Company Taxation

Tax rates and allowances

Since April 2023, the headline rate of corporation tax has been 25%, applying to profits over £250,000, and the Labour Party manifesto pledged to cap corporation tax at this level for the entire parliament.

A small profits rate (SPR) of 19% applies for companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief providing a gradual increase in the effective corporation tax rate to 25% at £250,000.

Since April 2023, the bank surcharge has been an additional 3% on banks’ profits above £100m. Also from April 2023, the rate of Diverted Profits Tax (DPT) increased to 31%, retaining a 6% differential above the main rate of corporation tax.

For a table of the main tax rates and allowances, see here.

The Corporate Tax Roadmap

Published together with the budget was a Corporate Tax Roadmap: a document that is fast becoming a tradition for incoming governments, having been produced in 2010 by the Conservative-Liberal Democrat coalition government and in 2016 by the Conservative government.

The striking contrast between those publications and today’s is the emphasis on stability, and this comes across in the headlines:

• Corporation tax rate: capped at 25% for the duration of the Parliament, with a commitment to monitor “international developments with a view to ensuring that the UK’s regime remains competitive”;

• International corporation tax issues: consultations on the UK’s transfer pricing rules, permanent establishments, and the Diverted Profits Tax;

• A consultation on a new process for advanced tax certainty for investors in major projects;

• Capital allowances: maintaining permanent full expensing for the duration of the Parliament, with the £1m Annual Investment Allowance, writing down allowances, and the Structures and Buildings Allowance; a commitment to “provide greater clarity” on the conditions for different allowances; and a potential extension of full expensing to assets bought for leasing or hiring;

• R&D reliefs: maintaining rates for the R&D Expenditure Credit scheme and the Enhanced Support for R&D Intensive SMEs scheme; the establishment of an R&D expert advisory panel; and a consultation on advanced clearances for R&D reliefs;

• The Patent Box: maintaining the Patent Box and “preserving the UK’s competitive regime for intangible fixed assets”;

• Maintenance of the Audio-Visual Expenditure Credit and the Video Game Expenditure Credit; and

• A consultation on the effectiveness of Land Remediation Relief.

Altogether, the Corporate Tax Roadmap promises little change. That is probably the point. One of the government’s stated key objectives is “to make the UK the most attractive major economy in which to invest and do business”, and on tax, that means resisting the urge to do anything drastic. The UK’s main rate of corporation tax is the lowest in the G7 (albeit that it rose sharply in 2023) and there is a promise of no change there.

Groups with UK holding companies are unlikely to be spooked. There will be no alterations to the “key features” of the loss relief regime, deductions for borrowing costs, the exemptions for gains on disposals of substantial shareholdings and for dividends paid to UK corporations.

Banks were probably not expecting any changes to the Bank Levy and the Bank Corporation Tax Surcharge, and they will therefore not be surprised: the Roadmap reports that “…sound fiscal policy is key to economic stability and growth. We can only deliver excellent public services by delivering on our commitment to responsible fiscal policy. At the same time, the government recognises that the tax system has a vital role to play in supporting our growth mission. We will keep the bank tax regime under review, to ensure that these objectives are appropriately balanced.”

The capital allowances regime is likely to be somewhat shaken up. Capital allowances reward particular types of spending, and it’s perhaps unsurprising that the new administration might choose to reward somewhat different things. It’s also a complicated area of tax and accounting. Hence the promise of new guidance to “provide businesses with greater clarity on what qualifies for capital allowances to help make investment decisions”. There is also a specific promise to clarify the capital allowance treatment of pre-development costs following the Gunfleet Sands decision, which caused some investor uncertainty. This will be particularly important given the government’s hopes for private investment in infrastructure projects.

R&D reliefs pose a particular challenge, with very significant levels of fraud and error (in excess of 17% in 2021/22). However, an economy hoping to embed innovation as a means to break out of a growth rut cannot afford to disincentivise investment in the technology of the future. The Roadmap promises to maintain the R&D Expenditure Credit and the Enhanced Support for R&D Intensive SMEs, while committing to “consider longer term simplifications and incremental improvements”. Actions taken in other parts of the tax system to tackle rogue agents and promoters will be key to instilling confidence in the regime. On a similar ‘key intangibles’ note, the Patent Box and intangible fixed assets regime are to remain unchanged.

Two reliefs targeted at the creative industries – the Audio-Visual Expenditure Credit and the Video Game Expenditure Credit – will be maintained.

