2025-26 year-end tax planning guide for businesses

As we approach the end of the 2025–26 tax year, it’s a good time to review your business’s tax position.

With a range of changes coming in over the next few years, some already legislated and others expected, taking stock now can help you make the most of available reliefs, avoid unexpected costs and prepare for new compliance requirements.

Our list of 12 tax tips will help your business maximise available reliefs and allowances, and ensure it stays on top of the changes ahead.

Capital allowances: how the 40% first-year allowance and reduced WDAs affect 2026 planning

From 1 January 2026, a 40% first‑year allowance (FYA) is available for qualifying main rate expenditure available on new and unused plant and machinery. The new FYA is intended to fill gaps where full expensing is unavailable, particularly for:

• Expenditure on plant or machinery used for leasing within the UK,
• Expenditure incurred by unincorporated businesses, and
• Main pool assets that fall outside the scope of full expensing.

The allowance doesn’t apply to special rate assets, so businesses will need to confirm the correct pool classification. Many unincorporated businesses will continue to obtain full relief through the annual investment allowance (AIA), so the 40% FYA will be most relevant where expenditure exceeds the £1 million AIA limit or where the AIA is unavailable.

From 1 April 2026 for companies and from 6 April 2026 for unincorporated businesses, the main rate writing down allowance (WDA) will reduce from 18% to 14%. This will increase the effective tax cost for businesses with significant main pool balances where expenditure doesn’t qualify for upfront reliefs. For chargeable periods that span April 2026, a blended rate will apply based on the number of days before and after the change.

With the new FYA now available and the reduced WDA approaching, the timing of capital expenditure is critical. You may want to:

1. Review any planned expenditure that could qualify for the new 40% FYA, particularly where full expensing is unavailable.
2. Check whether assets fall into the main pool or special rate pool, as this will affect the relief available.
3. Consider whether expenditure can be brought forward or timed to secure a more favourable relief before the 14% WDA takes effect in April.

For more information on capital allowances and how we can help you make the most of these reliefs see our article Capital allowances: a practical guide for UK businesses. If you’d like to discuss how these changes affect your capital allowances position or future investment plans, please speak to your usual Saffery contact or get in touch with Phoebe Hindlet.

FRS 102 lease accounting changes: tax impacts businesses must prepare for

For accounting periods beginning on or after 1 January 2026, companies applying FRS 102 will move to a new lease accounting model. Operating leases will come onto the balance sheet for the first time, with right‑of‑use (ROU) assets and lease liabilities replacing straight‑line rental charges. Because UK tax rules generally start from accounting profit these changes will have direct consequences for corporate tax calculations.

On transition, companies may bring in one‑off adjustments to the opening balance sheet as ROU and lease liabilities are recognised. For tax, these transitional adjustments are spread over the weighted average remaining lease term, which helps smooth the cash‑flow impact but requires accurate lease‑level data across property, vehicles and equipment. Deferred tax will also arise at adoption and then unwind over time as the spreading continues.

After transition, tax deductions follow the pattern of depreciation on the ROU asset and interest on the lease liability. The total deduction over the lease term remains the same, but interest is likely to be higher in earlier years and lower in later ones. This can accelerate tax relief initially and may influence instalment planning, cash‑flow forecasts and interest capacity under the Corporate Interest Restriction (CIR) rules.

As well as considering the direct tax impact of the changes you should consider:

• Whether changes to turnover or gross assets bring your business into scope of Senior Accounting Officer requirements, Country‑by‑Country reporting or Pillar Two compliance,
• Whether increases in gross assets affect eligibility for the Enterprise Investment Scheme (EIS) or the Seed Enterprise Investment Scheme (SEIS), and
• Whether larger groups could lose SME exemptions from mandatory transfer pricing documentation.

For more on these changes see our FRS 102 changes article. If you would like support understanding and preparing for the tax implications of these lease accounting changes, please talk to your usual Saffery contact or get in touch with Jonathan Hornby.

EMI expansion from April 2026: new limits and what they mean for your share plans

From 6 April 2026, the Enterprise Management Incentive (EMI) scheme will be expanded, allowing more growing companies to use EMI to incentivise employees tax efficiently.

The changes will increase the size limits for companies that can qualify:

• The gross assets limit will rise from £30 million to £120 million.
• The employee headcount limit will rise from 250 to 500 employees.

For all eligible companies, the overall option pool limit will double, increasing the maximum allowable unexercised EMI options from £3 million to £6 million.

