Autumn Budget 2025: Corporate taxes and reporting

The government has announced changes to venture capital trusts (VCTs) and the enterprise investment scheme (EIS). The existing annual and lifetime funding limits will be increased for EIS/VCT companies, along with an increase to the gross assets limit. The upfront income tax relief rate for VCT investors will be reduced.

Summary

The government announced it will increase the annual EIS and VCT company investment limit to £10m (previously £5m), and to £20m (previously £10m) for knowledge intensive companies (KICs). 

In addition, the lifetime EIS and VCT company investment limits will increase to £24m (previously £12m), and to £40m (previously £20m) for KICs. 

The gross assets test will also increase to £30m (previously £15m) immediately before the share issue, and £35m (previously £16m) immediately after.

Alongside the increases in the investment and gross asset size limits, the rate of up-front income tax relief for VCT investments will decrease from 30% to 20%. 

These changes will be legislated in the Finance Bill 2025/26, and will take effect from 6 April 2026.

Our comment

These changes to investment limits will be positively welcomed by EIS/VCT companies, fund managers and investors alike and underline the government’s commitment to UK growth and incentivisation.

The increased fundraising and size limits will allow established and larger companies to attract additional follow-on investment beyond the initial start-up and scale-up phases, where previously companies would have exceeded the fundraising limits or breached the gross asset size limit. 

This will in turn allow more EIS/VCT investors to continue to benefit from the generous tax benefits that the schemes offer for investors, and encourage continued investment in qualifying companies.
By contrast, the reduction in up-front income tax relief for VCT investors will potentially reduce the attractiveness of VCT investments compared to EIS. However, this is partly balanced by the tax-free treatment of dividends received from VCTs and is intended to ensure VCT funds target the highest growth companies.

Unfortunately, though, there was no change to the permitted age test which remains at 7 years, and 10 years for KICs, nor any changes to help simplify the current EIS rules.

To tackle issues that have arisen with making corporate interest restriction (CIR) returns to HMRC, the legislation will be amended to simplify the administration for reporting companies. A retrospective technical amendment is also being made regarding the calculation of tax-EBITDA for CIR purposes.

Summary

The CIR rules restrict the availability of excessive UK interest expenses for large businesses. 

HMRC has noted issues arising on how CIR reporting companies are nominated, and in early 2025 established a working group to see how this could be simplified. The time limit for appointing a reporting company will be removed, as well as the requirement to appoint the company by a separate formal notice. Instead, the nomination can be disclosed to HMRC in the CIR return itself. Other minor administrative changes have been announced and will be legislated in the 2025/26 Finance Bill. Most changes announced will have effect on, or after, 31 March 2026.

The CIR calculations are complex, and HMRC has found that the CIR regime was not appropriate in some cases. When calculating tax-EBITDA for CIR purposes, the capital expenditure adjustment was not working as intended for waste site preparation and restoration, cemeteries, crematoria, flood and coastal erosion projects. The changes announced to correct the calculation of tax-EBITDA will be legislated in Finance Bill 2025/26, but have retrospective effect for periods ending on, or after, 31 December 2021.

Our comment

The administration of the CIR regime and the calculation of any CIR restriction is a complex tax matter and specialist advice is needed. Any simplification to the administration is welcomed, and we have seen issues arising when the nomination of a reporting company has not been made by notice ahead of a CIR return being filed.

HMRC notes that the change to the tax-EBITDA calculation for CIR may only affect approximately fifty large businesses. While this is limited in scope, we welcome HMRC acknowledging that such change is needed when errors arise. Businesses that may have been adversely affected by these anomalies should welcome the retrospective fix.

The Chancellor announced lower business rates multipliers for all retail, hospitality and leisure (RHL) properties with a rateable value below £500,000. All properties with a rateable value of £500,000 and above will pay a higher multiplier.

Summary

From 1 April 2026, there will be a myriad of multipliers, with confirmation in the Budget that there will be five separate multipliers. There will also be an additional 1p on the tax rate referred to as transitional relief supplement for those who will not qualify for transitional relief, arguably creating more multipliers.  The transitional relief supplement, however, will apply for one year.