Land Remediation Relief is an old scheme, dating to 2003. There will be a “consultation to review the effectiveness of Land Remediation Relief in Spring 2025. This will determine whether it is still meeting its objective of boosting development on brownfield land and evaluate its value for money.” Watch this space for a replacement.

All told: much continuity, a little tinkering around the edges, and some long-term commitments. The Roadmap, including its signposting of upcoming consultations, is likely to be well-received.

Carried interest

Following the Call for Evidence on the tax treatment of carried interest launched on 29 July 2024, the government has today published a “Summary of Responses and Next Steps”.

Carried interest arising on or after 6 April 2025 will be taxed at a minimum capital gains tax rate of 32% (the highest applicable rate of capital gains tax is currently 28%).

This rate, together with the broader current regime for the taxation of carried interest, will remain in place until the implementation of a wider reform package, which will take effect in April 2026. This wider reform package will:

• Tax all carried interest within the income tax framework, so it is taxed as trading profits and subject to income tax and Class 4 national insurance contributions. However, the amount of “qualifying” carried interest subject to tax will be adjusted by applying a 72.5% multiplier. At the current additional rate of income tax, this would give a rate of income tax of 32.625% on “qualifying” carried interest.

• Remove the “employment related securities” exemption from the income-based carried interest (IBCI) rules. The government does not want this to cause a disproportionate impact on private credit funds, and intends to work with expert stakeholders to ensure that the rules work appropriately for private credit funds, whilst ensuring that qualifying carried interest treatment is only available to funds engaged in long-term investment activity.

This new “qualifying” regime will sit alongside the DIMF rules, using existing concepts from the current capital gains carried interest rules, including when carried interest “arises”, as well as using the existing definitions and various computational concepts from those rules.

Significantly, in particular for credit funds, the new regime will be an exclusive charge (so for example qualifying carried interest which represents interest income will only be chargeable under the new rules).

Carried interest will be “qualifying” where it is not IBCI. In addition to the 40 month average holding period test, the government will consult on policy options for introducing further conditions to ensure that access to the “qualifying” carried interest regime is “appropriately limited”.

The policy options being considered for access to the “qualifying” carried interest regime are:

• A minimum co-investment requirement; and

• A minimum time period between a carried interest award and receipt.

The government has set out some considerations and questions in relation to each. The government seems to be leaning towards the latter rather than the former, “as a means of ensuring qualifying carried interest is limited to carried interest which is genuine long term reward”. The consultation on these options will be relatively short – it will run to 31 January 2025. Views expressed as part of the consultation “will feed into considerations on whether to proceed with introducing any additional qualifying conditions and the design of such condition”.

The same territorial scope as currently applies to the capital gains carried interest rules will apply. Qualifying carried interest which relates to non-UK services will be able to benefit from relief under the new four year foreign income and gains regime (replacing the current non-dom regime).

There will be no transitional protection afforded to existing fund structures once the new regime takes effect in April 2026.

Technical changes relating to APAs for certain financing arrangements

This measure intends to address a technical gap in the UK's Advance Pricing Agreements (APAs) legislation, particularly affecting taxpayers seeking or having sought APAs in relation to financing arrangements where the UK’s transfer pricing rules apply due to the "acting together" provisions under sections 161 or 162 of the Taxation (International and Other Provisions) Act (TIOPA) 2010. This gap has been identified where the transfer pricing legislation is only relevant because of these provisions, which was not previously covered under the existing APA framework. The proposed revision aims to ensure the validity of APAs for businesses in such situations, aligning with HMRC's Statement of Practice 1 (2012) and providing affected businesses with tax certainty.

This measure will be effective retroactively for all chargeable periods since the introduction of TIOPA 2010.

Repeal of the Offshore Receipts in Respect of Intangible Property (ORIP) rules

The Autumn Budget 2024 has confirmed that the offshore receipts in respect of intangible property (ORIP) rules, which at present impact multinational groups that hold intangible property in low-tax jurisdictions and derive income from it in the UK, will be repealed.

This move, effective from 31 December 2024, aligns with the introduction of the OECD and G20 Inclusive Framework’s Pillar 2 undertaxed profits rule, which aims to address the tax planning strategies ORIP was initially designed to counter. The repeal of ORIP, announced in the Autumn Statement 2023, signifies a shift towards a more comprehensive global approach to discouraging profit shifting and tax base erosion in the UK. By removing the need for specific UK income tax returns for ORIP purposes, this promises administrative savings for affected businesses.

