Corporate tax changes

Author: Stephen Metheringham

Summary of changes

UK businesses get relief for qualifying capital expenditure by way of capital allowances.

Annual Investment Allowance

The capital allowance, annual investment allowance (AIA), provides 100% relief in the year of acquisition, with £1 million qualifying expenditure from 1 January 2019.

Full Expensing and Special Rate First Year Allowance (SR FYA)

Incorporated companies are entitled to a 100% first-year tax deduction for the costs of new qualifying main pool capital allowances. (Usual rate remains at 18% writing down allowance per year).

A 50% first-year allowance deduction for the costs of certain new qualifying ‘long-life’ capital assets classified as special rate pool. (Usual rate remains at 6% writing down allowance per year).

There is no cap on the amount of expenditure that can qualify for relief. Full Expensing and SR FYA assets may form part of a CAA01s198 Election. Disposal of assets on which FE and SR FYA applied will bring into effect a disposal event in the year of disposal.

Main Rate Pool Writing Down Allowances

Main Rate Pool rate of writing down allowances will reduce from 18% to 14% for qualifying expenditure incurred on main rate pool assets and main rate pool from April 2026.

40% First Year Allowance for Main Rate Pool Expenditure

40% First-Year Allowance (FYA) introduced for qualifying main rate pool expenditure incurred from January 2026, for new (unused) assets to provide a further form of accelerated tax relief. The new 40% FYA has been expanded to include both incorporated and unincorporated businesses. Following HMRC consultation, the new 40% FYA will include expenditure incurred on qualifying assets used for leasing, providing the assets are within the UK.

Who does this affect?

• UK incorporated businesses with qualifying capital expenditure (UK incorporated 40% First Year Allowance Main Rate Pool for leased assets within the UK).
• UK unincorporated businesses (UK unincorporated 40% First Year Allowance Main Rate Pool for leased assets within the UK).

Effective dates

• Annual Investment Allowance: 1 January 2019.
• Full Expensing and Special Rate First Year Allowance (SR FYA).
• Main Rate Pool Writing Down Allowance Rate reduces from 18% to 14%: April 2026.
• 40% First Year Allowance apply to incorporated and unincorporated businesses (will include leased assets within UK): January 2026.
  
   

Author: Stephen Metheringham

Summary of change

The structures and buildings allowance (SBA) is a relief that is available on the construction of, extension to or refurbishment of non-residential structures and buildings (land, landscaping and dwellings will not be eligible for relief).

SBAs must not include expenditure incurred on plant and machinery, which must be claimed by way of capital allowances.

The relief provides a flat rate 3% per year allowance based on the original building expenditure.

The relief applies from when a structure or building is first brought into use.

An SBA statement must be prepared for each SBA claim (or phase for a different date of first use).

There are no balancing allowances or balancing charges in relation to the SBA on a future disposal of the building.

Who does this affect?

Any UK companies involved in non-residential construction, extension or refurbishment (which is treated as a fixed asset rather than stock).

A tenant under a lease of 35 years or more granted at a substantial premium should be able to claim allowances on the original construction cost of the property.

A tenant under a lease of any length may be able to claim SBAs if they incur qualifying expenditure on new building works.

A buyer of a used structure will only be able to claim allowances if they get a copy of the allowance statement from the previous owner before the claim for SBAs is made.

Tax-exempt buyers cannot claim SBAs. However, when purchasing a structure, it will still be important for a tax-exempt buyer to obtain a written allowance statement so they can pass the benefit of unused SBAs to a future buyer of the building. However, the amount of the SBA claim may increase any capital gain on a subsequent sale because it will be added to the disposal proceeds.

Effective date

Applies to physical construction contracts entered on or after 29 October 2018.

Summary of change

Non-UK entities which own or have acquired UK land since 1 January 1999 must be entered on the Register of Overseas Entities (ROE) under The Economic Crime (Transparency and Enforcement) Act 2022.

It applies to interests in freehold land, leases granted for more than seven years and legal charges over land to secure finance.
The registers require details of the beneficial owners to be disclosed.

A beneficial owner is broadly someone who has more than 25% of the share or voting rights, in relation to the overseas entity or is in a position to exercise significant influence or control over it.

Failure to comply will be a criminal offence by the overseas entity and its officers, punishable by fines and imprisonment.

HMRC have obtained data, including from Land Registry, and is undertaking an ongoing campaign to tackle non-compliance linked to offshore corporates owing UK residential property.

Who does this affect?

Any overseas entity which owns UK property.

Effective date

Effective from 31 January 2023.

Summary of change

The International Tax Enforcement (Disclosable Arrangements Regulations 2023) known as the Mandatory Disclosure Rules (MDR) entered into force in the UK on 28 March 2023.

The main difference between DAC 6 (an EU directive) and MDR is that only two of the hallmarks (D1 and D2) where a disclosure is required under DAC 6 are present under MDR.

