- Corporation Tax Rates and Reliefs
- Capital Allowances: New Measures and Changes
- Three-Year Stamp Duty Holiday for UK Newly Listed Companies
- Corporation Tax: Late Filing Penalties
- Changes to Corporate Interest Restriction
- Modernising Transfer Pricing, Permanent Establishment, and Diverted Profits Rules
- Summary Table of Key Changes
Corporation Tax Rates and Reliefs
The UK Government has reaffirmed its commitment to maintaining a competitive Corporation Tax regime, with no planned changes to existing rates.
- Main Rate: Applies to companies with profits exceeding £250,000 and remains at 25%.
- Small Profits Rate (SPR): For companies with profits up to £50,000, the rate continues at 19%.
- Marginal Relief: Applies to profits between £50,000 and £250,000.
From a corporate tax perspective, companies currently receive 100% tax relief for new or unused items of plant and machinery via either the Annual Investment Allowance or full expensing.
Capital Allowances: New Measures and Changes
While there were no changes to the corporation tax rates, the UK government announced other key changes in the budget:
- From 1 April 2026 (corporation tax) and 6 April 2026 (income tax): Main rate writing-down allowances will reduce from 18% to 14%. A hybrid rate will apply for any businesses with a chargeable period that spans these dates.
- New 40% First-Year Allowance (FYA): Applicable from January 2026, this aims to encourage investment where current FYAs are unavailable—such as assets purchased for leasing or by unincorporated businesses.
- Extension of 100% FYA: For zero CO₂ emission cars and for the purchase and installation of electric vehicle charge-points by businesses, extended for a further 12 months.
These measures are designed to incentivise and support future business investment in plant and machinery, especially where existing FYAs are not available.
Three-Year Stamp Duty Holiday for UK Newly Listed Companies
The government has introduced a new UK listing relief from Stamp Duty Reserve Tax (SDRT), effective for agreements to transfer made on or after 27 November 2025.
- Three-Year Exemption: Newly listed companies on a UK regulated market will be exempt from the 0.5% SDRT charge for three years following the listing date.
- Aims: The measure is intended to revitalise UK capital markets and attract more companies to list domestically.
Important exclusions: The relief does not apply to the 1.5% SDRT charge on transfers to depositary receipt systems or unelected clearance services.
Corporation Tax: Late Filing Penalties
From 1 April 2026, fixed late filing penalties for corporation tax returns will increase:
- Initial penalty: £200 (up from £100)
- Return over 3 months late: £400 (up from £200)
- Three successive failures: £1,000 (up from £500)
- Over 3 months late with three successive failures: £2,000 (up from £1,000)
These changes are designed to deter repeated delays and improve overall filing discipline among companies.
Changes to Corporate Interest Restriction
Legislation will be introduced to remove the current time limit and formal notice requirement for appointing a reporting company under the Corporate Interest Restriction (CIR) rules. Key changes include:
- No HMRC notification required; appointment applies per accounting period; retrospective appointments permitted for periods ending on/after 31 March 2024 (with a £1,000 penalty).
- More than 50% approval threshold required to avoid deadlock.
- Deadline for appointment removed, introducing flexibility.
- Details included in the Interest Restriction Return (IRR) instead of a separate notice to HMRC.
- Adjustments to Tax-EBITDA calculation rules planned (details in Finance Bill 2025-26).
Most changes apply for periods ending on or after 31 March 2026.
Modernising Transfer Pricing, Permanent Establishment, and Diverted Profits Rules
Significant reforms to international tax rules were announced in the Autumn Budget 2025, impacting how multinational enterprises manage transfer pricing, permanent establishment risks, and diverted profits.
Transfer Pricing (TP)
- UK-to-UK Exemption: TP adjustments generally do not apply where both parties are subject to UK corporation tax at the same rate.
- Mandatory Reporting: Introduction of an International Controlled Transactions Schedule (ICTS) for detailed disclosure of cross-border related-party transactions.
- OECD Alignment: UK TP rules will follow OECD guidance on intangibles and financial transactions.
- SME Exemption Narrowed: Only small enterprises remain exempt; medium-sized enterprises lose exemption.
Permanent Establishment (PE)
- Broader Definition: Updated to align with OECD standards, including situations where a person habitually concludes contracts or plays a principal role in doing so.
- Profit Attribution: Revised approach based on OECD’s 2010 report.
- Relief Mechanism: New provisions for UK PEs to claim relief when TP adjustments affect connected UK entities.
Diverted Profits Tax (DPT)
- Repeal of Standalone DPT: DPT abolished as a separate tax.
- Integration into Corporation Tax: Key features retained through a new charge on Unassessed Transfer Pricing Profits (UTPP).
- Simplification: Streamlined compliance and reduced duplication.
Groups should review documentation processes, reassess operating models, and monitor UTPP provisions to ensure compliance.
Summary Table of Key Changes
Corporation Tax Late Filing Penalties (from 1 April 2026)
| Offence | Current Penalty | New Penalty |
|---|---|---|
| Return late | £100 | £200 |
| Return more than 3 months late | £200 | £400 |
| Three successive late filings | £500 | £1,000 |
| Three successive filings >3 months late | £1,000 | £2,000 |
Corporate Interest Restriction – Key Changes
| Area | Previous Rules | New Rules (Budget 2025) |
|---|---|---|
| Reporting Company Appointment | Formal notification to HMRC; rolling forward indefinitely | No HMRC notification; appointment per period; retrospective allowed |
| Retrospective Appointment | Not permitted | Permitted for periods ending on/after 31 Mar 2024; £1,000 penalty |
| Approval Threshold | 50% of eligible companies | More than 50% required to avoid a deadlock |
| Deadline for Appointment | Strict 12-month deadline | Deadline removed; flexibility introduced |
| Disclosure | Separate notice to HMRC | Details included in Interest Restriction Return (IRR) |
| Tax-EBITDA Interaction | Existing calculation rules | Adjustments planned (details in Finance Bill 2025-26) |
| Effective Date | Existing rules apply | Most changes apply to periods ending on/after 31 Mar 2026 |
The information provided in this guide is intended as a general overview to help readers understand the key measures introduced in the UK Budget 2025. It does not claim to be exhaustive and should not be relied upon as a substitute for tailored professional advice. If you have any questions or require specific guidance, please
speak to one of our experts.
