Executive summary

The Chancellor of the Exchequer, Rachel Reeves, presented her 2025 Budget (with the tax related supporting documents here) to Parliament on 26 November 2025.

In the run-up to the 2025 Budget, the United Kingdom (UK) Chancellor (Finance Minister) promised a Budget to set Britain on the path to being economically fairer and more secure. Her Budget speech emphasized the need for financial stability and reiterated the importance of growth. However, in meeting her need for financial stability, the Chancellor introduced a number of tax increases.

The main tax increases came in the form of a three-year extension to the freeze on income tax thresholds and employer National Insurance contributions (NICs) thresholds from 2028-29, imposing NICs on salary sacrifice arrangements for pension contributions (with an annual exempt allowance) and a high value council tax surcharge on properties worth more than £2m (to be introduced in April 2028).

From a corporate perspective, there are no changes proposed to corporation tax rates or the incentive rates for research and development (R&D) spending, but a reduction was announced to the writing down allowance (WDA) main rate of capital allowance (allowable tax depreciation) for corporation tax. There are points of detail to be worked through.

Finance Bill 2025-26 will set out more of the legislative detail and is expected to be published shortly.

Corporation tax

Encouraging investment

The Budget announces a reduction to the WDA main rate from 18% to 14% from April 2026, alongside a new 40% first-year allowance from January 2026. This is expected to raise £1.5b in 2029-30. This measure changes the capital allowance rates, for both corporation-tax-paying companies and unincorporated businesses in the self-assessment regime, on expenditures for which full expensing is not claimed.

The Government will pilot a targeted R&D advance assurance service from spring 2026, enabling small and medium-sized enterprises to gain clarity on key aspects of their R&D tax relief claims before submitting to His Majesty's Revenue and Customs (HMRC).

Changes to the eligibility criteria for the enterprise management incentive (EMI) rules will allow scale-ups, as well as start-ups, to access the scheme from 6 April 2026. The venture capital trust (VCT) scheme and the enterprise investment scheme (EIS) annual and lifetime investment limits and the gross-assets test will be increased from 6 April 2026, but there will be a reduction in the VCT scheme income tax relief, also from 6 April 2026.

The Government has also launched a Call for Evidence, seeking views on (1) the effectiveness of existing tax incentives, and the wider tax system, for business founders and scaling firms, and (2) how the UK can better support these companies to start, scale and stay in the UK. The Call for Evidence closes on 28 February 2026.

The Government has confirmed that the "Advance Tax Certainty Service" (ATCS) will launch in July 2026 and provide clearances on corporation tax, stamp taxes, value added tax (VAT), Pay As You Earn (PAYE) and the construction industry scheme (CIS) if there is no existing statutory route to certainty. The financial threshold will be set at £1b of relevant UK expenditure over the lifetime of the project. The Government will review the service after it has been in operation for one year, including to assess whether it will be possible to increase capacity and lower the financial threshold.

The Government will not offer Advance Tax Certainty clearances for transfer pricing or areas that require HMRC to opine on issues relating to or involving other fiscal authorities, as these are available in specific circumstances via advance pricing agreements (APAs). However, note that certainty around cost contribution arrangements (CCAs) is available through a process launched at the time of the UK Spring Statement. Advance agreements on the tax treatment of CCAs are available through unilateral APAs. (For background, see EY Global Tax Alert, UK Spring Statement defers major tax announcements to Budget in Autumn 2025, dated 26 March 2025.)

International and cross-border transactions

Through the Finance Bill 2025-26, the Government will look to simplify the taxation of related-party transactions, nonresident companies trading in the UK and profits diverted from the UK, for chargeable periods beginning on or after 1 January 2026. This represents the conclusion of various consultations in this area.

The legislation will simplify the UK transfer pricing rules in a number of areas, including the participation condition, intangibles, commissioners' sanctions, UK-to-UK transfer pricing (which will be exempt subject to certain exceptions), financial transactions and interpretation in accordance with Organisation for Economic Co-operation and Development (OECD) principles. Regarding intangibles, HMRC has confirmed that a single valuation standard of market value will be applied for domestic transactions, but it is expected that HMRC will also seek to apply a single arm's-length standard for cross-border transactions.

The Government will look to bring the UK's permanent establishment rules in line with the latest international consensus on the definition of a permanent establishment and the allocation of profits to a permanent establishment. Further, the Government will update the legislation and Statement of Practice on the Investment Manager Exemption, in addition to introducing a new way for a UK-resident company to claim relief if a transfer pricing adjustment is made to a connected foreign company that relates to a UK permanent establishment.

The legislation will also create a new charging provision for unassessed transfer pricing profits within corporation tax. This repeals in its entirety the diverted profits tax, which is currently a standalone tax, while retaining the essential features of the regime.

In relation to transfer pricing documentation, the Government will legislate to require in-scope multinationals to submit an International Controlled Transactions Schedule (ICTS) to report information annually on cross-border related party transactions. This measure is expected to take effect for accounting periods beginning on or after 1 January 2027. Technical consultation on its design will take place in spring 2026.

There will be technical amendments to the UK's Pillar Two legislation to incorporate the latest published international updates. Most provisions will take effect for accounting periods beginning on or after 31 December 2025, although affected taxpayers may elect for most of the amendments to take effect from an earlier date. However, the changes to the treatment of preregime deferred tax assets will take effect for accounting periods ending on or after 21 July 2025.

The Government will work with stakeholders to explore targeted legislative changes aimed at ensuring that the qualifying asset holding company (QAHC) regime continues to operate effectively. Any legislative changes will be introduced in a future Finance Bill.

