The Government has created a Corporate Tax Roadmap to communicate its intentions for key areas of the Corporation Tax regime for the duration of this Parliament. This is intended to provide companies with a stable and predictable tax environment, whilst encouraging long term investment, innovation and growth.

Summary

The Government published a Corporate Tax Roadmap setting out the main theme of stability, covering the major features of the tax system for companies and where changes are expected or to be explored. 
The Roadmap is intended to address the priorities raised by taxpayers of predictability, stability and certainty. 

The main commitments included:

• Capping the main Corporation Tax rate at 25% until the end of this Parliament
• Maintaining a small profits rate of 19%, the current thresholds and the availability of marginal relief
• Continuing with the current capital allowance regime and the availability of full expensing, the annual investment allowance, writing down allowances and structures and building allowance
• Maintaining the existing research and development (R&D) reliefs at the current level of generosity and improving their administration
• Continuing to recognise the importance of the patent box and intangible fixed asset scheme
• Maintaining other Corporation Tax reliefs such as the audio-visual expenditure credit and video game expenditure credit
• Launching consultations on transfer pricing, permanent establishments and diverted profits tax, including the potential removal of UK to UK transfer pricing
• Providing investors in major projects increased advance certainty of tax reliefs and modernising the technology that the Corporation Tax system relies upon

Our comment

We welcome this initiative and the sentiment behind it. The roadmap is wide ranging and a useful guide to the Government’s intentions for Corporation Tax.

It would be helpful for businesses to be provided with the promised stability, transparency and consultation on Corporation Tax matters, particularly with respect to reliefs that relate to long term business decisions, such as capital allowances and R&D tax relief. Whilst tax changes are expected, the Corporate Tax Roadmap should aid businesses decision making and encourage investment.  

There were no significant legislative changes announced for R&D, however businesses should ensure they are adequately prepared for the changes previously announced.

Summary

Two minor legislative changes were announced, both dealing with enhanced relief for R&D intensive SMEs (ERIS). The first is a correction to the previous legislation governing the calculation of the R&D intensity ratio, which will now include expenditure qualifying under both ERIS and the R&D expenditure credit (RDEC). This change will apply retrospectively from the introduction of ERIS (1 April 2023).

The second is an amendment to the ERIS rules in Northern Ireland. Small and medium-sized enterprises (SMEs) in Northern Ireland are not subject to restrictions for overseas R&D activities, however a sector-specific cap applies to the benefit available under ERIS. The draft legislation calculates the ERIS benefit as over and above which would otherwise have been available under RDEC (the additional benefit). This change will apply to claims made on or after 30 October 2024.

The Corporate Tax Roadmap confirmed that the generosity of the rates of R&D relief will be maintained, that the previously announced expert advisory panel and R&D disclosure facility will be implemented and commits to continuing to improve signposting and guidance on R&D reliefs. It also confirmed a consultation will be launched in Spring 2025 on widening the use of advanced clearances for R&D claims.

An update to HMRC’s compliance approach to R&D tax reliefs document was published, including updated statistics on the volume of claims and HMRC’s estimates of non-compliance. The estimate suggests that error and fraud has decreased from 17.6% in 2021-22 to 7.8% in 2023-24.

Our comment

The changes to ERIS, although relatively minor, reflect the speed with which the policy was initially designed and implemented, bypassing a public consultation process. The Chancellor had already publicised the commitment to maintain the generosity of R&D tax relief rates, so no news on R&D tax relief was expected. Longer term stability and a commitment to avoid further rate reductions will be welcome news for many innovative businesses, particularly SMEs. Having weathered several years of reforms to the incentives, the overwhelming call has been for stability and a longer-term outlook when it comes to innovation policy.

The impact of HMRC’s increased scrutiny of R&D claims has been widely debated. While there is broad agreement that additional scrutiny should be welcomed, there have also been concerns that the implementation of a volume compliance approach has led to incorrect decisions and may discourage genuinely innovative businesses from accessing relief. The large number of statutory reviews and alternative dispute resolution requests suggest that many businesses are unhappy with the enquiry process. These do not include any businesses that may have declined to use these often time consuming and costly escalation routes.

The expert advisory panel, R&D disclosure services and consultation on expanding advance assurance are all positive steps, but businesses will be keen to see action taken quickly as these commitments are not new.

Alongside the main Budget documents, the Government released a discussion paper titled ‘Transforming Business Rates’. This paper aims to engage key stakeholders and invites industry dialogue on potential reforms, whilst outlining the Government’s plans to modify the current system.