Transfer pricing announcements in the Corporate Tax Roadmap

There are plans to engage in further consultations on reforms to the UK transfer pricing, permanent establishment and Diverted Profits Tax rules as part of the UK government’s Corporate Tax Roadmap, aiming to enhance taxpayer certainty, ensure alignment with international tax treaties, and safeguard the UK tax base. The initial round of consultations happened in August 2023 with a summary of responses published in January 2024, as outlined in our earlier Insights article.

In the Corporate Tax Roadmap published alongside the Budget, HMRC indicated it will be exploring new areas for consultation, expected to be released in Spring 2025, which include:

• The potential reduction of existing thresholds for medium-sized businesses to bring them within the scope of transfer pricing rules, aligning with international standards while maintaining exemptions for small businesses. This clearly indicates the UK government’s efforts to cast the transfer pricing net wider to increase the opportunity for and receipt of UK tax revenues.

• Proposals to introduce reporting obligations for multinationals on cross-border related party transactions to improve risk identification and streamline HMRC's compliance efforts with more targeted enquiries. To some extent, comments on this were requested in the transfer pricing documentation consultation in 2021 but it seems with the current government’s HMRC investment strategy to tackle compliance and tax avoidance, this has been prioritised.

• Review the treatment of cost contribution arrangements to encourage investment and ensure the equitable development and sharing of intellectual property among group companies. This reflects a strategic effort to ensure the rules provide certainty and do not act as a deterrent to investment that brings economic benefits to the UK.

Alternative Finance: further levelling

In positive news, Autumn Budget 2024 confirmed the new government’s commitment to place the tax treatment of alternative finance (including shariah compliant) arrangements on a level playing field with that of conventional finance.

The previous government had consulted on potential reform to the CGT treatment of alternative finance arrangements, in particular refinancing transactions involving properties that did not qualify for CGT private residence relief. Today’s announcements confirm that relevant legislation will be amended in the forthcoming Finance Bill that will seek to secure that a person using alternative finance to raise capital using an asset that they already own will not incur a tax charge.

In response to that consultation, many had also flagged that the exemption for alternative finance contained in the Annual Tax on Enveloped Dwellings (ATED) rules did not provide clarity on how the rules were intended to operate where the customer was an individual. It was pleasing to see that alongside the CGT announcement, the government has also confirmed that legislation will be brought forward in the next Finance Bill to make clear that the financial institution is not liable for ATED in such circumstances. The ATED exemption, which relies on definitions from the SDLT alternative finance relief, will also be updated to introduce an exemption from ATED for Welsh transactions that benefit from the equivalent Welsh land transaction tax relief. The ATED and CGT changes are stated to take effect from 30 October 2024.

Reserved Investor Fund: nearly there

The new government announced in Autumn Budget 2024 that the proposed introduction of the Reserved Investor Fund would proceed.

The RIF is a new form of unauthorised vehicle that will take the form of a co-ownership contractual scheme, further details of which are summarised in our previous article: The new Reserved Investor Fund – unreserved good news? The latest announcement confirms that the intention is for relevant secondary legislation to be brought forward before the end of 2024/25. In addition to the RIF being introduced, minor changes are proposed to the treatment of Co-ownership Authorised Contractual Schemes (CoACS).

There has been a lot of interest in the RIF as an unregulated onshore structure for professional investors, in particular for tax exempt investors into UK real estate who wish to participate through a pooled vehicle but who do not need the regulated framework of a CoACS. Whilst the timelines for secondary legislation are not yet clear, it is positive to see a commitment to legislate for the introduction of this new vehicle before the end of the current tax year.

Pillar II: amendments

The government has proposed further amendments to the UK’s implementation of the Global Anti-Base Erosion (GloBe) rules, in furtherance of the OECD’s Pillar II reforms. These rules seek to impose a minimum effective tax rate on large multinational groups (with global annual revenues exceeding EUR 750m) and prevent profit shifting to low- or no-tax jurisdictions.

The UK has implemented the GloBe rules so far through its Multinational Top-up Tax and Domestic Top-up Tax, both introduced by Finance (No.2) Act 2023 and further amended by Finance Act 2024. The newly-proposed amendments, developed in consultation with stakeholders, would further amend Finance (No 2) Act 2023 to keep UK legislation up-to-date with the latest international developments. The proposed amendments are currently high-level, but will include (among other things) clarifications to the treatment of joint ventures and qualifying asset holding companies (QAHCs) under the UK’s GloBe rules, technical amendments relating to the calculation and allocation of profits for GloBe purposes and administrative changes (for example, to filing and payment dates). Most of the amendments will take effect for accounting periods beginning on or after 31 December 2024, though some amendments will take effect retrospectively, for accounting period beginning on or after 31 December 2023. Given that the amendments are intended to ensure that the UK legislation works in line with existing OECD commentary, they are not expected to have a significant impact on businesses within the scope of the GloBe rules.