The exercise period for EMI options will also increase, with options capable of being exercised up to 15 years from grant (up from the current 10 years). Existing EMI options can be amended to take advantage of the longer 15‑year exercise period without losing EMI tax benefits, provided:

• The variation is made on or after 26 November 2025,
• The change is made within 10 years of the original grant,
• The varied option is still exercisable on a single date within 15 years of grant, and
• The amendment is agreed in writing.

Given these changes you may want to:

1. Consider whether your company should explore using an EMI scheme as a result of the increased limits.
2. Consider amending existing EMI options so employees benefit from the longer 15‑year exercise period.

If you’d like to discuss how the EMI changes may affect your business or existing share plans, please speak to your usual Saffery contact or get in touch with Sean Watts.

EIS and VCT changes: higher funding limits and what they mean for growing companies

From 6 April 2026, the limits that apply to the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) are increasing. These schemes offer valuable tax incentives for individuals investing in early stage, higher‑risk UK companies, and can provide an important source of growth funding for qualifying businesses.

The changes will increase the amounts that qualifying companies can raise:

• The annual investment limit will rise to £10 million, or £20 million for knowledge‑intensive companies, and
• Lifetime investment limits will increase to £24 million, or £40 million for knowledge‑intensive companies.

The gross assets requirement will also increase, so companies must have no more than £30 million of gross assets immediately before the share issue, and no more than £35 million immediately afterwards.

For VCT investors, the income tax relief rate will reduce from 30% to 20% for new VCT share issues made on or after 6 April 2026. However, the capital gains tax exemption on the sale of VCT and EIS shares remains unchanged, which for many investors is still the main attraction of these schemes.

Summary table

If you’d like to discuss how the EIS or VCT changes may affect your business or your investment planning, please speak to your usual Saffery contact or get in touch with Sean Watts.

Director shareholder planning: dividend timing and loan accounts ahead of the 2026 rate rise

Director shareholders may want to review their profit‑extraction plans before the dividend tax rise on 6 April 2026. Dividend tax rates will increase by 2% for both the ordinary and higher rate taxpayers, rising to 10.75% and 35.75% respectively, while for the additional rate taxpayers the rate is unchanged at 39.35%. Bringing forward planned dividends for ordinary and higher rate taxpayers into 2025–26 may therefore result in a lower overall tax cost.

It’s also important to consider the rising tax cost of overdrawn director loan accounts. The s455 tax charge applies when a loan remains outstanding nine months and one day after the company’s year-end, and it’s linked to the dividend rate for higher rate taxpayers. Therefore, as that rate increases to 35.75% from 6 April 2026, leaving a loan overdrawn will become more expensive. Although the charge can be reclaimed once the loan is cleared, it still creates a short‑term cash cost for the company. For additional rate taxpayers, the higher s455 rate reduces the relative benefit of keeping a loan account overdrawn, because the gap between the company‑level charge and the dividend rate narrows. Reviewing loan balances before the new rate applies may therefore be worthwhile.

The right approach will depend on distributable reserves, cash flow and the director’s wider income profile. If you would like to explore the most efficient timing of dividends or loan repayments for your circumstances, please speak to your usual Saffery contact.

Transfer pricing, permanent establishment and DPT reform: what changes on 1 January 2026

The UK is introducing several reforms to its international tax framework for accounting periods beginning on or after 1 January 2026.

A key change is the introduction of a UK‑to‑UK transfer pricing exemption, removing the need for many UK‑resident companies to apply transfer pricing to domestic transactions where there is no risk of tax loss. This should reduce compliance requirements and limit the need for UK‑to‑UK benchmarking or documentation. However, cross‑border related party transactions will still need to be priced on an arm’s length basis and supported by appropriate documentation.

The government will also update the UK’s PE rules to align more closely with international standards. The definition of a PE will be amended to reflect the OECD Model Tax Convention wording, reducing ambiguity for businesses with complex international structures and bringing greater consistency with global norms. HMRC will publish guidance on how PE profits interact with the Multinational Top‑Up Tax and Domestic Minimum Tax to ensure businesses avoid double taxation and stay aligned with the wider global minimum tax framework under Pillar Two.

Alongside these updates, the government is abolishing Diverted Profits Tax (DPT) and replacing it with a simplified corporation tax charge focused on “unassessed transfer pricing profits”. The new rules will integrate profit‑diversion risk into the main corporation tax regime, removing the separate DPT charge and aligning profit attribution more closely with OECD standards. This aims to streamline compliance and reduce complexity, while still countering arrangements designed to divert profits from the UK.

If you’d like to understand how the reforms may affect your business, or whether your transfer pricing, PE or DPT position needs updating, please speak to your usual Saffery contact or get in touch with Dawn Ross in respect of transfer pricing, or Zoe Thomas or Robert Langston.