From 1 April 2026, the RHL multipliers will be 5p lower than their national equivalents. As a result of this, the small business RHL multiplier will be 38.2p and the standard RHL multiplier will be 43.0p. Small and standard RHL properties will therefore pay the lowest tax rate since 1990/91 and 2010/11, respectively.

For properties with a rateable value of £500,000 and above, the multiplier will be 50.8p.

As a result of the introduction of the new multipliers, from 1 April 2026, the number of multipliers will increase from two to five.  

On 1 April 2026, there will be a business rates revaluation. Over half of ratepayers will see no bill increases, including 23% seeing their bills go down.

A £3.2 billion transitional relief scheme will also come into effect, which will provide some support to larger ratepayers. However, transitional relief will be partially funded by an additional 1p on the tax rate for those not benefitting from transition.

There has also been a commitment to extend the period a business can claim small business rates relief to three years, after expansion to a second property. Businesses expanding after Budget day are now eligible.

Business retention schemes were also a focus in the Budget, with a commitment to extend the 100% pilot schemes in Cornwall, the West of England and the Liverpool city region to 2028/29. In addition to the announcement of a Leeds City Fund, referring to a creation of a business rates retention zone in Leeds, there is also a potential opportunity for mayoral strategic authorities (MSAs) to develop business rates retention zones.

The government has also made a commitment to 100% business rates relief for EV charging for the next decade.

Our comment

We welcome the permanent lower multipliers for RHL properties with a rateable value of below £500,000. This will hopefully provide these ratepayers with support and encourage investment back into the high street and local areas. 

With regards to higher rate multiplier, this has been set at 2.8p above the national standard multiplier. The government had legislative flexibility to set the higher rate at up to 10p higher, so the 2.8p was lower than many anticipated.  

It had been rumoured that some properties such as supermarkets, with a rateable value above £500,000, would be exempt from the highest multiplier but this does not appear to be the case. As a result, larger properties will see a significant rise to their business rates bills and could make investment and expansion less attractive or feasible.

Like other taxes, such as income tax, we would have liked to see the introduction of a ‘slice’ to ‘slab’ approach, so that businesses only pay the higher multiplier on the value above £500,000. However, despite substantial consultations on this, changes have not to date been announced. As a result of this, we expect an influx of proposals to rateable values near to the cliff edge of £500,000. 

We are generally supportive of the changes announced, but the business rates system continues to become more complex. The complexity is likely to lead to confusion, more appeals against rateable values and additional administrative burdens for both local authorities and businesses.

The Chancellor has announced:

• Plans to modernise the taxes applicable to transfers of shares and securities, introducing a digital self-assessment system and uniting the taxes applicable to paper and electronic transfers under a single regime
• A three-year exemption from stamp duty reserve tax for companies choosing to list in the UK

Summary

Currently, share and securities transfers can give rise to a 0.5% charge of either stamp duty or stamp duty reserve tax (SDRT), broadly depending on whether they are effected via paper or electronically. The government has announced plans to replace both taxes with a single securities transfer charge (STC) and to digitalise the reporting process. Further details of the proposed new STC will be announced in due course.

In addition, the Chancellor announced a new exemption from the 0.5% SDRT charge for transfers made on or after 27 November 2025. Where a company newly lists its shares on a UK-regulated market, transfers of its securities will be exempt from SDRT for a period of three years from the listing date. There are a few exceptions to this exemption, however. For example, SDRT will still apply to some mergers and takeovers. 

Our comment

The modernisation of the stamp taxes regimes is welcome and should ultimately reduce compliance costs for taxpayers. Of particular interest will be whether or not any changes are made to the current acquisition relief and reconstruction relief rules for stamp duty. These can apply to some corporate restructures where there is no change to the ultimate shareholders, and which currently require complex claims and copy documentation for HMRC. The response to the 2023 consultation also indicated an intent to remove the £1,000 price threshold under which stamp duty is not chargeable. This Autumn Budget did not indicate whether or not this is still intended. 