The government has also announced that it will give effect to the “undertaxed profits rule” (UTPR) of the GloBe rules in UK legislation for accounting periods beginning on or after 31 December 2024, as planned. The UTPR will provide the mechanism by which the UK can charge a UK-based constituent entity of a multinational enterprise group to Multinational Top-up Tax to the extent that the amount of tax has not already been collected under a qualified “income inclusion rule” (IIR) or domestic top-up tax of another jurisdiction. It is, therefore, a residual charging mechanism. The introduction of the UTPR into UK law has been expected for a while now and should largely be consistent with OECD guidance and based on the draft legislation published on 27 September 2023 (as expected).

CARF, CRS amendments and extension to domestic reporting

The recent growth in the use of crypto-assets has led to concerns that tax authorities do not have sufficient information relating to crypto-asset transactions. Unlike traditional financial products, crypto-assets can be transferred and held without the intervention of traditional financial intermediaries, such as banks, and without any central administrator having full visibility on either the transactions carried out or on crypto-asset holdings. The crypto-asset market has also given rise to new and unregulated intermediaries and service providers, such as crypto-asset exchanges and wallet providers. The OECD was therefore mandated to develop a complementary compliance framework to address this issue.

In November 2023, 48 countries (including the UK and the US) committed to implement the OECD’s flagship transparency standard to help combat tax evasion using crypto-assets - the Crypto-Asset Reporting Framework (the CARF). Countries are aiming to implement the CARF into local law by 2027.
The UK has been viewed as taking a pro-active approach to promote greater tax-transparency in the crypto market, having published a consultation earlier this year to seek views on the implementation of the CARF and related changes to the Common Reporting Standard and, in the meantime, launching an online voluntary disclosure facility specifically aimed at encouraging taxpayers to disclose any unpaid tax on crypto-assets. The UK has also published a consultation on the future regulatory framework for crypto-assets.

The government has now released the summary of responses to the consultation published on the implementation of the CARF, along with draft regulations entitled The Cryptoasset Service Providers (Due Diligence and Reporting Requirements) Regulations 2025 (the UK CARF Regulations).

In summary, the UK CARF Regulations set out the due diligence, record keeping and reporting obligations of a “UK reporting crypto-asset service provider” - broadly any person or entity that, as a business, operates as a crypto exchange. These obligations include:

• Applying, establishing and maintaining arrangements designed to apply the due diligence procedures set out in the CARF;

• For a period of five years, keeping a record of steps taken to comply with the UK CARF Regulations and of the information collected in the course of applying the due diligence procedures set out in the CARF; and

• Making annual reports to HMRC of personal information relating to certain customers of the UK reporting cryptoasset service provider (including the name, address, residence and date of birth such customer) and details for each type of “Relevant Crypto-Asset” with respect to which the UK reporting cryptoasset service provider has effectuated an exchange (including the number of units, the amounts paid and received for acquisitions and disposals of Relevant Crypto-Assets (respectively) and information on the aggregate fair market value of such Relevant Crypto-Assets).

The UK CARF Regulations also provide for penalties to be imposed for breach of any of the obligations set out therein, although the amounts of the penalties have not been published at this stage.

Unlike the Common Reporting Standard, the UK CARF Regulations cover reporting on UK customers by UK businesses. The government has confirmed that it will not extend the Common Reporting Standard in the same manner.

The UK CARF Regulations will come into force on 1 January 2026 and the first reports to HMRC covering the 2026 calendar year will be due by 31 May 2027.

Close companies: closing loophole in the loan to participators regime

The government has announced changes to the “loan to participators” regime (the LTP Regime) to close a loophole which has left the LTP Regime open to avoidance opportunities.

The broad purpose of the LTP Regime is to discourage close companies from making untaxed loans to their participators, rather than the participators receiving income chargeable to tax, e.g. as wages or dividends. It does this by imposing on the close company an amount of corporation tax equal to a percentage (currently 33.75%, reflecting the dividend higher rate) of the balance of the loan where it remains outstanding 9 months after the end of the accounting period in which the loan was made (the LTP Charge).

