Autumn Budget 2026: Corporation tax changes and what they mean for businesses

This Budget was an opportunity for the Government to show business owners, in the UK and overseas, that the UK is an attractive place to invest and grow. It contained several important corporation tax measures, but whether it achieves that aim is less clear.

Will corporation tax rates change?

The Government has confirmed that the main rate of corporation tax will stay at 25% and the small profits rate at 19% for the financial year beginning 1 April 2028.

For companies, maintaining the headline rates provides welcome stability and greater certainty when forecasting tax costs and making investment decisions. However, businesses should look beyond the headline rate: changes elsewhere in the Budget, including to capital allowances, may still affect the timing of tax relief and therefore future Corporation Tax payments.

How will the capital allowances changes affect companies?

For companies investing in plant and machinery, the capital allowances changes are an important feature of the Budget. The main-rate first-year allowance will increase to 50% for qualifying expenditure from 1 January 2027, while the main-rate writing-down allowance will fall from 14% to 12% from 1 April 2027.

For many companies, the higher first-year allowance will have limited impact because qualifying expenditure can already attract 100% relief through the £1 million Annual Investment Allowance (AIA) or Full Expensing. The new 50% allowance will be most relevant where those reliefs are not available, particularly for certain expenditure on assets acquired for leasing.

The reduction in the writing-down allowance is likely to have wider significance. Companies with existing main-pool balances, or expenditure that does not qualify for immediate 100% relief, will receive tax relief more slowly. This will bring forward Corporation Tax payments and could have a noticeable cash-flow impact for capital-intensive businesses.

Companies planning significant investment should therefore consider both the timing and nature of their expenditure. Maximising access to the AIA and Full Expensing will become increasingly important as the rate of relief available on expenditure remaining in the main pool reduces.

Are R&D tax relief claims becoming simpler?

For R&D claims made on or after 1 April 2027, the requirement to submit a pre-notification form will be removed. This form was only introduced in 2023, so its removal takes away a recent administrative burden for innovative businesses.

The additional information form will also be simplified, although it will remain part of a company's R&D claim. Clear records of projects and costs will remain central to a successful claim.

What is changing for UK companies with overseas branches?

For accounting periods beginning on or after 1 January 2027, the foreign permanent establishment exemption will become mandatory for most UK companies operating through overseas branches.

Once mandatory, overseas branch profits will generally fall outside UK corporation tax. Equally, losses arising in those branches will no longer be available to reduce UK taxable profits.

Currently companies can choose whether to apply the exemption. The government considers that this can produce an imbalance where UK tax relief is obtained for the losses and costs of establishing an overseas operation, but the associated future profits ultimately fall outside the UK tax net.

What do the business rates changes mean for retail, hospitality and leisure?

Beyond corporation tax, the Budget's most direct support for businesses comes through business rates in England, aimed at sectors that have felt cost pressures more acutely than most.

Retail, hospitality and leisure businesses have absorbed higher employer National Insurance and successive minimum wage increases, while pressure on household budgets has led consumers to cut back on discretionary spending. In 2026, on average one pub has closed somewhere in the country every day. The 3.9% minimum wage increase from April 2027 may look modest, but in a labour-intensive sector it sets a benchmark for pay across the whole business.

The Small Business Rate Relief threshold will rise from a rateable value of £12,000 to £18,000. This takes a further 70,000 retail, hospitality and leisure businesses out of business rates altogether, with tapered relief for rateable values up to £21,000. Increases for larger properties in the sector will be capped by CPI inflation for the next two years. Separately, £10 million of support will benefit more than 2,000 small alcohol producers across the UK.

The relief will help, but on its own it is unlikely to offset rising wage costs. Operators should look at the combined effect on margins, pricing and staffing, and check whether their property's rateable value now brings it within the relief.

Looking ahead

Budget 2026 leaves headline corporation tax rates untouched but makes several changes beneath the surface. For many owner-managed businesses, the reduced writing down allowance is likely to be the most relevant change, and the least welcome.

There are positive signs elsewhere, including simpler R&D claims and improvements to tax-advantaged share schemes. Whether together these measures will drive the growth and investment the UK needs remains an open question.

Armstrong Watson is hosting a live webinar on Tuesday, 3rd November, at 9.30am. Join us to hear from our specialists in tax, financial services and accounting who will be examining the announcements and their impact.

To register for the webinar please visit https://armstrongwatson.info/47JlHMY.