Autumn Budget 2025: Businesses

For disposals to an Employee Ownership Trust (EOT) made on or after 26 November 2025, only 50% of the gain will benefit from relief from capital gains tax (CGT) instead of the rules up to that date allowing 100% relief. The disposal subject to CGT will not qualify for Business Asset Disposal Relief and the shares will be treated as excluded shares for Investors’ Relief, removing access to those reliefs where EOT relief is claimed on 50% of the gain so the CGT will be paid at a rate of 24%.

Moore Kingston Smith comment 

This formalises the shift away from fully tax-free EOT exits and materially changes the economics of transactions already being considered or newly structured. While EOTs retain a preferential position compared to a full CGT charge, the reduced relief is likely to prompt closer comparison with alternative exit routes and a greater focus on deal structuring and timing. Clients exploring EOT succession should reassess viability and pricing assumptions in light of the increased immediate tax cost and the partial deferral of the remaining gain within the trust.

From 6 April 2026, the government will increase the VCT and EIS company investment limit to £10 million (from £5m), and £20 million (from £10m) for Knowledge Intensive Companies (KICs) and increase the lifetime company investment limit to £24 million (from £12m), and £40 million (from £20m) for KICs. The gross assets test will increase to £30 million (from £15m) before share issue, and £35 million (from £16m) after, from April 2026.

Alongside this, the VCT income tax relief will decrease from 30% to 20%.

Moore Kingston Smith comment 

Increasing the various limits for companies to be able to raise funds using the EIS and VCT reliefs is welcome but it is a missed opportunity not to reform both schemes as it is often the complexity of them which makes it difficult for companies to rely on them and not the limits which are adequate for the majority of companies wishing to rely on these schemes.

VCTs had become an alternative for those unable to invest into pensions but, as these are higher risk investments, the reduction of the tax relief which compensates for that risk will make them much less attractive to investors. There could be a rush to invest in VCTs before 5 April 2026 to benefit from the current higher level of tax relief.

The Budget contains two main changes to capital allowances. Firstly, a new first-year allowance (FYA) of 40% for main rate expenditure is being introduced. This new FYA will be available for expenditure incurred from 1 January 2026 but will not be available on second hand assets or cars. Unlike full expensing, the new allowance will be available for unincorporated businesses, including partnerships, and assets used for leasing.

Secondly, the main pool WDA rate will decrease from 18% to 14% per year, effective from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax purposes.

Moore Kingston Smith comment 

It should be noted that the existing main pool 100% First Year Allowance available under the full expensing regime for companies on new and unused plant and machinery assets remains unchanged and is still available to be claimed, and with the introduction of the new FYA available to unincorporated businesses, this will further incentivise investment in capital assets.

The UK government is implementing significant reforms to its tax legislation concerning transfer pricing, permanent establishment, and Diverted Profits Tax, alongside the introduction of an International Controlled Transactions Schedule (ICTS). These changes are generally effective for chargeable periods beginning on or after 1 January 2026, with ICTS changes taking effect for accounting periods starting on or after 1 January 2027. The changes had been subject to extensive consultation, and the biggest development from previous announcements is confirmation that the exemption for small and medium sized enterprises will remain, for the present, unchanged: the government had previously proposed restricting it to cover small enterprises only.

A key change is the repeal of UK-to-UK transfer pricing, intended to simplify compliance, although specific exclusions and HMRC’s power to issue notices to prevent UK tax loss will remain. The participation condition has been narrowed, particularly regarding common management, and the anti-avoidance provision will be retained with further guidance. For intangibles, an arm’s length price will be used for cross-border transactions between related parties, while a single valuation standard (market value for all other transactions) will apply, and the one-way street for licence grants will be retained but kept under review.

For permanent establishments, UK domestic legislation will be aligned with the OECD Model Tax Convention, and the draft legislation for profit attribution has been amended to directly replicate the OECD Model wording. The Investment Manager Exemption (IME) has been corrected to ensure broader fund access and will be extended to investment advisors.

The Diverted Profits Tax (DPT) will be withdrawn as a separate tax and replaced by Unassessed Transfer Pricing Profits (UTPP), which will be assessed as part of the corporation tax regime.

Finally, a new International Controlled Transactions Schedule (ICTS) will be introduced, requiring multinationals to report information on cross-border related party transactions to HMRC. The ICTS will include an overall threshold of £1 million for relevant transactions, and a technical consultation on draft regulations for ICTS will be held in Spring 2026.

