Autumn Budget 2026: Corporation tax
Today’s Budget was noticeably lighter on changes to corporation tax than many previous Budgets. Apart from some relatively minor measures to accelerate relief for some capital expenditure, there was little to report in terms of legislative changes, but there are some notable updates buried in the detailed documentation.
The Chancellor confirmed that he was continuing along the ‘corporation tax roadmap’, which provides some welcome stability for companies. To that end, the Treasury has published a document promisingly titled ‘corporate tax simplification for business investment’.
There are a number of updates which impact on cross border businesses and on interest deductibility which are of particular interest. There is also a positive update on withholding tax on interest.
International groups
The government has responded to concerns that certain rules that impact on multi-national enterprises are overly complex and that some of them may have been superseded by other rules. In particular, concerns had been raised that “Pillar 2” rules (which impose a top up tax in the UK if profits are taxed too lightly across a multinational group) had rendered the controlled foreign company (CFC) and hybrids’ rules obsolete.
The Treasury has made clear that these rules are here to stay but committed to exploring options to simplify them. The Pillar 2 rules only apply to the largest groups and there may be some scope for additional simplification. For mid-market groups, there is likely to be incremental change at best.
Interest deductibility
The Treasury has responded to concerns about the complexity of the corporate interest restriction rules and about the uncertainties around the application of unallowable purpose rules.
The response on these points strongly suggests little movement, although there will be additional guidance on unallowable purpose.
Businesses should not expect any substantial change to these rules.
Withholding tax
Any business that has paid interest to shareholders or lenders will likely have navigated the minefield of clearances, notifications and quarterly returns etc that surround the obligation to withhold tax and the ability to remove this obligation under tax treaties. This can be a significant drain on time and simple omissions can incur disproportionate costs.
The government has followed a recent consultation by acknowledging scope for simplification and by suggesting that serious consideration will be given to a self-assessment regime, albeit likely on a limited basis.
Businesses can probably expect some real simplification of the system over the next couple of years but it is unlikely to be a fully self-assessed system in the short term.
Other
The government will consult on whether some professional costs related to capital assets could qualify for tax relief; certainty on this point would be welcomed.
There will be a consultation on additional clarity around some detailed legislation that determines which intangible assets can qualify for tax relief.
There will also be consultations on how to use emerging technologies in tax administration and how to improve advance certainty. The terms of reference of these are, however, fairly vague.
Finally, the international movement of capital report is to be repealed. This only applied to nine-figure cross border transactions in limited circumstances, so the impact will be limited. However, any reduction of un-necessary red-tape should be welcomed.
In summary, there should be some noticeable but incremental improvements over the next few years and the direction of travel should be towards less administration.