The Government will also legislate in Finance Bill 2025-26 for the payment of interest on amounts collected from taxpayers and now repayable following the successful challenge to the European Union (EU) State Aid application to the financing rules in the UK's controlled foreign companies (CFC) regime.

Group compliance and transactions

There will also be legislation in Finance Bill 2025-26 to simplify tax administration of reporting companies under the corporate interest restriction (CIR) regime. Most of the changes take effect for periods ending on or after 31 March 2026. There will also be technical amendments to the CIR regarding relief for certain capital expenditure. These changes take effect for periods ending on or after 31 December 2021.

In another simplification measure, the Government will legislate through statutory instrument to repeal the shadow advance corporation tax (ACT) rules with effect from 1 April 2026 and will consult on the future of the remaining ACT regime in early 2026.

In terms of anti-avoidance, the Government will modernize the anti-avoidance provisions that apply to share exchanges and company reorganizations with immediate effect. In particular, section 137 of the Taxation of Chargeable Gains Act 1992 will be amended so it applies to persons who have entered into arrangements in which the main purpose, or one of the main purposes, is to secure a tax advantage to which they would not ordinarily be entitled. The exclusion for shareholders with less than 5% of the ordinary shares of the disposing company will be removed. The new rules will have effect in relation to an issue of shares or debentures made on or after 26 November 2025, subject to transitional rules for clearance applications already submitted.

The Government will also introduce a new anti-avoidance provision, also effective from 26 November 2025, relating to certain arrangements in which there is a non-derecognition liability (particularly aimed at arrangements avoiding a charge under section 455 of the Corporate Tax Act 2010 affecting close companies).

Sector-specific measures

Creative industries

Changes will be made clarifying the tax treatment of payments between group companies in return for either surrendered R&D expenditure credit (RDEC), audio-visual expenditure credit (AVEC) or video games expenditure credit (VGEC). There will also be an update to the transitional rules between video games tax relief and VGEC and minor changes to the special credit for visual effects, which is part of AVEC.

Oil and gas

The Government will introduce legislation in Finance Bill 2025-26 to confirm the longstanding policy that no payments can be made under a decommissioning relief deed by reference to the energy profits levy, which excludes tax relief for decommissioning expenditure.

The Government has also confirmed that the oil and gas price mechanism (which will come into effect when the energy profits levy ends in March 2030, or sooner if the energy security investment mechanism is triggered) will be revenue-based. It will apply an additional tax rate of 35% above price thresholds of US$90 per barrel for oil and 90 pence per therm for gas. The threshold prices will be set for the financial year 2026, and in subsequent years will be adjusted for inflation.

Gambling

As of April 2026, the remote gaming duty will increase from 21% to 40% and the current 10% bingo duty will be abolished. From April 2027, a new 25% general betting duty will apply for remote betting, excluding self-service betting terminals, spread betting, pool bets and horseracing. The Government has also announced a freeze in casino gaming duty bands in 2026-27 with the usual Retail Price Index uprating thereafter.

Indirect taxes

No changes to the value-added tax (VAT) threshold or the main VAT rates have been announced. As far as e-invoicing is concerned, the Government will require all VAT invoices to be issued in a specified electronic format from April 2029. The Government will work with stakeholders to develop an implementation roadmap to be published at Budget 2026.

As of 26 November 2025, HMRC is reverting to unconditional whole entity cross-border VAT grouping. HMRC acknowledges that some VAT groups may have accounted for VAT in line with the previous guidance and may now be eligible to reclaim overpaid VAT.

The Government will legislate in Finance Bill 2025-26 to introduce a Carbon Border Adjustment Mechanism (CBAM) from 1 January 2027. The inclusion of indirect emissions within scope of the CBAM will be delayed until 2029 at the earliest.

A new VAT relief for business donations of goods to charity for onward distribution or use in their nonbusiness services will come into force on 1 April 2026, following Royal Assent of Finance Bill 2025-26. The relief will be designed to encourage the reuse of surplus goods and support the UK's transition towards a more circular economy. HMRC will publish detailed guidance for businesses and charities on how to use the relief and comply with the associated requirements.

The Government will remove the customs duty relief for low-value imports — goods valued at £135 or less — and reform the way these goods are declared when imported into the UK. From March 2029 at the latest, low-value imports will be charged customs duty, akin to goods imported in bulk, and new import arrangements will be put in place. The Government will consult on the technical detail of these new arrangements.

Stamp taxes

The Government is introducing a new UK Listing Relief, effective from 27 November 2025, a three-year exemption from stamp duty reserve tax for companies listing in the UK. Exclusions will broadly prevent takeovers and mergers of existing listed companies from qualifying and restrict exemption in the case of inserting a new holding company (unless it is broadly part of a domiciliation to the UK).

The Government will also legislate to allow regulations that enable the testing of the new digital service for the securities transfer charge, which will replace stamp duty and stamp duty reserve tax as part of the modernization of the stamp taxes on shares framework.

Tax administration

The UK intends to participate in a new international agreement that will tackle tax evasion by providing for the automatic exchange of readily available information on real estate from 2029 or 2030.

The Government will consult in early 2026 on delivery timescales for corporation tax compliance requirements and enforcement for prescribing the content and tagging of the corporation tax computation.

The Government will double the penalty for taxpayers submitting a corporation tax return late from 1 April 2026. It also intends to modernize HMRC's inaccuracy and failure to notify penalties. The Government will publish a consultation in early 2026 on the introduction of a new "recklessness" criminal offense for fraudulently evading direct taxes, to align with existing indirect tax offences.

Going forward, the Government will publish a consultation in early 2026 on proposals to enhance the existing notification regime for uncertain tax treatments as well as a consultation to explore introducing new requirements to report to HMRC transactions between close companies and their shareholders.