Simon Massey, Managing Partner comments: “The Chancellor has introduced a broad range of tax changes that will give firms plenty to digest as they work out the impact. While the OBR report offers a glimmer of hope and the purported enhancement of entrepreneurial tax breaks is welcome, the Chancellor’s words have not always translated into action.

We have had a very unsettling period of conflicting messaging, and with 80% of mid-large companies struggling to keep pace with volatility, and a third held back by the lack of government grants, ministers have left them in limbo for a second year running.

The result is predictable: investment has stalled and the cost of indecision is weighing heavily on the UK economy, so let’s hope this budget lives up to its promise to unlock investment and support scaling firms across the country.”

Lucy Mangan, Head of Tax comments: “This Budget was billed as a move towards stability, yet it introduces another wave of costs and complexities with no real reform. Businesses are now left with a patchwork of measures rather than a clear growth strategy, with pressure placed on the very businesses that the Government relies on to close the fiscal gap. However, positive noises came from increased investment in innovation, AI and changes to capital allowance rules – but as ever, the devil will be in the detail.

Raising tax rates on dividends, savings, and rental income effectively introduces an additional 2% NIC onto these categories, and weakens incentives to invest and scale. Notably, this 2% uplift does not apply to the additional dividend rate, suggesting an intention to offer some relief to entrepreneurs and SMEs. Add in sin taxes on gambling and milkshakes which deliver little economic value, but pull more products and services into the system, push prices up higher and add administrative burden to an already crowded tax landscape. If the Government is serious about its growth ambitions, more must be done to reduce financial pressures on business owners and consumers, reduce barriers to investment, and incentivise job creation and innovation. Without reforms that support productivity, competitiveness and long-term expansion, the UK risks constraining the very opportunities its businesses are working hard to create.“

Business Tax

Dividend tax rate changes

Andrew England, Head of Business Tax comments:

“The 2% rise in dividend tax rates for basic and higher-rate taxpayers may avoid being labelled a tax on “working people,” but it hits many working entrepreneurs who rely on dividends to extract profits from their businesses.

This change erodes the advantage of dividends within the basic rate band and pushes higher-rate taxpayers toward salary instead because their effective tax rate on dividends now exceeds 51%, meaning entrepreneurs keep less than half of what they earn in profit and the government may see some tax take accelerated via PAYE.

Notably, the Government avoided applying the extra 2% to additional-rate taxpayers, likely because it would have pushed their effective dividend tax rate to around 56%, which may be due to recognition that this risks disincentivising discretionary effort.”

Minimum Wage

“Businesses understand the cost-of-living pressures facing their staff and recognise their responsibilities within the wider community. They accept that wages must support employees. However, for sectors such as hospitality, retail and leisure, the increases to the National Living Wage and National Minimum Wage will be extremely challenging. These rises come on top of last year’s reduction in the NIC secondary threshold to £5,000 – costing employers up to £615 per employee – and the additional 1.2% increase in Employer National Insurance.

As a result, many businesses will face tough decisions, including whether to raise prices (with knock-on effects for inflation), reduce headcount, limit future pay growth, or look for other cost-saving measures.

Enterprise Management Incentive scheme

“The Enterprise Management Incentive scheme has long been recognised as a valuable staff engagement tool in the privately owned business sector but growing businesses have sometimes been precluded as a result of the head count restrictions or the gross asset limitations. The announcement of an increase in these to 500 employees and £120m gross assets are positive measures that will be beneficial to those businesses looking to scale quickly and to ensure key employees are rewarded for their contribution to the business growth.

 The introduction of a 40% First Year Allowance for qualifying spending from April 2026 will be welcomed by unincorporated businesses that spend in excess of their £1m Annual Investment Allowance and this will be of particular interest to large partnerships and LLPs who have significant annual spend or are looking to undertake large scale profits. Whilst there is a reduction in the annual writing down allowance from 18% to 14%, this will mean that there is a significant benefit in the first year and that the business is still benefitting over a 5 year period.

 Property groups and other businesses that maintain a plant company in their group to provide commercial protection to the assets used by the group will see the introduction of a 40% First Year Allowance for qualifying spend that is leased round the group as a positive step. Whilst this does not provide as much relief as full expensing and still represents an anomaly in the system (when compared to a single entity holding plant and using it in its business) it is a positive first step but we would like to see the government remove the anomaly where an asset is used within a group rather than leased to an unconnected party.”

Peter Mills, Director of Business Tax, comments:

“The Chancellor’s announcement that there will be a restriction on the capital gains tax relief applicable to disposals to Employee Ownership Trusts (EOT) is a significant and unexpected change, and on face value, one which risks fundamentally undermining the viability of this structure.

Shareholders selling to an EOT already make substantial compromises, accepting a number of commercial and financial risks that are unique because of the way in which the consideration is payable in this type of structure.  

The imposition of tax charges may make transitioning to an EOT unworkable now for many business owners considering this as an effective way to exit a business, whilst protecting and preserving it for the future benefit of loyal employees.  

