Key takeaway

The venture capital scheme reliefs can provide significant benefits, but the legislation and guidance can be complex and difficult to navigate. The proposed technical changes should give investors greater certainty that tax relief will not be disproportionately lost because of minor technical or administrative issues, and make it easier for investors to access the available reliefs.

All shares issued on a given day are treated as the same ‘share issue’, and there are cases where a partial failure of that issue taints every other share issued that same day. These changes reduce the need for, for example, planning SEIS and EIS fund raises on consecutive days.

The announcements below cover changes to Stamp Duty Land Tax Group Relief and the planned introduction of a new Securities Transfer Tax.

Stamp Duty Land Tax (SDLT) Group Relief: winding up the vendor

Where a UK land asset is transferred between group companies, SDLT Group Relief can apply to prevent an SDLT charge. This relief is clawed back if the transferee company leaves the group within three years while retaining the asset.

HMRC was recently defeated in the case of HC-One, which found that where the transferee company leaves the group following the winding up of a parent, it is the winding up, rather than the subsequent sale of the transferee, that severs the group relationship. As a result, no clawback arises. From 29 October 2026, the rules will be amended so that winding up a parent company will not prevent Group Relief clawback if the purchaser subsequently leaves the group within the normal three-year period.

Key takeaway

This significant change immediately affects corporate reorganisations. For transactions from 29 October 2026, the liquidation or dissolution of the transferor, or a company above it, will not necessarily end the exposure to Group Relief clawback. If the purchaser subsequently leaves the group within three years, the relief may still be clawed back.

Stamp Duty on shares

The UK currently has two overlapping taxes on transfers of securities:

• Stamp Duty, which principally applies to paper instruments, and
• Stamp Duty Reserve Tax (SDRT), which principally applies to electronic transactions settled through the CREST system (a computerised register of shares and shareholders).

This dual system is being replaced by a new Securities Transfer Tax (STT) in late 2027. STT will be self-assessed and administered digitally, with the aim of simplifying the administration and payment of tax and removing the need for non-electronic instruments and paper-based reporting and payment processes.

Draft legislation was published on 13 July 2026. In addition to changing how the tax is assessed and collected, the new regime will change how the liability is calculated in certain circumstances. This includes transactions where consideration is contingent or unascertainable – for the first time it should be possible to defer payment of the stamp duty until the future date of payment.

Key takeaway

The introduction of STT represents a wholesale modernisation of the stamp taxes on shares framework. Businesses undertaking transactions will need to consider the new digital reporting, payment and evidencing requirements ahead of the introduction of the new regime.

Foreign sovereign investment in UK real estate

The government has launched a consultation on a statutory sovereign tax status regime, intended to take effect from 1 January 2029, with legislation to follow in a future Finance Bill. The proposals are particularly relevant to sovereign investors holding UK real estate directly and may also affect the structuring of investments with joint venture partners.

The proposed regime would replace the existing, non-statutory sovereign immunity exemption from UK direct taxes. Its principal effect would be to bring income and gains from directly held UK real estate into charge. Returns arising within UK companies are already subject to corporation tax, so the impact will depend on the existing investment structure.

The consultation proposes exemptions for investment management activities undertaken by sovereign investment offices and for gains arising to state-operated overseas pension funds. Foreign sovereigns would retain qualifying institutional investor status for the real estate investment trust (REIT), qualifying asset holding company, Long-Term Asset Fund and most collective investment vehicle regimes. Bespoke rules would also allow a foreign sovereign to hold a controlling interest in a REIT through a UK company, with property income distributions taxed at 15%.

The proposed transitional measures include market value rebasing for certain assets on 1 January 2029 and time-limited Stamp Duty Land Tax relief for restructuring certain existing property holdings before commencement. The scope and conditions of these measures will be important when assessing the impact on existing investments. Draft legislation will be published for technical consultation.

Annual tax on enveloped dwellings

Annual tax on enveloped dwellings (ATED) charges will increase by 3.5% from 1 April 2027, in line with the September 2026 Consumer Prices Index.

Zero rate of VAT on land sold to social housing providers

Following a consultation earlier in 2026, the government has announced that a new VAT zero rate will apply to qualifying sales of land to registered providers of social housing from 1 April 2027. Secondary legislation is expected in early 2027 and we await the detail of that with much anticipation.

While the measure is intended to simplify land transactions and remove VAT-related barriers to social housing delivery, the effectiveness will depend in part on the final definition of a registered provider of social housing.