Summary

The discussion paper ‘Transforming Business Rates’ outlines the Government’s plan to replace the current business rates system to ensure fairer tax revenue collection. The Government intends to consult on the potential introduction of a General Anti Avoidance Rule (GAAR) for business rates, aimed at addressing the misuse of the empty rates relief system.

The paper proposes a reduction in the antecedent valuation date to one year before a revaluation and changing the frequency of revaluations from every three years to annual assessments. The document clarifies the roll out of the new information duty beginning on 1 April 2026, phasing it in before being formally activated and mandated by 1 April 2029.

There is also a commitment to deliver the digitisation of the business rates programme by March 2028. The document hints at a review of the current transitional relief system.

The main measures announced in the Chancellor’s speech were a commitment in the longer term to lower the business rate multiplier for those in the retail, hospitality and leisure sector. A permanent lower multiplier will be introduced by the 2026/27 rate year, funded by a higher rate for those with assessments over £500,000 Rateable Value. In the interim period, for the 2025/26 rate year, the Chancellor committed to extending the retail hospitality and leisure rate relief, at a lower rate of 40%.

The Chancellor also committed to freezing the small business rates multiplier at 49.9p for the 2025/26 rate year, whilst uprating the standard multiplier to 55.5p in line with September 2024 CPI Inflation.

Finally, it was set out that charitable rate relief for private schools operating as charitable trusts would be removed from April 2025. However, the supporting Budget document sets out that private schools which are ‘wholly or mainly’ concerned with providing full-time education to pupils with an education, health and care plan will remain eligible for business rates charitable relief.

Our comment

It is welcome news that the Government will consult on how to improve the current system. However, the timescales set out in the transforming business rates paper indicate that it may take longer than one Labour term in office to achieve this. Introduction of the new information duty is planned for 2026, digitising business rates a further four years from now and an intention that the information duty will only be fully mandated by 2029.

Although the discussion paper is a step in the right direction, it is evident that the replacement of the system of business rates in England and surrounding compliance and policies are unlikely to change at the pace businesses require, with largescale change not on the horizon until 2028 and beyond.

The Government published a Corporate Tax Roadmap setting out the main theme of stability along with areas for consultation, but no significant changes were trailed. Corporation Tax rates are set to remain at the current levels until at least 31 March 2027. The Budget also included a targeted loan to participator anti-avoidance measure and increased relief for UK visual effects.

Summary

Corporation tax rates 

It has been confirmed that the main rate of Corporation Tax will remain at 25% and the small profits rate at 19% until 31 March 2027.  The Corporate Tax Roadmap commits to capping the headline rate of Corporation Tax at 25% for the duration of this Parliament. 

Loans to participators 

A corporation tax charge can arise on loans made by a company to participators that remain unpaid, which is often referred to as a section 455 charge. Anti avoidance rules are already in place to prevent a loan from being repaid and a new loan being made within 30 days, where the intention is to avoid a section 455 charge. 

The targeted anti-avoidance rule has been updated to capture group and associated companies, so that a section 455 charge cannot be avoided by repaying a loan to one entity, then a new loan being made by a related entity. This will cover loans and arrangements made from 30 October 2024. 

Additional tax relief for visual effects 

From 1 January 2025, expenditure incurred in connection with visual effects will qualify for an enhanced rate of audio-visual expenditure credit (AVEC). The rate will increase from 34% to 39%.

The current 80% cap on AVEC qualifying costs is set to be removed for UK visual effects costs.   

These additional credits will only be available to companies once a final certificate has been received from the British Film Institute. The only exception to this is when a project has been abandoned. 

Although the enhanced rate applies to expenditure incurred on or after 1 January 2025, a claim for the visual effects credit cannot be made before 1 April 2025.

Our comment

The certainty provided by the announcement to retain current Corporation Tax rates until 2027, as well as the commitment to cap the headline rate at 25%, will be welcomed by many companies.  

Companies should monitor loans to participators carefully. Good record keeping and diligence is recommended to avoid unexpected charges arising. 

The additional relief for visual effects was announced in the Spring Budget 2024 and is now being implemented following responses to the consultation on the design of the additional relief.  Guidance is expected on the supporting evidence required for the additional relief by 1 April 2025, however companies should ensure that detailed records are kept from 1 January 2025.

The Chancellor announced some important transfer pricing developments. These include further consultation on reforms to the UK’s transfer pricing and permanent establishment rules, along with new consultations on lowering the exemption threshold for medium-sized businesses and a new filing obligation for cross-border intercompany transactions.

