Budget 2026: Corporate tax
No Change to Corporation Tax Rates
The Chancellor announced no changes to the rates of UK Corporation Tax (CT). Companies will therefore continue to pay corporation tax at the existing rates:
- main rate of 25% applying to companies with profits over £250,000 and;
- a small profits rate of 19% applying to profits of £50,000 or less.
Companies with profits in between that range will continue to benefit from marginal relief.
The existing loss relief framework also remained unchanged.
Further, it was confirmed that these rates will remain unchanged until the financial year beginning 1st April 2028.
Gravita’s view
If nothing else, the confirmation that corporation tax rates will remain unchanged until at least April 2028 provides businesses with a degree of certainty when making investment and planning decisions.
Changes to Capital Allowances
Further changes were announced to the capital allowances regime designed to encourage business investment.
Full expensing remains available, allowing companies to claim a 100% deduction for qualifying expenditure on new main-rate plant and machinery.
The Government also announced that the main-rate for first-year allowance will increase to 50% from 1st January 2027, with the main-rate of writing-down allowance reducing to 12% from April 2027.
The objective is to accelerate tax relief for capital expenditure and improve business cash flow by providing a greater proportion of relief upfront.
Gravita’s view
Accelerating tax relief for qualifying expenditure should provide a welcome boost to business cash flow and support future investment plans.
Research & Development (R&D) tax reliefs
The Government announced measures to simplify the R&D claims process. From 1 April 2027, businesses will no longer need to submit a Claim Notification Form, and from Autumn 2027 the Additional Information Form will be simplified.
The aim is to reduce administrative burdens and make the claims process easier to navigate whilst maintaining safeguards against incorrect claims.
Gravita’s view
The simplification of the R&D claims process is a sensible step – anything that makes accessing valuable tax relief easier for genuine claimants, allowing them to concentrate on innovation and less on bureaucratic red tape, is surely a good thing.
Enterprise Management Incentives 2 (EMI2)
The Chancellor announced reforms to employee share schemes, including measures affecting the EMI regime.
The Government’s objective is to simplify existing processes and increase access to tax-advantaged share incentives for growing businesses, meaning more businesses and their employees will now be able to benefit and be offered these type of schemes.
Gravita’s view
This sounds a bit like a rebrand of CSOP which was the UK’s original tax-advantaged share option scheme, long before EMI arrived.
The new EMI2 regime will offer an option limit of £120,000 and a 15-year exercise period, improving on the equivalent limits currently available under CSOP.
The changes should give growing businesses more flexibility to structure incentives and reward key employees, particularly where EMI is not available.
In further good news, the Government has announced that in year filing is being scrapped, which is definitely good news for the less organised business owners amongst us! The extension to 180 days is also helpful – breathing space, as promised by the Chancellor, which will give those who are leaving their employment longer to take advice on what may be an important investment decision.
Reform of the Foreign Permanent Establishment (PE) Exemption
The regime allows UK-resident companies to elect for certain profits attributable to their overseas branches or permanent establishments to be exempt from UK corporation tax, thereby reducing the risk of the same profits being taxed in more than one jurisdiction.
The measures are of greatest relevance to groups with overseas branches, international operations or cross-border structures.
For many owner-managed businesses and companies trading solely within the UK, the reforms are very unlikely to have any impact.
Gravita’s view
On the face of it, this is a sensible change for internationally active groups, although UK-focused businesses won’t notice any difference.
The trade-off is that you can’t have it both ways, if overseas profits are exempt from UK tax, overseas losses will also not be available to shelter UK profits.
Banking surcharge increased temporarily
The rate of the banking surcharge will increase from 3% to 6% for a temporary 15-month period, from 1st January 2027 to 31st March 2028.
This measure applies only to banking companies and is intended to increase tax revenues from the banking sector.
This means that a bank generating taxable profits during the period will face a higher overall corporation tax charge than under the current rules.
Gravita’s view
The Chancellor started by praising the banks for all the employment they create and the taxes they pay. He then hit them with a further, temporary, tax rise on their profits as, to paraphrase the Chancellor, the taxpayer helped the banks 20 years ago, it was now time that the banks helped the taxpayer. Before he moved on, he thanked them again for being fundamental to the British economy.
I am not sure what type of sandwiches the heads of the banks regularly eat. But I can guess the filling that this will remind them of!
Borrowing is pretty expensive right now for families and businesses. This measure is unlikely to help in the short term.
Corporate Interest Restriction and Creative Industry Reliefs
From 1stJanuary 2027, changes will be made to the interaction between the Corporate Interest Restriction (CIR) rules and creative sector tax credits. In particular, Audio-Visual Expenditure Credits and Video Games Expenditure Credits will be excluded from the CIR earnings calculation.
The changes are intended to improve how the rules operate for businesses claiming creative industry reliefs.
Gravita’s view
A bit like the R&D announcement, the changes are designed to stop the red tape getting in the way of relief claims and penalising people trying to make a creative difference.
Multinational Top-up Tax and Domestic Top-up Tax reforms
Further amendments are being made to the UK’s Pillar Two regime, including implementation of the OECD’s “Side-by-Side” package and various technical updates.
These rules are designed to ensure that large multinational groups pay a minimum effective tax rate of 15% on their profits.
The changes are mainly relevant to large international groups and are unlikely to affect most SMEs or owner-managed businesses.
Gravita’s view
Another step towards ensuring that the biggest multinational groups pay at least a minimum level of tax on their profits. Not revolutionary, but a step in the right direction.
Lease and Leaseback Arrangements
These transactions typically involve a business selling an asset to a third party and immediately leasing it back, allowing the business to release cash while continuing to use the asset in its operations.
The new rules are intended to ensure that the tax treatment better reflects the underlying commercial and economic substance of these arrangements and to provide greater certainty in areas where the existing rules can produce unintended tax outcomes. The changes will be particularly relevant for businesses that use asset financing arrangements involving property, machinery, equipment or other high-value assets.
The legislation will apply to transactions entered into on or after 29th October 2026.
Gravita’s view
A common-sense change designed to ensure the tax outcome matches what’s actually happening commercially.
Corporation tax treatment of investment life insurance contract payouts
New legislation is being introduced to clarify the corporation tax treatment of amounts received under investment life insurance contracts. These contracts are commonly used as investment and treasury planning vehicles by companies and can give rise to complex tax considerations when proceeds are received.
From 1st January 2027, legislation will clarify that the existing corporation tax exemption for payouts from investment life insurance contracts is only available where the contract is not held for the purposes of a trade.
Exploitation rights
The Government has announced new legislation to clarify the tax treatment of exploration and exploitation rights connected with activities carried out in the UK and on the UK Continental Shelf. Under the new rules, these rights will be treated as UK immovable property for tax purposes. The changes apply for corporation tax purposes from 13th July 2026.
Exploration and exploitation rights commonly arise in the oil, gas, mining and natural resources sectors, where businesses acquire rights to explore for, or extract natural resources. The Government’s objective is to provide greater clarity and certainty around the taxation of these rights and to ensure that gains and profits arising from them are taxed consistently.
Summary
Most companies can expect business as usual, with the more niche changes largely affecting multinationals, international groups and businesses operating in specialist sectors.
There were no changes to the corporation tax rates, loss relief rules or the broader framework for taxing company profits. For most SMEs and owner-managed businesses, the practical impact is expected to be limited.
Similar Insights
Budget 2026: Personal tax
Budget 2026: Inheritance Tax
Budget 2026: Stamp Duty Land Tax and Stamp Duty
Sign up to Gravita's latest updates and newsletters
Stay up-to-date with our event invites, latest news and updates, straight from Gravita's experts.