Budget 2026: Corporate and Business Tax Changes

There were relatively few changes to the way in which taxable profits are calculated for companies and businesses in John Healey’s first Budget as Chancellor.

In recent years there have been significant changes to encourage businesses to make capital investments and to undertake innovation which creates intellectual property here in the UK and grows our “knowledge economy”.

On this occasion there are only a couple of changes to note, but some potential for more to come.

The first affects businesses who make significant capital expenditure (in excess of the £1m Annual Investment Allowance) and choose to claim first year allowances rather than full expensing, or have brought forward main pool plant and machinery expenditure from earlier years.

In these cases the first-year allowance will increase from 40% to 50% for expenditure incurred after 1 January 2027. However, the writing down rate for the remaining pool will fall from 14% to 12% from 1 April 2027 for  companies and 6 April 2027 for partnerships and sole traders.

Companies claiming relief for research & development (R&D) will have noticed an increase in administration around claims in recent years.

One change was the introduction of a pre-claim notification form for companies that had never claimed before or had not claimed for three years.

For R&D claims made on or after 1 April 2027, this requirement will be withdrawn.  This is a helpful simplification, particularly for first-time claimants who could previously miss out because they were unaware that advance notification was required.

HMRC is also proposing to work with tax advisers and the accountancy profession to consider simplifying the Additional Information Form submitted in support of R&D claims. The aim is to remove duplication in a further helpful reduction of administration.

Finally, companies with overseas branches have, for some time, been able to elect for an exemption from UK tax on their branch profits.

Many will have done so, particularly where tax rates overseas were lower than in the UK, but the exemption has not been mandatory.

For accounting periods beginning on or after 1 January 2027, the exemption for foreign branch profits will become mandatory.  This will reduce the complexity of tax return completion for companies with overseas branches.

HMRC has also launched a new consultation on simplifying the tax rules affecting business investment. This will consider areas including R&D, capital allowances, the intangible assets regime, withholding tax on interest and interest deductibility rules.

Conclusions and potential changes from this consultation can be expected at the 2027 Budget.