Autumn Budget: Companies and other businesses

Author: Stuart Weekes, Partner, Corporate Tax

The government has announced plans to increase its support for innovation investment in research and development (R&D).

The automotive sector, a subset of Advanced Manufacturing (one of the eight key sectors in the Industrial Strategy), will benefit from £4 billion of capital and R&D funding up to 2035 under the DRIVE35 initiative, supporting investment in zero-emission technology.

Additionally, the government has also announced that annual government investment in R&D will reach £22.6 billion by 2029-30, much of it distributed through initiatives of UK Research & Innovation (UKRI).

To increase certainty for SMEs claiming R&D tax credits, HMRC will pilot a targeted advance assurance service from spring 2026. This will allow SMEs to gain clarity on key aspects of their R&D tax relief claims before submitting to HMRC.

This affects companies that carry out R&D. Innovative businesses in the automotive sector will particularly benefit from the investment, especially those focusing on zero-emissions technology.

The advance assurance for SMEs may be welcome, but it is unclear exactly how it will be applied. The consultation suggested that it may be mandatory, but it has been announced that it will start with a pilot and only focus on certain key aspects, so initially at least, it appears to be a voluntary scheme. For those companies seeking certainty about the success of their claim, this may be helpful, as once they have received assurance, they know they won’t have to repay their R&D tax credits.

The announcements are encouraging for companies in these sectors, but as ever, the conditions for claiming these benefits remain unclear.

At a time when the electric and hybrid car market is reacting to the news that these vehicles will be charged per mile, this investment in the automotive sector is welcome. If the advance assurance scheme delivers the certainty businesses need at a time of economic uncertainty, it will help them plan cash-flow and have more confidence to invest in further innovation.

Author: Stephen Metheringham, Director, Corporate Tax

The Budget announced a reduction to the writing down allowance (WDA) main rate from 18% to 14% from expenditure incurred from April 2026, alongside a new 40% First-Year Allowance (FYA) from January 2026. The new 40% FYA will also apply to unincorporated businesses and, following consultation, will include leased assets.

Capital allowances have supported growth, but the reduction of the WDA main pool rate will reduce initial and future tax relief. The introduction of a new 40% FYA does provide an incentive. However, it does complicate decisions on allocating the qualifying asset expenditure and requires short and long-term views on future asset disposal, adding complexity from January 2026.

The methodology for analysing qualifying expenditure remains unchanged. However, future decisions will be needed on how corporation tax-paying companies and unincorporated businesses in the self-assessment regime utilise the various options for claiming tax relief of qualifying asset expenditure:

• Main pool expenditure: Decisions will involve choosing between full expensing (with the eye on future disposal implications, only allowable for only for new assets and excluding expenditure on qualifying cars), AIA where available, or 40% FYA and the assumed balance at 14% (where full expensing is not utilised but now includes assets for leasing). Alternatively, businesses may opt for the standard 14% rate (including used assets and assets for leasing).
• Special rate pool expenditure: Decisions will require choosing between several options: allocating to 50% FYA for new qualifying assets (excludes expenditure on qualifying cars) or AIA where available. Alternatively, businesses may opt for the standard 6% rate (including used assets and assets for leasing).

The 4% reduction in the annual WDA main pool rate and the introduction of a new 40% FYA, combined with the numerous existing tax treatments and first-year tax acceleration options, do complicate how entities utilise the identified qualifying expenditure. These changes clearly create additional considerations for client discussions to maximise the tax relief on investment expenditure.

Other announcements include:

• Full expensing to be retained: Unused assets qualifying as main pool asset expenditure will receive 100% relief in the year of expenditure, and qualifying special rate pool asset expenditure will receive 50% FYA.
• Annual investment allowances & Land Remediation Relief: No changes to current position.

Zero emission vehicles (ZEVs) and charge points: The 100% FYA for qualifying expenditure on zero emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle (EV) charge points has been extended for a further year. These FYAs will now be in place until 31 March 2027 for corporation tax purposes, and 5 April 2027 for income tax purposes.

Author: Nicky Owen, Partner, Head of Professional Practices

The bandings determining the level of the levy to be paid is changing; the levy is now 0.1% of the revenue at the start of each band and is effective from 1 April 2026.