It is also unclear from the detail whether due attention has been given to the practicalities of EOT disposals, and it seems as though there may not be any means for tax charges to be deferred to match the timing of receipts, and so these will crystallise up front as would ordinarily be the case in respect of deferred consideration.

Either way, affected businesses owners will need to consider the impact of these changes, and may now have to alternative acquisition structures, which may now become more relevant to manage the overall burden of tax arising from the sale of a business to employees over time.”

Plastic Packaging Tax

In the 2025 Budget, the government announced that the rate of Plastic Packaging Tax (PPT) will be increased in line with the Consumer Price Index (CPI). From 1 April 2026, the rate will rise from £223.69 per tonne to £228.82 per tonne and will apply to plastic packaging containing less than 30% recycled plastic that is manufactured in, or imported into, the UK. This measure will be legislated for in the Finance Bill 2025-26. 

The updated rate will be published on GOV.UK in due course, available below.

Tax Disputes & Disclosures

Large Corporate and International Tax

Corporate Interest Restriction

Nick Farmer, Business Tax Partner, Head of Outbound Services

The government announced targeted reforms to the Corporate Interest Restriction (CIR). The CIR rules limit how much UK interest a corporate group can deduct and the changes provide an administrative simplification and technical amendment.

Simplification: the requirement to appoint a ‘reporting company’ by submitting a formal notice is removed, groups will instead confirm the appointment annually in their interest restriction return. A new £1,000 penalty will apply if a group submits a return without a valid appointed reporting company in place. The changes apply to accounting periods ending on or after 31 March 2026. Albeit, the nomination must be reviewed annually particularly for any significant changes in the Group.

Technical: certain capital expenditure (such as waste disposal site preparation, restoration and environmental risk-management) is to be excluded from the tax EBITDA calculation, preventing unintended reductions in interest allowance. The technical amendment applies to periods ending on or after 31 December 2021

Overall, the CIR changes reduce the compliance burden and ensure fairer outcomes without altering the core CIR limits.

Pillar II technical amendments

The Pillar II rules affect large multinational groups with global revenues above €750m. The Budget updates the UK’s implementation of the Multinational Top-up Tax and Domestic Top-up Tax to align legislation with newly published guidance from the Organisation for Economic Co-operation and Development (OECD). The update helps ensure UK law remans consistent with the OECD framework, with most amendments taking effect for accounting periods beginning on or after 31 December 2025.

Permanent Establishment and Diverted Profits Tax

The definitions of Permanent Establishment will be aligned with the OECD Model Tax Convention and Commentary. It should be noted that a 2025 update has recently been made to the OECD Commentary regarding the circumstances in which an individual’s home constitute a ‘place of business’ to provide more certainty on when working from home could create a Permanent Establishment.

The separate Diverted Profits Tax regime will be withdrawn and a new corporation tax provision will apply to Unassessed Transfer Pricing Profits’ (UTTP). It is intended that the UTTP will be within the scope of the UK’s tax treaty network and will be a targeted anti-avoidance regime, differentiated from standard transfer pricing rules.

Essentially DPT legislation now uses transfer pricing principles and links to transfer pricing legislation.

Employment Tax

Salary Sacrifice Pension Perks Scrapped

Andrew Brookes, Head of Employment Tax Solutions, comments:

“Businesses offering salary sacrifice pension schemes to staff earning over £40,000, or £46,000 depending on scheme rules, are facing a major shake-up. Any employee sacrificing more than £2,000 a year into their pension will now trigger extra National Insurance for both themselves and their employer.

“For employees, this means an extra 8% NIC on pension sacrifice above £2,000 that sits below the £50,270 income threshold. Higher earnings will still be hit, but at a lower 2% rate on anything above that level. It’s yet another anomaly of our tax system that affects those lower down the income scale more significantly than those at the top.”

“Employers aren’t spared either. They’ll face a 15% NIC charge on every pound sacrificed above £2,000, which is expected to bring the bulk of revenue from this measure.”

Private Client

Money Move on Mansions

The Government announced today that from April 2028, owners of properties valued at over £2m (based on 2026 prices) will be liable for a recurring annual charge which will be additional to existing council tax.

Craig Hughes, Head of Private Client Services comments:

“Introducing a Mansion Tax adds further complexity into the property market and could have unintended consequences for homeowners and the wider economy. High-value properties often form part of long-term financial planning, and repeated changes to tax regimes create uncertainty for both current owners and prospective buyers. This uncertainty risks discouraging investment, which could slow activity in the upper tiers of the housing market.

The revenue generated is modest relative to the overall tax base, and yet the broader economic effects – reduced mobility, increased transactional friction, and potential downward pressure on property values – may ultimately outweigh fiscal benefit. In the long run, the burden of this policy is likely to extend beyond affluent homeowners and could indirectly affect the entire housing market. The Government have also chosen not to change the SDLT regime which feels like a significant missed opportunity to liberate the UK housing market.”

