UK Budget 2026: corporate tax ‘simplification’ could add complexity for businesses

Eloise Walker of Pinsent Masons was speaking following the publication of a new consultation on proposals to simplify various tax rules governing business investment (33-page / 376KB PDF), published alongside John Healey’s first Budget as UK chancellor of the exchequer.

The consultation sets out the government’s planned approach to simplifying the corporate tax system to support business investment, growth and competitiveness, and exploring opportunities for targeted reform. The government has said it will work with stakeholders over the next year to develop and prioritise reforms.

Walker said: “Although the new consultation opens with some good jargon around simplification and HMRC and taxpayers working together for a brighter future, the overall impression is one of yet another ‘simplification leading to even greater complexity’ exercise. Despite headlining as a budget providing ‘breathing space’ for business, the consultation hints that any such breathing space may be short-lived.”

The headline business tax announcement in the financial services sector was the temporary increase to the banking surcharge. From 1 January 2027, the corporation tax surcharge on banking companies will increase to 6%, resulting in an effective tax rate of 31%. The increase will last 15 months, ending on 31 March 2028.

“Whilst this was one of the few announcements that had been leaked before the Budget, it is a relief that the increase to the banking surcharge was only 3%, and not 8% as some rumours predicted. Nonetheless this will be disappointing to the banking sector and the thank you they were afforded in the chancellor’s speech is unlikely to have softened the blow,” said Walker.

The chancellor also announced changes to the rates of capital allowances. The main rate first year allowance will increase to 50% for expenditure incurred on or after 1 January 2027, whilst the main writing-down allowance will reduce from 14% to 12% from April 2027. Capital allowances provide tax relief on expenditure on certain types of capital assets, allowing businesses to write off the cost of the assets over several years against the taxable income of the business.

“This is great for new capital spending, which is presumably the point, but will be disappointing for most businesses, particularly given that the main writing down allowance was already reduced recently,” said Walker.

For entrepreneurs, a new capital gains tax (CGT) relief for founders and investors was announced. The new ‘founders’ relief’ will provide tax relief to support founders and early investors who have made a significant long-term contribution to the creation and development of the UK’s most high-growth and innovative companies. The new relief will provide a lower rate of CGT for qualifying disposals of shares or securities, according to the government's consultation on the relief (18-page / 212KB PDF), which is open for comments until 30 November. The new relief is expected to be introduced for qualifying disposals of shares on or after 6 April 2027.

The lifetime limit for business asset disposal relief (BADR) will be reduced from £1 million to £500,000 from 6 April 2027. BADR enables individuals to claim a reduced 18% CGT rate on the disposal of shares or assets used in a business if detailed conditions are fulfilled. Any gains in excess of the lifetime limit are subject to the main rate of CGT, currently 24%.

Walker said: “There is likely to be a lot of concern by investors and advisers that the conditions for the new founders’ relief are too complicated and may result in the relief being costly to access. The corporate conditions look eye-wateringly difficult to engage with, on a par with the complexity of EIS and VCT reliefs. This is likely to be a relief that looks good, but in practice is hard to apply, and we must assume will be paid for by the reduction in BADR which now drops to a negligible level given recent real rates of inflation.”

In other positive news, the government announced that the entry threshold for the Advance tax certainty service will reduce from £1 billion to £300m. The service allows businesses to apply for binding tax clearance on how the tax rules will apply to a major investment project from before the final investment decision is taken up until the relevant tax return is made. The changes to the threshold take effect from 4 November 2026.

“The reduction in the threshold for applying for the clearance is welcome but unsurprising given market knowledge that there had been no clearance applications since the service was launched in July 2026,” said Walker.

“It is unclear whether the reduction will be enough to encourage businesses to use the service. The government seems to acknowledge this by making it clear that the service will remain under review with a view to developing it further in the future.”