Key takeaway

This is a welcome VAT relief that should reduce reliance on golden brick arrangements, allowing qualifying land transfers to take place earlier and be better aligned with commercial objectives and funding requirements, rather than being driven by a VAT-led structure which often created inefficiencies and delays in the delivery of social housing.

Land Remediation Relief

Following the consultation into Land Remediation Relief (LRR) and its potential reforms, the government has decided to not proceed with any changes at this time. While the relief itself will remain unchanged, HMRC will review its guidance so that it better meets the needs of businesses and advisers and will work with stakeholders to identify ways in which it can be improved.

The government has announced plans to simplify some of the administrative requirements associated with claiming R&D tax relief.

For claims made on or after 1 April 2027, the requirement for an R&D claim notification form will be removed, meaning companies will no longer need to separately notify HMRC in advance of their intention to make an R&D claim. The change is expected to reduce the administrative burden on businesses, particularly those making their first R&D claim or returning to the regime after a period without claiming.

The government has also confirmed plans to simplify the Additional Information Form (AIF) from Autumn 2027. While further detail on the revised requirements is expected, the change is intended to streamline the information businesses must provide when submitting an R&D claim.

The removal of the claim notification form will be legislated through Finance Bill 2026-27, while the changes to the AIF will be introduced through secondary legislation.

Key takeaway

R&D tax relief continues to be a very beneficial relief with benefit of between 15% and 27% of qualifying expenditure received either through a corporation tax deduction or repayable credit.

These changes represent a welcome step towards simplifying the R&D tax relief regime. However, businesses will still need to ensure that their claims are technically robust, appropriately evidenced and supported by a clear assessment of the qualifying R&D activities and associated expenditure.

From 1 January 2027, taxable earnings for Corporate Interest Restriction (CIR) purposes will exclude audio-visual expenditure credits (AVEC) and video games expenditure credits (VGEC). This brings the treatment of these expenditure credits into line with other tax reliefs, including R&D credits.

The change will affect companies receiving expenditure credits that are within the CIR regime, including larger studios and groups that are heavily geared.

Key takeaway

Groups claiming AVEC or VGEC may be subject to greater restrictions on interest deductions once the change takes effect, so companies claiming these credits should consider the potential impact on their CIR position.

The Budget included a range of VAT and indirect tax measures affecting property, online marketplaces, cross-border services, transport and energy, as well as electronic invoicing (see the tax technology and transformation section).

Online marketplaces

From October 2027, the VAT online marketplace liability rules, which aim to tackle VAT non-compliance in the e-commerce sector, will be extended to cover sales by UK businesses. Online marketplaces will become responsible for collecting VAT on sales made through their platforms by:

• UK VAT-registered businesses, and

• Other UK businesses with annual sales through that platform of at least £90,000.

The rules will not apply to personal sales, second-hand goods or business-to-business transactions. HMRC will publish detailed guidance ahead of implementation in October 2027, including information on any accounting changes businesses may need to make. The measure follows the consultation launched in June 2026.

Key takeaway

This is a significant shift in VAT accounting responsibility towards online marketplaces, aimed at tackling non-compliance by UK online sellers and creating a more level playing field for high street retailers. Platforms and affected businesses will need to review their systems and accounting processes ahead of October 2027 to ensure VAT is collected and reported correctly.

Services supplied by overseas businesses

From April 2027, the VAT reverse charge for services supplied by overseas businesses will apply only where the UK business customer receiving the service is VAT registered. Where the UK business customer is not VAT registered, responsibility for accounting for UK VAT on affected taxable services will instead fall on the overseas supplier. This is expected to require more overseas businesses to register for UK VAT. Further detail is awaited on how the changes will operate.

Key takeaway

This is a significant shift in VAT accounting responsibility towards overseas suppliers and will bring additional registration and compliance obligations. Affected businesses will need to review their customers’ VAT status, pricing and invoicing ahead of April 2027, while UK customers unable to recover VAT could face higher costs. Relying on non-resident service suppliers registering for VAT is perhaps a surprising move by government. The effectiveness of the measure will depend in part on compliance by overseas suppliers and HMRC’s ability to enforce the new rules.

Private hire vehicle operators

From 2 January 2028, passenger transport services arranged by operators acting as agents for drivers will be treated as being supplied by the private hire vehicle operator rather than the driver. Operators within scope will therefore account for VAT on the full fare. The measure will be limited to operators whose annual fare turnover exceeds a specified threshold. The government will consult on the final threshold and implementation, with £50 million of annual fare turnover identified as the lead option.