The bandings are now:

This measure affects all businesses that are regulated under the Money Laundering regulations and is based on the annual UK revenue.

The change is predominately splitting the previous large banding, £36 million to £1 billion into two bands.

For businesses that fall into the new band of £500 million to £1 billion, the increase is a staggering 1289%, from £36,000 to £500,000.

Whereas the increase for businesses with revenue over a £1 billion is 100%, from £500,000 to £1 million.

This unexpected increase is huge and will impact businesses.

Furthermore, it is a non-deductible expense for tax purposes and will impact businesses.

For LLPs that fall into the new bands C and D, this will impact partners' tax liabilities, as their effective tax rate will increase.

Author: Rafaela Oplopoiou-Chapman, Senior Manager, Corporate Tax

The UK government, in line with international trends and recommendations from the Organisation for Economic Co-operation and Development (OECD), continues to strengthen its approach to transfer pricing compliance and enforcement as evidenced by the Budget presented earlier today.

The long-awaited outcomes of the ‘Reform of UK law in relation to transfer pricing, permanent establishment and Diverted Profits Tax’ consultation, held earlier this year, have now been released, aligning with the government’s broader announcement of numerous administrative, compliance, and debt collection initiatives in the Budget. These measures are projected to generate an additional £2.3 billion by the 2029–30 fiscal year.

Introduction of the International Controlled Transactions Schedule (ICTS)

The Budget introduces the requirement for ICTS for multinational groups. This new obligation is expected to apply to accounting periods commencing on or after 1 January 2027. While specific details of the ICTS are yet to be consulted upon and published, the government has indicated that it will require annual reporting of cross-border intragroup transactions. A draft ICTS template was prepared as part of the initial consultation and can be found here.

According to the earlier consultation, the information collected will support both automated risk profiling and manual risk assessment by HMRC. A further technical consultation on the design of the ICTS is scheduled for spring 2026.

It is anticipated that approximately 75,000 businesses will be affected by this change. If you’re part of a group with cross-border transactions, we recommend this is something to keep on your radar.

Upcoming legislative changes

We have been expecting several legislative reforms to UK law on transfer pricing, permanent establishment, and Diverted Profits Tax (DPT).

A welcome simplification from the Budget is a new charging provision for Unassessed Transfer Pricing Profits within Corporation Tax. This repeals DPT (currently a standalone tax) in its entirety while retaining the essential features of the regime.

Additional changes include the removal of the UK-to-UK Transfer pricing requirement where there is no risk of tax loss. There will also be changes to the participation condition, intangible assets valuation standards as well as financial transactions transfer pricing.

The government intends to legislate these changes through the Finance Bill 2025–26, with changes effective for chargeable periods beginning on or after 1 January 2026.

How can you prepare?

These changes are expected to have a significant impact on multinational groups operating in the UK, requiring proactive planning and adaptation to evolving compliance requirements. While they were anticipated and reflect the UK’s commitment to international best practices, they are substantial and will require proactive planning by affected businesses, to ensure they steer clear of compliance pitfalls and avoid costly penalties.

If you would like support managing your transfer pricing compliance needs, please reach out to Rafaela Oplopoiou-Chapman or your usual Crowe contact.

Author: Shona Harvie, Partner, Pension Funds

As expected, there have been major changes that will impact all schemes with salary sacrifice arrangements.

Salary sacrifice arrangements

There is now a cap of £2,000 on contributions paid through salary sacrifice arrangements that receive national insurance (NIC) tax relief. Employee and employer NICs will be charged on the amounts above £2,000 each year. This change applies from 6 April 2029.

This will mean that contributions paid from bonuses are likely to be subject to NIC. Trustees and employers will need to review their salary sacrifice arrangements in the light of this change. In many cases, reduced contributions will be paid into pension schemes.

Inheritance Tax (IHT) payments on unused defined contribution pension funds and all death benefits

Personal representatives will be able to direct pension scheme administrators to withhold 50% of taxable benefits for up to 15 months and pay Inheritance Tax due in certain circumstances. Personal representatives will be discharged from a liability for payment of IHT on pensions discovered after they have received clearance from HMRC.

This will avoid instances where personal representatives are not aware of all pension arrangements of the deceased.