Moore Kingston Smith comment 

The changes to transfer pricing regulations announced in the Budget align with expectations and consultation work undertaken. The main takeaway is that the Government chose to retain the current SME exemption, which along with the repealed UK-to-UK transfer pricing means a welcome compliance relief for taxpayers. The key issue to bear in mind is the introduction of the International Controlled Transactions Schedule (ICTS). Once implemented, for periods after 1 January 2027, the ICTS is expected to provide HMRC with enhanced insight into cross-border related party dealings and drive more targeted risk assessments. With sufficient time to prepare, taxpayers should take the opportunity to ensure they are confident of the arm’s length nature of their related party transactions.

The Budget introduces further changes to the Corporate Interest Restriction (CIR) regime aimed at improving its operation and correcting unintended outcomes.
The rules for appointing a reporting company will be simplified. The requirement to notify HMRC by formal notice will be removed and appointments will instead be confirmed through the interest restriction return. Retrospective appointments will be permitted in certain cases, but groups will need to ensure the reporting company is actively authorised each period. A new £1,000 penalty will apply where no valid appointment is in place before a return is submitted.

In addition, a technical amendment will change the calculation of tax-EBITDA so that capital expenditure deducted via specific reliefs for waste disposal site preparation and restoration, cemeteries and crematoria, and flood and coastal erosion risk management projects is excluded from tax-EBITDA. This correction applies to periods ending on or after 31 December 2021.

Moore Kingston Smith comment 

These changes will mainly affect large, debt-funded groups within CIR. While they reduce the risk of technical failures invalidating returns, they also require more disciplined governance around reporting company appointments and may reduce interest capacity for businesses undertaking specialist infrastructure or environmental projects. Affected groups should review their CIR processes and prior calculations to ensure compliance and to protect interest deductions.

The Budget introduces further technical changes to the UK’s Pillar Two rules to keep them aligned with updated OECD guidance and to address issues identified since the regime was introduced. These changes do not expand the scope of Pillar Two, but refine how certain elements operate in practice.

A key area of change is the treatment of pre-entry deferred tax assets and liabilities, with new rules limiting when these can be taken into account in Pillar Two calculations, particularly where they arise from government concessions, retrospective elections or newly introduced corporate tax regimes. Other updates affect how the rules apply to complex structures such as securitisation vehicles, REITs and permanent establishments.

Most changes apply for accounting periods beginning on or after 31 December 2025, with some deferred tax changes applying earlier.

Moore Kingston Smith comment 

Although technical in nature, these updates may affect how in-scope groups calculate their Pillar Two positions, particularly where deferred tax balances and transitional adjustments are involved. Groups already working through Pillar Two compliance should review their modelling and data to ensure these changes are reflected, especially where complex structures or historic deferred tax positions are present.

A new relief will exempt transfers of securities in companies newly listed on a UK regulated market from the 0.5% SDRT charge for three years from the date of listing. The relief applies from 27 November 2025 and will also cover newly-listed depositary interests. It will not apply to the higher 1.5% SDRT charge or to transfers connected with takeovers or mergers involving a change of control.

Moore Kingston Smith comment 

This measure is intended to make the UK a more attractive place to list shares by reducing trading costs in the early years following an IPO. It will mainly be relevant for companies considering a UK listing or dual listing, and for investors trading in those shares. While unlikely to drive listing decisions on its own, it is a positive supporting measure that may marginally improve liquidity and the overall appeal of the UK market.

New powers will allow HMRC to immediately remove CIS Gross Payment Status where a business knew or should have known it was involved in transactions connected to tax fraud. The business will become liable for the lost tax, with penalties of up to 30%, and will be barred from reapplying for Gross Payment Status for five years. Directors and connected persons may also be held liable. These measures take effect from 6 April 2026.

Moore Kingston Smith comment 

This will mainly affect construction contractors and subcontractors operating in complex supply chains, particularly those relying heavily on CIS workers. The widened “knew or should have known” test increases risk for businesses with weak due diligence processes, as they could face Gross Payment Status withdrawal and substantial tax liabilities, even where they have not benefited from the fraud. Larger construction groups should review and strengthen subcontractor vetting and monitoring procedures to ensure they can demonstrate robust CIS compliance.

Following a consultation earlier this year, the government has confirmed that it will mandate e-invoicing for VAT invoices from 2029. While Making Tax Digital for both VAT and income tax has pushed businesses towards greater use of digital record-keeping systems, this change will drive the direct digital exchange of data between buyers’ and suppliers’ financial systems.