The government has stated that it will continue to evaluate stamp taxes on shares to ensure that the UK is well positioned for the future, so more reliefs may follow. 

The end of diverted profits tax (DPT) in the UK has led to the government creating a new charging provision for unassessed transfer pricing profits (UTPP), which will now be within the corporation tax regime. Previously, DPT was a standalone provision that was badged as a targeted anti-avoidance measure.

Summary

DPT was used  to target large multinational enterprises (MNEs) that divert profits from the UK. This will now be integrated into the corporation tax framework and will no longer be a standalone provision. The motivation for this change is to simplify the regime and enable businesses to benefit from the UK’s treaty network features, such as access to the mutual agreement procedure (MAP) to remove double taxation. The latter was difficult to access under the DPT regime.

For accounting periods beginning on or after 1 January 2026, a new charging provision is being created for UTPP, ensuring that profits that are not properly assessed under transfer pricing rules are brought within the scope of UK taxation. The charging rate for corporation tax on unassessed transfer pricing profits is set at the UTPP rate, which is the corporation tax main rate plus an additional 6%.

Much of the framework for the UTPP regime is similar to that of its predecessor. This includes the two gateway tests for DPT: the effective tax mismatch outcome and the tax design condition, previously known as the insufficient economic substance condition. However, the aim of this new charging provision has been to simplify these rules and improve their functionality. 

Our comment

The government will likely declare DPT a success, claiming that it has served its purpose of tackling the most aggressive tax avoidance by large businesses. This would be hard to argue against, given the government’s latest DPT statistics, which show that it has secured over £8.7 billion from this measure through successful DPT enquiries. 

But has DPT now served its purpose? If all the historic aggressive profit diversion structures have already been addressed through existing DPT enquiries, what is the rationale for rebranding the DPT legislation under a new regime within corporation tax? Given that the majority of DPT enquiries are progressed in parallel with transfer pricing positions, it doesn’t feel like the government has actually simplified its rules. 

Of course, one of the key motivations for the government would have been to enable businesses to benefit from the UK’s treaty network features, such as MAP. The inability to access MAP has been a point of frustration for businesses who have been charged under the DPT regime.

It will be interesting to see how often the new measure is used in future to assess group profits, and whether or not it will be as successful as DPT. We expect a significant proportion of enquiries will still be settled using existing transfer pricing rules. If so, one can question the future of the new measure.

To further modernise and simplify the transfer pricing rules, the government should eliminate the additional layers and complexities created by new legislation stacked on top of existing regulation. 

The government will introduce a new reporting requirement for businesses within the scope of UK transfer pricing rules - the international controlled transactions schedule (ICTS). This will be an annual filing requirement that will capture relevant cross-border intercompany transaction information in a standardised format.

Summary

The introduction of the ICTS, the first of its kind in the UK, will have a significant impact on UK businesses. HMRC expects the ICTS to provide it with higher quality data and analytics, which should help it identify and address non-compliance with transfer pricing principles more precisely and efficiently. 

This measure is expected to be introduced for accounting periods beginning on or after 1 January 2027, following a technical consultation early in the new year. It is expected that the draft regulations will include details of proposed de minimis thresholds for transactions that may be exempt from ICTS reporting.

Our comment

The UK has historically lagged behind its G20 peers in collecting detailed transfer pricing (TP) data. The introduction of the ICTS aims to close that gap as HMRC is keen to bring the UK into line with its international peers. It is also clear that HMRC has struggled to gather reliable TP data through existing channels, and it expects the ICTS to provide improved risk profiling and more targeted enquiries. 

The ICTS will introduce an additional compliance and cost burden for businesses. Those with cross-border related party transactions will need to ensure they have undertaken a transfer pricing analysis and prepared transfer pricing documentation to support their ICTS disclosures.

Businesses will be pleased that the government has stayed true to its 2024 corporation tax roadmap and not increased direct corporation taxes. Other administrative changes have been announced that aim to tackle tax avoidance and prevent money laundering, however.

Summary

The government has kept its promise not to increase corporation taxes, so the main rate remains at 25%, or 19% for small profits, with the marginal rate also untouched.