This will be legislated for in Finance Bill 2025-26 and take effect from 6 April 2027.

State Pension

As previously announced, the government is reviewing the State Pension including the state pension age. Where bridging pensions are in place, Trustees will need to consider the impact of any proposed changes to State Pension ages.

Inflation protection for pre-1997 pensions in the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS).

CPI-linked increases will be introduced, capped at 2.5% a year, on pre-1997 pension accruals. This is welcome news for those members who will benefit. However, it will only apply where the original employer occupational schemes provided this benefit and will leave some pensioners with pre-1997 benefits still with no inflationary increases as this was not a legal requirement at the time. This change will apply from January 2027.

Salary sacrifice arrangements have been in place for many years, and these changes will reduce contributions paid into pension schemes, in a lot of cases, this will be where the size of the pension pot is already inadequate.

Author: John Manis, Partner, Workforce Advisory

The government has restricted Capital Gains Tax (CGT) relief on sales to employee ownership trusts (EOTs). Broadly, EOTs are a tax-efficient form of succession planning where a trading company or group can be sold to a trust for the benefit of its employees.

Previously, full relief from CGT was available on a sale to a qualifying EOT. Tax relief is now only available on 50% of any gain arising on sale to an EOT, meaning that a 12% effective rate will apply in place of the main 24% CGT rate. The restriction has been introduced because the number of EOT sales since the relief was introduced has been much higher than expected, increasing the cost to the Chancellor.

However, the government retains its aim of promoting employee ownership, and the relief remains generous.

For example, if a business is sold for £20 million in the open market, and assuming “business asset disposal relief” applies at 18% to the first £1 million of gains, the CGT due on an open market sale would be approximately £4.74 million. On a sale to an EOT, the liability would be approximately £2.4 million – a saving of £2.34 million.

EOT sales are generally funded by trading profits after corporation tax, with consideration payable on deferred terms. If the same £20 million were instead withdrawn as dividends, the tax liability at the additional rate would be approximately £7.87 million.

Although EOT consideration is generally paid on deferred terms, the CGT will be payable by 31 January following the end of the tax year of sale. If this causes any cashflow issues, it is possible to apply for CGT to be payable in instalments. This is granted at HMRC’s discretion. HMRC will usually allow deferred payment of CGT on terms that 50% of each consideration payment is paid to HMRC until the CGT liability has been fully paid.

Despite the reduced CGT relief, EOT sales remain a compelling succession option. They still offer significant tax savings compared to third-party sales or cash extraction through dividends, and the government’s continuing support signals long-term viability. Businesses should thoroughly plan for cashflow on the transaction and consider HMRC’s instalment payment options to maximise the benefits to both owners and employees.

Author: John Manis, Partner, Workforce Advisory

The eligibility limits for a company to qualify under the Enterprise Management Incentive (EMI) scheme are to be increased. The government’s aim is to support the growth of larger businesses which are scaling up, by allowing them to offer employees tax advantaged equity participation.

The EMI scheme allows qualifying companies to grant tax-efficient options to their employees, with the employees qualifying for an 18% or 24% rate of capital gains tax on sale of the shares they acquire. However, this is currently limited to smaller businesses (tested by number of employees and gross assets) and there are caps on the value of shares that can be included.

From April 2026, the employee limit is to be increased to 500 (a doubling from the previous 250 employee limit) and the gross assets limit to £120 million (a quadrupling of the current £30 million limit). Additionally, whilst there is no increase to the individual EMI grant limit (currently £250,000 per employee), from April 2026 qualifying companies will be able to grant EMI options up to a maximum total value of £6 million (a doubling of the current £3 million limit).

There are two other positive changes to the EMI scheme. First, the maximum holding period will increase from 10 years to 15 years, which will also benefit existing EMI options. In addition, the requirement to notify the grant of EMI options will be removed from April 2027. At present, EMI options lose their tax-advantaged status if their grant is not notified to HMRC by 6 July after the year of grant. A grant of EMI options may still need to be reported to HMRC on a company’s annual share schemes return, but the removal of the separate notification of grant requirement will be a welcome simplification. 

While not unexpected, given the pre-Budget leaks, one of the most impactful announcements for many employers and employees is the National Insurance (“NI”) cap on pension salary sacrifice from April 2029.

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