Where the MDR rules apply, promoters and advisors are required to disclose details of certain types of arrangements to HMRC.

Reportable arrangements broadly include those which:

• have the effect of undermining reporting requirements under agreements for the exchange of information between tax authorities under the Common Reporting Standards (CRS)
• obscure beneficial ownership and involve the use of offshore entities and structures with no real substance.

Who does this affect?

All businesses operating in the UK.

Effective date

Effective from 29 March 2023.

Author: Simon Crookston

Summary of changes

From 6 April 2025, interest is charged on the late payment of corporation tax at the base rate plus 4%.

From 25 February 2025, corporation tax repayment interest is credited at the base rate less 1%.

As both late payment and repayment interest are taxable, to ensure that tax relief is correctly claimed in respect of late payment interest, please ensure that interest is posted to the interest payable ledger as opposed to the tax ledger.

Who does this affect?

Any company subject to UK corporation tax.

Effective dates

• Interest on late payment of corporation tax: 6 April 2025.
• Interest on corporation tax repayment: 25 February 2025.

Summary of changes

New ‘associated companies’ rules have replaced a previous ‘related 51% companies’ rule.

Companies are now considered associated for tax purposes if one controls the other or they are under the control of the same person(s) within the last 12 months. This can result in more associated companies than under the 51% rule.

The number of associated companies affects:

• corporation tax rates
• quarterly instalment payments of corporation tax (QIPs).

Corporate tax rates

•  Small profit rate of 19% up to profits of £50,000.*
•  Main rate of 25% for profits over £250,000.*
•  Profits between these levels are taxed at the main rate, reduced by a marginal relief to gradually increase the effective rate.

 *Limits are divided by the number of associated companies.

Corporate tax payment dates

• The usual due date is nine months and one day after the accounting period end.
• Large and very large companies must pay in quarterly instalments based on estimated taxable profits, with limits of £1.5 million and £20 million respectively, divided by the number of associated companies. The first payment is due by the 14^th day of the seventh month of the accounting period for large companies and by the 14^th day of the third month for very large companies.

Who does this affect?

Companies that may lose access to the 19% corporate tax rate.

Companies that need to pay their corporate tax liability in instalments either for the first time or earlier, as a result of moving from the large to the very large category.

Family-owned businesses now need to consider their spouse/civil partner, business partner and other lineal relatives, as well as some further associations.

Private equity-backed companies now need to consider all investments controlled by a PE fund, not just individual portfolio groups.

Effective date

Effective from 1 April 2023.

Summary of changes

The UK government has introduced new Transfer Pricing Documentation Regulations following the Spring Finance Bill 2023.

 These regulations require large multinational businesses operating in the UK to maintain a Master File and Local File in a prescribed format, as per the OECD Transfer Pricing Guidelines.

Documentation required contains detailed information as described in Annexes I and II to Chapter V of the 2022 OECD Transfer Pricing Guidelines. Further, a country-by-country report is also required, which provides the key financial elements of each jurisdiction.

A Master File provides a comprehensive overview of the group’s global business operations and transfer pricing policies. A Local file focuses on specific intercompany transactions between the local entity and its foreign affiliates.

Also, the International Dealings Summary Report has been proposed but is not yet in force. This would require in-scope UK entities with cross-border transactions over £1 million (or dealings with entities in non-qualifying territories) to file standardised information annually with HMRC.

Documentation needs to be ready by the time the tax return is submitted (deadline is 12 months from the end of the accounting period) but does not need to be filed with the tax return. However, should HMRC request it, it must be submitted within a 30-day timeframe. Generally, records should be retained for a period of six years after the end of the accounting period.

Who does this affect?

HMRC is also consulting on a number of other aspects of transfer pricing that will potentially affect UK businesses, which include the removal of the medium-sized business exemption and also exemption from the transfer pricing rules transaction between UK-resident companies.

Read more Recent developments in transfer pricing in the UK

Effective date

The new rules came into effect for accounting periods beginning on or after 1 April 2023, for corporation tax purposes, and from the fiscal year 2024/2025 for income tax purposes.

Summary of changes

Country-by-Country Reporting (CbCR) requires certain multinational enterprises (MNEs) to report annually to HMRC details of revenue, profit, taxes and other measures of economic activity for each tax jurisdiction in which they do business.

HMRC have made changes to the notifications required to be made by companies within the CbCR regime where a full CbCR report is not going to be filed in the UK.

The requirement to submit an 'intention to file' CbCR notification before the end of the relevant accounting period to indicate whether the CbCR report would be filed in the UK or by another group entity in an overseas territory has been removed.

Where the CbCR is submitted outside the UK, in certain circumstances, a notification to HMRC is still required in respect of an exception from the requirement to file a CbCR report in the UK.

Penalties can be levied by HMRC where a required CbCR notification is not filed on time.

Who does this affect?

International parented groups with at least one company based in the UK and UK-headed MNEs with consolidated group revenue of €750 million or more.