As part of the announcements on tackling tax avoidance or evasion, and closing the tax gap, the government announced a doubling of late filing penalties for corporation tax returns with a filing date on or after 1 April 2026. The immediate late filing penalty of £100 will increase to £200, and a return more than three months late will suffer a further £400 penalty (previously £200). Higher penalties arise if there have been three successive late returns.

The government also announced a change to the economic crime levy (ECL). This levy was introduced in 2022, with anti-money laundering (AML) regulated entities required to pay an annual charge designed to increase the government’s funding to tackle money laundering. The former large band for the ECL, which included regulated businesses with UK revenue between £36m and £1bn, will be split from 1 April 2026. Businesses in band B (£36m - £500m revenue) will face an annual charge of £36,000, while businesses in band C  (£500m - £1bn revenue) will have an annual charge of £500,000. The levies for the other bands will also increase. Those with revenue between £10.2m and £36m will now pay £10,200, and those with revenue over £1bn will pay £1m.

Our comment

Late filing penalties for corporation tax returns were introduced to encourage companies to file their returns on time. These were originally set in 1998 and have been largely unchanged since. The government hopes that doubling these penalties will encourage businesses to file their corporation tax returns on time and could be seen as an easy win to increase HMRC’s takings where behaviour is unchanged.

The government has again made various announcements setting out its intention to bridge the tax gap and tackle tax avoidance and evasion. The change to the ECL banding double the charge to £1m for very large regulated businesses with turnover over £1bn. While this may be limited in scope, it will have a significant impact on those suffering the charge, particularly as the levy cannot be deducted from their computation of taxable profits.

Various new measures aimed at reducing tax avoidance and fraud were announced at Autumn Budget 2025, including a headline-grabbing new reward scheme for informants on high value tax fraud.

Summary

As previously trailed, the government will now pay rewards of up to 30% of the additional tax collected where informants provide information to HMRC and over £1.5m of tax is recovered as a result. Rewards under existing arrangements for smaller value cases will continue.

Promoters of tax avoidance schemes face further sanctions, as will tax advisers who facilitate non-compliance. The government has decided against regulating tax advisers but remains committed to raising standards in the tax advice market.

Tax evasion on the high street, including fraud through electronic sales suppression, faces a further clampdown from HMRC, through a new small business evasion and enforcement team of 350 officers. A new recklessness criminal offence, in relation to direct taxes, will also be consulted on in early 2026. 

Further investment of £25m is planned, allowing recruitment of more insolvency service staff to disqualify more rogue directors.

Tax conditionality, where registration with HMRC is required to legally operate, will be extended to the waste and animal welfare sectors, and additional transport licenses. 

The government also announced reforms in other areas of tax anti-avoidance, relating to share reorganisations and offshore personal tax and inheritance tax, with further detail to follow. 

Finally, the government will also consult on giving HMRC new powers to ensure errors made by taxpayers in their tax returns are corrected, and the framework for publishing details of deliberate tax defaulters will be strengthened.

Our comment

With a tax gap in 2023/2024 of approximately £47 billion, further measures to crack down on tax avoidance, evasion and non-payment were inevitable. 

Whistleblowers who have information about high value tax fraud stand to be handsomely rewarded under a new US style scheme, with payments of up to 30% of amounts recovered over £1.5m. Expect the HMRC fraud hotline to get hotter, as those with knowledge of tax crime look to cash in.

Further measures to combat tax evasion in small businesses specifically are unsurprising, given HMRC estimates 60% of the tax gap is attributable to them. This includes extending the programme of making particular trading licenses conditional on tax compliance. The introduction of mandatory e-invoicing for VAT invoices, albeit from 2029, will further enhance HMRC’s compliance programme. 

The level of fraud through rogue directors, particularly relating to Covid support fraud, has inevitably led to the government’s plan to strengthen the insolvency service. 

The decision not to regulate tax advisers might be seen as surprising by some, and it remains to be seen as to what other measures might be considered in future to increase standards in the tax advice market.