Summary

The Government will publish a further consultation in respect of the UK’s transfer pricing, permanent establishment and diverted profits tax regimes.  

The consultation will consider whether or not the threshold that exempts some medium-sized businesses from the regime should be reduced, bringing more businesses into scope. It will also look at whether or not transfer pricing should remain a requirement for UK to UK transactions. 

In addition, the Government will consult on the implementation of a new filing requirement for multinationals within the scope of UK transfer pricing, aimed at providing HMRC with more information to assess transfer pricing risk. Such a filing would include data regarding in-scope cross-border transactions. 

A further consultation will consider the application of transfer pricing to cost contribution arrangements, with the dual aims of increasing tax certainty around these often complex arrangements and encouraging investment into the UK. 

The Government plans to launch these consultations in Spring 2025, with commencement dates to be confirmed. 

Our comments

The move towards removing UK to UK transactions from the scope of transfer pricing would be a welcome simplification and alignment with many other jurisdictions. However, we expect the measure will include some conditions to ensure there is no erosion of the UK tax base. 

Restricting the scope of the exemption for medium sized businesses may be a surprise for many SMEs, albeit the impact of the exemption was limited where reciprocal arrangements in other jurisdictions did not apply. Such a step will bring many businesses into the scope of UK transfer pricing for the first time and these businesses will need to start evaluating their intragroup transactions. 

A filing requirement for cross-border transactions (similar to an International Dealings Schedule) was proposed in 2022 but did not gain traction. Given the continued focus on transfer pricing and the Government’s desire for more transparency, this announcement is not a surprise but will have a significant impact on international businesses.  To prepare, they will need to identify intercompany arrangements and ensure they are supported through robust transfer pricing policies in readiness for any mandatory filing requirements.

The Government reconfirmed that the second component of the UK’s implementation of Pillar 2, the undertaxed profits rule (UTPR), will come into effect as planned.   

Additionally, further amendments will be made to the previously implemented first component, the income inclusion rule (IIR), primarily dealing with issues identified as groups transition into the regime.

Summary

For groups within the scope of Pillar 2, the first component of the UK’s implementation, the IIR, applies for accounting periods beginning on or after 31 December 2023.  Most groups operating in the UK who fall within Pillar 2 are currently in their first period for which the regime applies.   

As both the international and UK implementation of Pillar 2 has progressed, a number of technical and practical difficulties have arisen. The Government confirmed in the Budget that it would legislate to make the necessary amendments to align the UK regime to the current internationally agreed interpretation and guidance. A tax information note was published setting out these amendments, which are mostly technical in nature.   

Two items of particular note are: 

• the inclusion of a transitional country-by-country reporting safe harbour anti-arbitrage rule; and 
• a provision to allow ‘qualifying status’ to be ascribed to overseas territories for UK purposes until such a time that broader international agreement has been reached on how ‘qualifying status’ should be defined and determined 

The Government also confirmed that, as expected, Finance Bill 2024-25 will introduce legislation to implement the UTPR, which is the second phase of the Pillar 2 rules, often referred to as the ‘backstop’ rule. The UTPR will apply to accounting periods beginning on or after 31 December 2024. 

Our comment

Pillar 2 is a significant evolution in the international tax landscape for very large businesses.  Notwithstanding the amount of time and effort made to bring the regime into existence in as complete a form as practicable, it was inevitable that there would be teething issues.  

From our client conversations we are still seeing a broad spectrum of readiness in relation to Pillar 2. Our immediate advice to clients who are early on in their Pillar 2 preparation journey continues to be ensuring that a robust implementation plan is in place and agreed with all stakeholders, including tax, finance, IT and other functions as required. This plan should be sufficiently flexible to identify and respond to changes in all relevant jurisdictions, such as those confirmed by the UK Government today.

There were minimal changes to the capital allowances regime in this year’s Budget. However, the Government acknowledged their importance in promoting investment and growth.

In its Corporate Tax Roadmap, it announced extensions to existing allowances along with consultations to provide clarity on common areas of uncertainty and simplification of the regime.

Summary

First year allowances for electric cars

100% first year allowances on electric vehicles (EVs) and associated charging points are to be extended a further year, to 31 March 2026 and 5 April 2026, for corporation and income taxpayers respectively. 

Clarity on what qualifies for capital allowances and simplification.