Effective date

Intention to file notification removed from 26 July 2023.

Summary of changes

The new multinational top-up tax is the UK’s adoption of the OECD’s Pillar 2 framework (or GloBe rules), which introduces the concept of a top-up tax on profits arising in jurisdictions where the Effective Tax Rate (ETR) is below 15%.

Top-up tax will be charged on members of the largest multinational groups and primarily collected through Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT). MTT will be charged where a UK parent member has an interest in entities located in a non-UK jurisdiction and profits arising in that jurisdiction are taxed below the minimum rate of 15%. DTT is charged on group profits arising in the UK under the 15% ETR.

Draft legislation has also been published to include an Undertaxed Profits Rule (UTPR), which collects any top-up tax that is not collected via the MTT or DTT. This is to ensure the charge is picked up in every jurisdiction.

Multinationals within the rules will have several registration and reporting requirements to ensure they are compliant. To ease this burden in the first few years, the rules also include transitional safe harbour provisions. These may be made permanent in due course, but this has not yet been legislated on.

Who does this affect?

The rules apply to multi-national enterprises (MNEs) with at least one entity in the UK and a consolidated group annual turnover of €750m or more in at least two out of the prior four accounting periods.

Effective dates

For MTT and DTT accounting periods beginning on or after 31 December 2023. The filing group company must register with HMRC no later than six months after the end of the first accounting period in which an in-scope group falls within the Pillar 2 rules.

UTPR accounting periods ending on or after 31 December 2024.

Author: Simon Crookston

Summary of changes

MTD is the automated extraction and filing of information with HMRC as a mechanism to encourage taxpayers to pay the right amount of tax at the right time.

MTD has already been implemented for VAT and is starting to be tested for income tax purposes, although with some delays. The current timing for MTD for income tax is to apply from 6 April 2026 for the self-employed and landlords.

MTD for corporation tax we no longer be implemented. HMRC announced the change in approach in July 2025 as part of HMRC’s Transformational Roadmap.

Who does this affect?

Companies within the UK corporation tax regime.

Effective date

No longer to be implemented for corporation tax.

Summary of changes

Research and Development tax credits (R&D tax credits) are claimed by innovative UK companies that seek to increase the understanding of science or technology.

 Recent changes by HMRC are listed below.

• The benefit under the SME scheme was reduced, while the Research and Development Expenditure Credit (RDEC) rate was increased.
• A higher payable credit was introduced for loss-making SMEs classified as ‘R&D intensive’.
• The scope of qualifying R&D expenditure was expanded to include data licences, cloud computing services, and pure mathematics.
• The Additional Information Form (AIF) was introduced, which must be submitted digitally before the R&D claim is made, detailing the R&D activities and associated costs.
• A mandatory claim notification form was introduced for first time-claimants, or companies that have not made a recent R&D tax credit claim; it must be submitted digitally within six months of the end of the relevant accounting period.
• Expenditure incurred on subcontractors or externally provided workers (EPWs) based outside the UK are excluded from relief, unless specific exemption conditions are met.
• The new RDEC replaces the separate SME and RDEC schemes for most companies. R&D-intensive SMEs will continue to receive enhanced support under the enhanced R&D intensive support (ERIS) scheme.
• New rules clarify which company can claim relief when R&D activities have been 'contracted out'.
• An R&D Disclosure Facility was introduced, allowing companies to voluntarily disclose any inaccuracies in R&D claims that are out of time to amend on their Company Tax Return.
• HMRC launched a consultation on reforming the current advance assurance process, exploring new clearance options at different stages of the R&D claim process to reduce error and fraud and provide greater certainty to claimants.
• HMRC has increased its scrutiny of R&D tax relief claims and is tightening its approach to identifying and addressing non-compliance.

Who does this affect?

Any qualifying UK company that undertakes qualifying research and development and claims R&D tax credits.

The company needs to ensure the R&D project meets the conditions for relief as outlined by the Department for Science, Innovation and Technology (DSIT) and incurs qualifying costs.

Effective dates

• SME scheme and R&D Expenditure Credits (RDEC) rate changes: Expenditure incurred on/after 1 April 2023.
• Enhanced R&D intensive support: Expenditure incurred on/after 1 April 2023.
• Increase in the categories of qualifying expenditure: Accounting periods beginning on/after 1 April 2023.
• Claim notification form: Accounting periods beginning on/after 1 April 2023.
• AIF: Claims made on/after 8 August 2023.
• Restriction for overseas qualifying expenditure: Accounting periods beginning on/after 1 April 2024.
• Creation of a new RDEC scheme and ERIS: Accounting periods beginning on/after 1 April 2024.
• New 'contracted out R&D' rules: Accounting periods beginning on/after 1 April 2024.
• R&D Disclosure Facility: Went live 31 December 2024.
• R&D advance clearances consultation: Ran from 26 March 2025 to 26 May 2025.