Corporate Interest Restriction (CIR): simplified rules and new penalties from 2026

The government is introducing several changes to simplify the administration of the Corporate Interest Restriction (CIR) regime. These reforms aim to reduce complexity and remove some of the procedural traps that have caused difficulties for groups in the past.

Under the current rules, a group must appoint a reporting company within 12 months of the end of the period of account. Missing this deadline can invalidate a CIR return. For periods ending on or after 31 March 2024, this deadline is removed and appointments can be made retrospectively, which should provide welcome flexibility.

From 31 March 2026, groups will no longer need to notify HMRC separately when appointing a reporting company. Instead, appointments will be confirmed within the CIR return itself. Groups will also need to reconfirm the reporting company for each period because appointments will no longer carry forward automatically.

A new penalty of £1,000 will apply if a group submits a CIR return without having validly appointed a reporting company beforehand.

Further disclosure requirements and new electronic filing rules are to apply for periods ending on or after 31 December 2026.

A review of your group’s processes should help ensure that future CIR returns are prepared and submitted on the correct basis.

If you’d like support with CIR reporting, please speak to your usual Saffery contact or get in touch with Jonathan Hornby.

Pillar Two: how to prepare for the first UK filings due by 30 June 2026

The OECD’s Pillar Two rules bring in a 15% global minimum tax rate for multinational groups with annual revenues above €750 million. The UK rules apply to accounting periods beginning on or after 31 December 2023, so groups with a 31 December 2024 year-end have already completed their first Pillar Two period. With the first UK filings and payments due by 30 June 2026, now’s the time to make sure you’re ready – even if you don’t expect to pay any top‑up tax.

Pillar Two works by calculating a jurisdictional effective tax rate (ETR) using adjusted accounting figures and applying a top‑up tax if the ETR falls below 15%. The calculation allows for the substance‑based income exclusion, which removes a portion of profit linked to real economic activity (local employees and tangible assets), as well as any qualifying domestic minimum taxes. The UK rules include detailed registration, notification, filing and payment requirements, which apply regardless of liability.

For a 31 December 2024 year-end, the key UK deadlines are:

• Register with HMRC by 30 June 2025.
• File the first GloBE Information Return and UK Pillar Two return by 30 June 2026.
• Pay any UK top‑up tax by 30 June 2026, in a single instalment.

A transitional safe harbour may simplify compliance in the early years if certain conditions are met using Country‑by‑Country reporting data. For example, the safe harbour may apply where a territory’s revenue is under €10 million and profit is under €1 million, where the simplified ETR meets the transitional minimum rate (15% for 2024 periods, rising to 16% for 2025 and 17% for 2026), or where profits don’t exceed the territory’s substance‑based income exclusion.

With less than six months to go until the first filing deadline, it’s worth checking that data’s in good shape, roles are clear and safe harbours have been considered. If you’d like support preparing for Pillar Two, please talk to your usual Saffery contact or get in touch with Zoe Thomas or Adam Lane.

Late filing penalties double in April 2026: what businesses need to know

From 1 April 2026, the fixed penalties for filing a corporation tax return late will double.

The rates are as follows:

Most businesses already meet their filing deadlines, but with higher penalties on the way it’s worth making sure your processes continue to support timely compliance.

While these penalties may not seem significant for many companies, late filings can negatively affect the BRR+ assessment for the largest businesses, potentially leading to more regular HMRC scrutiny.

If you’d like support with your corporation tax compliance, please speak to your usual Saffery contact or get in touch with Zoe Thomas.

Pension salary sacrifice: maximise NIC savings before the 2029 restriction

As announced in the Autumn Budget 2025, from April 2029 the amount of pension contributions that can benefit from National Insurance Contribution (NIC) savings through salary sacrifice will be limited to £2,000 per employee per year. Tax relief on pension contributions isn’t changing, but the limit will reduce the NIC advantage for higher earners. With this in mind, employers may want to make the most of the current rules while they’re still available.

A pension salary sacrifice arrangement lets an employee give up part of their salary and have the employer pay the same amount directly into their pension instead. This reduces employer NIC and increases employees’ take‑home pay. For many employers these NIC savings are meaningful and can be reinvested into reward, used to offset wider cost pressures or shared with staff through enhanced pension contributions.

Employees earning below £40,000 are unlikely to be affected by the limit, and their employers won’t be either, as the 5% mandatory auto enrolment contributions won’t exceed the new £2,000 threshold. However, employers with staff making higher pension contributions, offering flexible sacrifice options or supporting senior employees with larger contributions will see the NIC benefit restricted. Additional reporting will also be required for all pension contributions made under salary sacrifice.

