The 2025 Autumn Budget was billed as a stabilising force for UK businesses, yet the reality is a patchwork of added complexity and compliance that does little to simplify the corporation tax landscape. While certain measures aim to modernise tax administration and foster innovation, the introduction of new allowances, additional reporting obligations, and changes to penalty regimes means businesses now face increased compliance costs, heightened risk of errors, and more time diverted from growth to administration.
Additional transfer pricing reporting
A key development is the International Controlled Transactions Schedule (ICTS), which is expected to take effect for accounting periods beginning on or after January 2027, following consultation. Although this is seen by some as a step towards greater transparency and better risk management, it will likely extend compliance obligations to a wider range of businesses with cross-border dealings.
The simplification of the UK-to-UK transfer pricing requirements should ease some of the compliance burdens. However, companies will need to understand how the diverted profits tax rules will work following the repeal of that tax and the inclusion of key elements within transfer pricing from January 2026. Also from this date, there are significant updates to the UK’s permanent establishment rules as HMRC continues to align UK law with the latest OECD guidance.
Overall, from a transfer pricing perspective, it’s a mixed picture: some simplification but also additional administrative requirements and new rules to navigate. Businesses should expect further scrutiny from HMRC in this area, based on the increased data that will need to be provided on cross-border transactions.
Added complication for capital allowances
From April 2026, the main writing-down allowance will fall from 18% to 14%, while a new 40% First-Year Allowance (FYA) will be introduced for qualifying expenditure incurred from January 2026. Although the FYA provides upfront relief, the coexistence of multiple rates and transitional rules for straddling periods adds further complexity to tax compliance. Businesses, especially those with diverse portfolios and leasing assets, will need to model scenarios carefully to work out the optimum way to combine the various allowances and avoid misclaims.
This again feels like a further unnecessary complication that places an additional administrative burden on companies, rather than any sort of simplification.
R&D Advance Assurance
After years of turbulence in R&D tax relief, the Budget offers stability in core schemes to support innovation but introduces a new Advance Assurance pilot from spring 2026. Intended to reduce fraud and provide certainty, this upstream process adds another administrative step. Companies must now decide whether to engage early with HMRC or risk prolonged enquiries later. For SMEs, this could mean additional time and cost without guaranteed benefit, but if used correctly, it could provide useful certainty to some.
Increased tax on interest and dividends
The 2% increase on the basic rate of income tax on savings income will also impact companies that have a withholding tax requirement on interest payments from UK sources. For example, when UK companies pay annual interest to non-residents, they will generally need to deduct tax at the new higher rate, unless a lower rate applies under a double tax treaty or domestic exemption. Businesses should review their eligibility for double tax treaty relief or domestic exemptions to mitigate the impact of the higher withholding rate. Increased administration should be expected, with companies needing to update their systems and processes to ensure the correct withholding rate is applied from April 2027.
Meanwhile, from April 2026, both the extraction of profits by dividend and the use of director loans will become more expensive, particularly for owner-managed businesses, following the 2% hike in tax on dividend income. This change, which includes increasing section s455 to 35.75%, may shift behaviour towards alternative funding structures, leading to more complicated planning and compliance.
Filing late will cost double
From April 2026, corporation tax filing penalties will double, with late submissions attracting up to £2,000 for repeated failures. The increase comes at a time when it could be said that the many changes to tax rules have complicated, rather than simplified, tax compliance for companies, which could lead to an increase in mistakes and errors. This sharp increase in penalties underscores the cost of administrative mistakes and highlights the need for businesses to ensure they have robust internal controls.
The bigger picture: complexity breeds risk
Individually, the additional measures companies need to deal with may seem manageable, but collectively they create a labyrinth of rules at a time when businesses need certainty rather than complexity. Instead of simplification, businesses face fragmented regimes, overlapping timelines, and heightened penalties. The result? Greater risk of mistakes, more time spent on compliance, and resources diverted from growth to administration. For companies already grappling with economic uncertainty, the Autumn Budget feels less like a roadmap to stability and more like a manual of further complexity.
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