Freeze on income-tax and National Insurance thresholds until 2031

The continued freeze of income tax thresholds will remain in place for a further 3 years – and a freezing on NIC rates until 2030-31.

Craig Hughes, Head of Private Client Services comments:

“Rather than adjusting tax rates directly, freezing thresholds increases tax liabilities for millions by stealth, including those who would otherwise not be considered higher-rate taxpayers, and places a growing strain on working households.

The effect is incremental but significant. As more earners are pulled into higher bands, disposable income is eroded, reducing households’ ability to cope with rising living costs. While the Government benefits from a steadily expanding tax base, the long-term burden is likely to fall disproportionately on ordinary workers, who face increasing tax bills despite modest real-terms income growth.”

R&D Tax

Anthony Lalsing, Tax Partner and Innovation and R&D Lead, comments:

“Following a tumultuous few years for innovative businesses, which have seen R&D tax reliefs slashed, burdensome new compliance rules and increased scrutiny in the form of challenging HMRC enquiries, it’s positive to see the government reaffirm the importance of R&D in growing the economy, with £1 of public investment returning £8 of economic benefit.

We recently polled over 500 medium-large businesses and found that one in five feel that restricted access to R&D tax credits is actively holding them back. What businesses need now is greater certainty around R&D tax reliefs, both in terms of eligibility and timely access to funding, without excessive compliance.

The government’s announcement of a new targeted advance assurance service, to be piloted from Spring 2025, offers renewed hope for the clarity and confidence companies require when making R&D claims. It is particularly positive to see UKRI directing £9 billion over four years to key high-growth sectors – including advanced manufacturing, life sciences, energy, and digital technology – with £4.5 billion specifically supporting innovative UK commpanies. This is the kind of sustained commitment we need to give scaling businesses the opportunity to thrive.”

Transfer Pricing

International Controlled Transactions Schedule (ICTS)

Saumyanil Deb, Partner, Head of Transfer Pricing

The government conducted a public consultation on TP earlier this year. One of the points of the consultation was possible introduction of the International Controlled Transactions Schedule (ICTS). It has now been announced in the budget that the government has decided to introduce the ICTS which will report information annually on cross-border related party transactions. ICTS is expected to take effect for accounting periods beginning on or after 1 January 2027 following another consultation on its design in Spring 2026.

SME exemption threshold

The other point of the consultation was if the threshold for application of TP would be reduced. After the conclusion, the government has decided to keep the threshold as it was. This means Small and Medium sized enterprise (SME) groups will continue to benefit from the existing exemption from transfer pricing.

UK-UK domestic transactions

Domestic transactions between UK companies are now exempt from transfer pricing where there is no risk of tax loss. This is a pragmatic move towards more efficient TP process.

Intangibles

There have been two valuation methods for valuing intangibles – arm’s length value approach and market value approach. Going forward, one valuation standard is going to be applied to the transfer of intangible assets. The arm’s length price will used where there are cross-border transactions between related parties that are in scope of Part 4 TIOPA 10. The market value will be used in all other circumstances.

BPR/APR changes

Perhaps the most heavily publicised upcoming change that is causing big shifts in the OMB and farming sectors is the restriction of these reliefs to £1m comes in from 5th April 2026 and has already resulted in a large amount of succession planning. The main opportunity pre-5th April 2026 is to be able to settle assets qualifying for BPR/APR into discretionary Trusts with no lifetime IHT due. This window will close from 5th April 2026 and restrict the value that can be introduced tax-free to £1m per Settlor, so we should be keeping this on the radar for relevant clients.

Pensions reform

Again a largely publicised change is the pension reform effective 5th April 2027. The consultation was concluded in January 2025 with the outcome released in July 2025 which confirmed the mechanics of how this change would operate. The value of a pension held by the deceased that is to be inherited by their Beneficiaries (excluding surviving spouse) would become subject to IHT at 40% as part of the deceased’s Estate. The personal representatives of the Estate would be responsible for reporting (rather than the scheme administrators). In addition, the Beneficiaries would still be required to pay income tax on the drawdown from the inherited scheme if the deceased died after age 75, creating a highly tax inefficient environment for pensions. As a result, much planning is being done around drawing down pensions and either gifting out of surplus income, or giving other income-generating assets away and using pension income to replace the lost income.  Many clients are considering a letter of wishes to direct pension pots to their surviving spouse in the meantime. 

Long term Resident (LTR) status and Foreign Income and Gains (FIG) regime

Whilst these changes were introduced to remove the concept of domicile from 6th April 2025, we should still be aware of the opportunity under the FIG regime for new arrivals to the UK to exempt their foreign income and gains from UK tax in the first 4 tax years of entry. This can (and has) created good planning opportunities for non-UK nationals to restructure their overseas tax affairs when they first arrive in the UK. On the contrary, the LTR regime gives UK residents leaving the UK the opportunity to escape the UK IHT regime without establishing a domicile of choice overseas, after ten years of non-residence.  There are longer-term planning opportunities here.