Given the changes ahead, it’s worth reviewing your current arrangements. Employers already using salary sacrifice for pension contributions may want to encourage greater participation or increase flexibility before the limit applies. Those that don’t offer it may want to consider introducing a scheme, as the NIC savings available over the next few years can still be valuable.

Employers should also begin planning for:

• Increased employer NIC,
• Increased Apprenticeship Levy costs (if relevant),
• How to communicate the changes to employees,
• How different employee groups may be affected,
• Any updates needed to terms and conditions or scheme documentation, and
• Whether a move to a ‘net pay’ or ‘relief at source’ arrangement might be appropriate in future.

We can help you assess the potential savings, design or update your scheme, prepare the required documents and support your employee communications. If you’d like to discuss your options, please speak to your usual Saffery contact or get in touch with Stuart Daltrey.

VAT relief on donated goods from April 2026: reduce waste and save VAT

From 1 April 2026, businesses will be able to donate goods to charities without having to account for VAT on eligible items. The relief applies where the goods are donated for:

• Onward donation to people in need, either by the charity itself or through another organisation, or
• Use by the charity in delivering its own non‑business charitable activities.

At the moment, zero rating only applies where a charity sells donated goods. This change therefore removes a VAT charge that may have discouraged businesses from donating new or usable items directly to charities.

To qualify, donated items must fall within these value limits:

• £200 for household appliances, furniture, flooring, computers, mobile phones and tablets.
• £100 for all other items.

This new relief may be useful if your business donates:

• Surplus or end‑of‑line stock.
• New items you can’t sell but are still in good condition.
• Goods a charity will give directly to people in need.
• Goods a charity will use in its own work.

You may want to:

• Review how you deal with surplus stock and whether more items could be donated,
• Check which goods you donate and whether they fall within the £100 or £200 limits, and
• Update internal processes so that charity donations are recorded clearly.

If you’d like to discuss how the VAT relief may apply to your business or how to prepare for the changes from 1 April 2026, please speak to your usual Saffery contact or get in touch with Nick Hart.

Carbon Border Adjustment Mechanism (CBAM): will your imports be caught in 2027?

The UK will introduce its CBAM from 1 January 2027. CBAM will apply a charge to certain emission intensive goods imported into the UK from countries with lower or no carbon price. If your business imports affected goods, being aluminium, cement, fertiliser, hydrogen, iron and steel, you’ll need to check whether you’re within scope and what the additional reporting requirements could mean for you.

CBAM liability will be based on the embodied emissions in the imported goods, either using verified actual data or government set default values, and adjusted for any overseas carbon prices already paid. Registration will usually be required once imports of CBAM goods exceed £50,000 in a 12-month period, with the first annual return and payment will be due by 31 May 2028 for the 2027 calendar year.

Because CBAM will introduce new compliance obligations, record keeping requirements and potentially an additional tax cost, it’s sensible to review supply chains ahead of time and understand where exposure may arise.

We can support you by:

• Reviewing the goods you import against the commodity codes within scope,
• Assessing potential CBAM liability and registration requirements, and
• Helping you develop internal processes and systems to prepare for the new regime.

For more about this new import tax see our article Carbon Border Adjustment Mechanism (CBAM). If you’d like to talk about how CBAM may affect your business, please talk to your usual Saffery contact or get in touch with Sean McGinness or Aalia Ahmed.

Additional tax planning actions to review before 2025-26 year-end

Alongside the specific measures above, don’t forget basic planning ideas, including:

• Making the best use of any losses,
• Reviewing the timing of key transactions,
• Ensuring all reliefs and allowances are claimed, and
• Looking at any opportunities for group tax planning.

Also see our 2025-26 year-end tax planning guide for individuals.

Looking ahead: key tax and compliance changes coming between 2026 and 2029

1. Prepare for the mandatory payrolling of benefits in kind from April 2027, when most taxable benefits will need to be processed through payroll rather than reported on P11Ds. Employers have until 5 April 2026 to sign up to voluntarily payroll benefits for 2026–27 which can be beneficial as it can reduce both your reporting requirements and possible errors.
2. Ensure you’re ready for the new International Controlled Transactions Schedule (ICTS) for transfer pricing, which will be mandatory for accounting periods beginning on or after 1 January 2027.
3. Prepare for mandatory e‑invoicing from April 2029, which will require all business to business and business to government (but not business to customer VAT invoices to be issued electronically.

Some of these ideas are based on government announcements which haven’t yet been legislated.

How Saffery can support your 2025-26 tax planning

For personalised tax planning advice or to discuss other upcoming tax changes not covered in this article, please talk to your usual Saffery contact or use this form to contact us.