The build up to today’s Budget has been one of the most drawn out and talked about that I can remember. Not a day has gone by without some new tax increase/measure being discussed in the press, with many predicting that we were in for an announcement full of bad news.
Over the last six months one of the most common questions I’ve been asked is “what is going to be announced in the Budget”, with my response being “I have no idea!”. With so much speculation about the contents of the Budget, it was almost fitting that the Office for Budget Responsibility published their report on the Budget before the Chancellor had even taken the stand. When she did eventually take her position, her announcements, at least from a tax perspective, can be described as ‘tinkering’, rather than the dramatic change that many had predicted and feared.
Corporate tax changes
From a corporate tax perspective, whilst there was no change to the headline corporation tax rate, there appear to be a number of small changes many of which will primarily affect larger corporates or multi-nationals - the details of which will be published over the coming days.
There was however one key change that will impact the majority of companies. This focussed on the rates of capital allowances that can be claimed.
Currently, companies receive 100% tax relief for new/unused items of plant and machinery via either the Annual Investment Allowance (which applies to all qualifying assets) or a relief called full expensing. It should be noted that neither of these allowances can be claimed against cars, and full expensing cannot be claimed against assets which are either second hand or used in leasing.
The Budget has introduced a new 40% First Year Allowance which can be claimed against assets which do not qualify for full expensing, and for where the Annual Investment Allowance has already been used. In reality, this is unlikely to be a game changer for companies, however may be useful for companies which have large hire fleet, particularly as the alternative, an annual writing down allowance, has reduced from 18% per annum to 14%.
It should also be noted that this First Year Allowance can also be claimed by unincorporated businesses, whereas they are unable to claim full expensing.
Employee Share schemes
The Enterprise Management Incentive (EMI) share incentive scheme has long been adopted by companies looking to incentivise and retain key employees. Whilst it has always been a key tool in an effective reward package, as companies grow they tend to find they are unable to stay within its restrictions, and are forced to look to other less generous schemes, such as the Company Share Ownership Plan (CSOP). The Budget has increased (from 2 April 2026) the number of companies that will be eligible to use EMI by increasing some of the limits that apply, namely, companies with up to 500 employees and gross assets of up to £120 million will be able to offer the scheme (up from 250 employees and £30 million respectively).
In addition, employees will not be able to hold an unexercised option for up to 15 years (increased from 10 years) before the option will lose its tax advantaged status.
EMI has long been the ‘go to’ share scheme where the company qualifies. These changes will only cement this status and open it up to a whole range of new companies looking to retain key talent.
Employee Ownership Trusts (EOT)
EOTs have been around for a number of years now, and as Capital Gains Tax (CGT) rates have steadily increased, they have gained in popularity as a means for business owners to exit from their companies without crystallising a CGT charge (in effect 100% of the CGT charge was deferred into the EOT), whilst allowing the employees to benefit from the positive cultural shift that employee ownership tends to bring.
Perhaps unsurprisingly, the increase in the number of companies converting to employee ownership has caught the attention of HMRC, and they have now decided (effective from 26 November 2025) that 50% of any chargeable gain should be borne by the exiting shareholders, with the remaining 50% of the gain being deferred into the EOT.
Whilst this may reduce the attractiveness of business owners selling to an EOT, sales to EOTs still bring a meaningful CGT saving (an effective CGT rate of 7%/12% versus 14%/24%), and the positive reasons for creating an employee owned company should not be forgotten.
Investment reliefs
The Enterprise investment Scheme (EIS) and Venture Capital Trust (VCT) are long running measures that allow for individuals and companies to make tax efficient investments into certain companies who are looking for investment to fund growth.
The changes to the rules around these schemes are both positive and negative, on the one hand the amount the companies can raise through offering investment via these schemes has increased from £5 million to £10 million (£10 million to £20 million for knowledge intensive companies), and the gross assets that the issuing company can have before and after allotting shares has increased from £15 million and £16 million to £30 million and £35 million, changes which, like the EMI changes, will allow more companies to utilise EIS and VCT to raise investment.
On the more negative side, the amount of income tax relief that can be claimed by an investor utilising the VCT scheme will reduce from 30% to 20%. The rate of income tax relief that can be claimed by investors using EIS remains at 30%.
Overall
Whilst there was a lot of negativity from both the press, and public, ahead of the Budget, the reality was a lot more muted than expected. Whilst more detail of changes will emerge over the coming days and weeks, the initial view is that this could have been a lot worse than it was, and in some instances there are opportunities for business to raise investment and incentivise key talent.
For advice and support about how any of the budget announcements will impact you or your business, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