The Corporate Tax Roadmap commits to provide clarity on common areas of uncertainty, building on HMRC guidance such as the treatment of computer software and the interaction between the first-year allowances (for example, the annual investment allowance and full expensing).  

The Government will also continue to consult on simplification of the regime following the introduction of full expensing, noting that the focus will be on simplification rather than any material changes to eligibility.

Predevelopment costs

The Government will launch a consultation in 2024 to further explore the tax treatment of pre-development costs. This is in response to  business concerns following the decision in Gunfleet Sands Ltd and others vs, HMRC [2023] UKUT 00260 (TCC) – a case that concluded capital allowances were not available for expenditure on various environmental and technical studies undertaken before the construction of windfarms. 

Land remediation relief

A consultation will be launched in Spring 2025 to review the effectiveness of land remediation relief and whether it is still meeting its objective to boost development of brownfield sites. This relief has been in place for over two decades with minimal changes.

Full expensing

The Spring Budget 2024 first announced measures to extend 100% full expensing to leased main rate plant and machinery assets, which were previously excluded for both lessors and lessees. The Corporate Tax Roadmap reiterates that the extension of full expensing to leased assets will be explored when public finances allow.

Our comment

Clarity on what qualifies for capital allowances and simplification

It is positive to see the Government acknowledging the complexity of the capital allowances system and its intention to provide further clarity. Following consultation, the Government’s aim is to simplify and consolidate the Capital Allowances Act 2001. This is consistent with the proposals to increase tax certainty for businesses and contrasts with the short-term measures as well as changes to the regime in recent years. 

We do not expect to see significant policy changes as the Corporate Tax Roadmap makes clear that the consultation would proceed ‘to a slower timeframe’ and ‘is not intended to materially change which expenditure is eligible for full expensing or the way in which it is claimed’.

Pre-development costs

Further consideration of the tax treatment of pre-development costs is welcome, as the recent Upper Tribunal case and comments by the ruling judge introduced significant uncertainty regarding the eligibility of various feasibility and design costs.

This is especially important for two of the Government’s seven key pillars: to encourage investment in clean energy and infrastructure projects. These types of projects can require significant investment in feasibility and design fees. This consultation may also feed into the Government’s development of a new process to give investors in major projects increased tax certainty in advance. 

Land remediation relief

By prioritising brownfield development, the Government has clear aims to make better use of previously used land, which can help reduce urban sprawl and preserve green spaces. 

The consultation in Spring 2025 will be an opportunity for stakeholders to provide input on how the relief could be improved to better meet its objectives.Land remediation relief is a valuable incentive, providing tax relief of up to 150% of the additional cost of remediating contaminated land and buildings. However, it is underutilised by businesses and restricts its impact.

Full Expensing

Extending full expensing to leased plant and machinery was welcome news when it was first announced. The Budget retains this commitment but stops short of confirming a time frame for implementation. 

The Government has announced a number of changes to tax administration, including increasing the interest rate charged on unpaid tax and a consultation on electronic invoicing.

Summary

Changes to interest rates on unpaid taxes

The late payment interest rate charged by HMRC on unpaid tax liabilities will increase by 1.5% from 6 April 2025. The current rate is set at the Bank of England base rate plus 2.5%.

The stated aim is to encourage the prompt payment of tax. 

Implementation of electronic invoicing

The Government will publish a consultation to establish the wider use of electronic invoicing across both UK businesses and government departments, which will be launched in early 2025.  

Modernising HMRC systems and data

Recognising that the underlying HMRC systems that support the Corporation Tax system are outdated, an update will be published Spring 2025 with details on HMRC’s ambitions for modernising this and making HMRC a digital first organisation.  

A further consultation will focus on how HMRC acquires and uses third-party data to make it easier for taxpayers to get their tax right first time.

Mandating tax adviser registration

Tax advisers who interact with HMRC on behalf of clients will need to follow a formal registration process from April 2026. This measure forms part of the long running consultation looking at strengthening the regulatory framework in the tax advice market.

Further rounds of consultation are expected to progress options for the structure of a future regulatory framework and measures to increase HMRC’s powers to act against agents who facilitate non-compliance.

Our comment

Electronic invoicing represents a major change for business and a period of consultation is important. The wider establishment of e-invoicing should improve efficiency in businesses and reduce reporting errors by avoiding the need for manual data entry. Although no details have yet been published, any mandatory e-invoicing will likely have an extensive impact on UK businesses.

Investment in modernising and digitising HMRC’s systems and data should support wider aims of improving service delivery.