Moore Kingston Smith comment

The drive to mandate e-invoicing, rather than rely on gradual adoption, aligns with the government’s drive for increased productivity and with HMRC’s plans for digital transformation. We welcome the fact that mandating will be limited to VAT-registered businesses and to business-to-business/business-to-government invoicing, as this will exclude landlords and those transacting only with consumers. At least initially, the emphasis will be on mandating e-invoicing between buyer and supplier, with no immediate introduction of real-time reporting to HMRC as is the case in some other jurisdictions.

The increasing push to real-time digitisation of transactions will, however, be a challenge for some businesses and it will be important that HMRC provide a clear roadmap to support those affected to prepare for the change.

An announcement has been made regarding the VAT treatment of private hire vehicles. It was announced that the current opportunity that allows for VAT to be paid on a reduced value or margin is being closed from 2 January 2026.

A consultation took place between 18 April 2024 until 8 August 2024 after the High Court gave its judgments on the VAT treatment of Uber fares (Uber Britannia Limited v Sefton Borough Council High and Uber London Limited v Transport for London). The point at issue concerns the value on which VAT should be accounted for – that is, a marginal value, or the full value of the fare.

The margin rules fall within a special VAT scheme known as the Tour Operators’ Margin Scheme (TOMS), which was introduced in the EU in 1977 for packages of travel services. The UK implemented it into its own regulations when it joined the EU and has retained it since Brexit.

In response to the consultation, the government has said that it will not amend VAT legislation to allow Private Hire Vehicle Operators to act as agents for these purposes, nor will it introduce a new margin scheme or a reduced VAT rate for the sector.

The government is now legislating to exclude suppliers of private hire vehicle and taxi services from TOMS, except where these are supplied in conjunction with certain other travel services. The Chancellor has said that the new rules are likely to save approximately £7 billion.

Moore Kingston Smith comment 

Accounting for VAT on these services via the TOMS provisions provides for a valuable relief, as it means that a much lower value is used for calculating the tax due. This gives Uber and similar suppliers a competitive edge over other providers of taxi style vehicles. This measure will look to provide a more level playing field.

The date of implementation is interesting, as it seems to allow for the public to enjoy the full festive benefit from the lower VAT before the new rules come into effect.

A consultation process has been announced regarding the removal of the £135 customs duty relief for imports of low value goods, and this follows on from the Chancellor’s announcement last April that these imports were subject to a comprehensive review.

Views are to be sought on certain elements of a new set of customs arrangements for the importation of these goods.

Currently, low value imports (LVIs) – goods with a value of £135 or less being imported into the UK – can claim a customs duty relief. However, VAT is due on these goods following reforms in 2021.

Following a significant increase in LVI volumes over recent years, the government has reviewed the existing customs arrangements for LVIs and concluded that these require reform. The Chancellor has announced the removal of the relief from March 2029 at the latest.

This consultation covers the design of the new arrangements, including what data to collect, how the tariff should be applied, whether to apply an additional fee on LVIs to fund administration, and potential changes to VAT collection to reflect the new arrangements.

Moore Kingston Smith comment 

With the boom in demand for fast fashion and low price goods meaning online retailers have become more and more popular in recent years, this change is likely to be seen as a welcome move from the perspective of UK high street retailers, who have seen themselves at a disadvantage compared to overseas online suppliers.

The LVIs will become subject to customs duty and improved data requirements, bringing them onto a more equal footing with sales made on the high street.

A measure is being introduced from 1 April 2026 following on from a consultation exercise that took place between April and July this year.

The measure relieves the VAT due on business donations of goods to charity for onward distribution or use in their services under the business gifts rule. The relief will apply to goods valued under £100, with a second-tier limit of £200 for a set list of items usually valued over the £100 limit, but which play an important role in tackling poverty.

The relief will be calculated within defined per-item value limits with a higher threshold for specified goods such as technology and household items.

The relief removes the requirement for businesses to account for VAT on eligible goods that are donated for onward distribution or use in a charity or eligible organisation’s services.

The relief will only apply to donations made to registered charities and Charitable Incorporated Organisations (CIOs) and will be administered in an approach consistent with existing practices for donations.

Moore Kingston Smith comment 

This change is intended to encourage charitable giving by making it simpler and more cost-effective for businesses to donate goods to charitable causes. Also, the measure wants to ensure that surplus items can be put to good due rather than they go to waste. Charities should benefit from the change.