Separately, following the removal of private hire vehicle and taxi services from the scope of the Tour Operators’ Margin Scheme (TOMS) in January 2026, the government has launched a call for evidence on the VAT treatment of travel services. This considers whether TOMS should be retained, reformed, simplified, made optional, partly withdrawn or removed. It also covers travel services enjoyed in the UK but supplied by tour operators established outside the UK. The call for evidence is a review rather than an announcement of further changes to TOMS.

Key takeaway

This is a further move towards VAT being accounted for on the full fare by larger private hire operators, regardless of agency arrangements. Affected operators should consider the implications for pricing, margins and accounting systems ahead of January 2028 and monitor the consultation on the turnover threshold. The separate TOMS review signals potential wider changes for the travel sector, rather than immediate reform.

Energy-related matters

The temporary zero rate for domestic and other qualifying electricity supplies will be extended until 30 June 2027. Supplies that would otherwise return to the reduced rate of 5% from 1 April 2027 will therefore remain zero-rated for a further three months.

Heat batteries installed in residential accommodation or charity buildings will be brought within the VAT relief for energy-saving materials from 1 April 2027. The general temporary zero rate for the supply and installation of qualifying energy-saving materials will end as previously scheduled, with the rate reverting to 5% from that date.

From 1 November 2026, electricity supplied through publicly accessible electric vehicle (EV) charging points will be standard-rated for VAT and will not be treated as domestic use for climate change levy purposes. This change is HMRC’s response to the First-Tier Tribunal’s decision in Charge My Street Limited v HMRC (UKFTT 318 TC), which held that qualifying small supplies of electricity through public EV charging points could benefit from the 5% reduced VAT rate.

Key takeaway

This is a mixed package of measures, providing a short extension of relief for domestic electricity and bringing heat batteries within the energy-saving materials relief, but confirming the return to 5% VAT for qualifying installations. Suppliers, installers and public EV charging operators should consider the impact of the changes on pricing and billing.

The Budget includes a range of measures reflecting the continued digitalisation of tax administration, from mandatory e-invoicing and changes to corporation tax administration to greater use of technology and AI across government.

Mandatory VAT e-invoicing: roadmap to April 2029

VAT invoices will be required to be issued in a specified electronic format from 1 April 2029. The government has now published an implementation roadmap, setting out the key milestones and when further details will be available, and intends to provide full policy and technical design details by April 2028.

The government has also launched a consultation on whether the structured data created through e-invoicing could be used for digital reporting to support tax administration. No decisions have yet been taken on whether such reporting will be introduced.

Key takeaway

While the technical detail is still to be confirmed, the roadmap gives organisations more information to begin planning for implementation. Businesses should consider e-invoicing as part of their wider ERP, finance, tax data and digital transformation plans, rather than solely as a tax compliance change.

The consultation on the future use of e-invoicing data also signals that HMRC is considering how structured invoice data could be used beyond the core e-invoicing requirement, such as pre-populated returns and finance submissions. Businesses should monitor these developments, particularly where future uses could affect tax reporting processes, data requirements and controls.

Corporation tax administration: further digitalisation on the horizon

The Government will launch a targeted programme to simplify specific areas of corporation tax and has published a call for evidence on modernising corporation tax administration. This includes considering how software, AI and automation technology could simplify administration and reduce burdens for businesses.

Key takeaway

The direction of travel for digital submission now extends beyond VAT. Businesses should expect that technology and digital interaction with HMRC will play a growing role across tax regimes, making the quality and accessibility of underlying tax data increasingly important.

Greater stewardship expectations for tax software and intermediaries

HMRC will publish a roadmap in Spring 2027, setting out its long-term approach to tax advisers, software providers and others supporting taxpayer interactions with the tax and customs system. This will include measures intended to strengthen standards for tax software providers.

Key takeaway

Greater focus on standards for tax software providers should give businesses further information to consider when selecting and governing tax technology. The detail of those standards will be important for organisations making longer-term decisions about tax technology platforms and providers.

Further AI and automation investment in HMRC services

The Budget provides £35 million to establish GovAI and a further £50 million Civil Service AI transformation fund across 2027-28 and 2028-29. The funding is intended to support greater use of AI, automation and simpler processes across the Civil Service.

Key takeaway

AI and automation are moving from experimentation towards a more established component of government service delivery. For tax functions, Ask HMRC provides an early example of this shift within tax administration. Businesses should monitor how HMRC’s adoption of AI and automation changes taxpayer interactions and administrative processes.