The LTP Regime captures not only loans directly made by close companies, but also indirect loans and loans made via non-close companies controlled by close companies. Relief can be claimed from the LTP Charge to the extent the loan is subsequently repaid or released/written off (although additional consequences can arise in the latter cases).

The scope of the LTP regime was expanded in 2013 to include a targeted anti-avoidance rule (TAAR) which also imposed the LTP Charge on untaxed benefits conferred under tax avoidance arrangements to which a close company is party, but which did not otherwise fall within the LTP Regime. In a similar way to the “main” LTP Charge, these additional provisions allowed relief to be claimed from the LTP Charge under the TAAR to the extent a payment is made to the close company concerned in respect of the untaxed benefit (a return payment).

The 2013 changes also introduced provisions (Chapter 3B) to prevent an LTP Charge under the “main” LTP Regime or the TAAR from being relieved where loans are repaid, or return payments made, only for further loans to be made or benefits conferred a short time later. Notably, these provisions only capture loans by/benefits from and repayments/return payments to the same company.

The government has become aware of taxpayers exploiting the current mechanics of the TAAR, with its provision for relief for return payments made in respect of untaxed benefits, and the application of Chapter 3B only within a single company. To combat this, Finance Bill 2024/25 will include amendments to the LTP Regime, effective from 30 October 2024, that will remove the ability to claim later relief from a charge under the TAAR by making a return payment. The government will no doubt hope that this slams the door shut on remaining avoidance opportunities.

Tax relief for film and TV production

The UK government has unveiled significant enhancements to the Audio-Visual Expenditure Credit (AVEC), aimed at bolstering the film and high-end television production industry, with a special focus on the visual effects (VFX) sector. These changes, effective from 1 April 2025, mark a strategic effort to enhance the UK's appeal as a premier destination for film and television production.

Key enhancements include:

• Increased AVEC Rate for VFX: The AVEC rate for VFX costs will be increased to 39% from the current 34%. This adjustment is designed to provide more substantial tax relief on VFX expenditures.

• Removal of the 80% Cap: The existing 80% cap on qualifying UK VFX expenditures will be removed for expenses incurred from 1 January 2025. This change aims to encourage productions to utilise UK-based VFX talent and resources, offering full tax relief on eligible VFX costs.

In addition to the tax relief enhancements, the government has introduced amendments to the Corporation Tax Act 2009 to streamline administrative processes for companies in the film, TV, and video game production sectors. These amendments focus on simplifying the requirements for BFI certificates, adjusting the treatment of unpaid amounts, and streamlining the regulation procedures under Part 14A.

These legislative changes and tax relief enhancements are designed to support the UK's creative industries, ensuring the country remains a competitive hub for film, television, and video game production.

International Tax Compliance (Amendment) Regulations 2025

The government has responded to the consultation launched by the previous government at Spring Budget 2024 on implementing the OECD’s amendments to the Common Reporting Standard (CRS) into UK law. The CRS places obligations on financial institutions to identify the tax residency of account holders and (in certain cases) their controlling persons and report on relevant financial accounts held directly or indirectly by non-UK tax residents to HMRC, for onward sharing with international tax authorities.

The draft legislation provides for (among other things) a mandatory registration requirement with HMRC for reporting financial institutions and amendments to the existing penalties and appeals framework. Under the draft provisions, reporting financial institutions will be required to register with HMRC by the later of 31 December 2025 and the last day of the six month period beginning when it first falls within scope, by giving notice to HMRC. Penalties will be imposed for a range of defaults, including failure to comply with record-keeping requirements, file returns on time, or provide information to, or register with, HMRC – though the amounts of such penalties remain uncertain.

The government is seeking technical feedback on these draft regulations by 10 January 2025. Final regulations are expected to come into force on 1 January 2026.

Electric vehicles and fuel duty

A number of measures were announced in continued encouragement of electric vehicle (EV) adoption.

New company car tax rates for tax years 2028 to 2029 and 2029 to 2030 were announced. The value of a company car for benefit-in-kind tax purposes is calculated (broadly) by multiplying its list price by its “appropriate percentage”, which is set at different rates depending on a vehicle’s emissions. As a result of the announced changes, in tax year 2029 to 2030, the appropriate percentage will rise to 9% (currently 2%) for EVs and zero emissions vehicles, to a maximum of 19% (currently 14%) for low emissions (1-50g of CO2 per kilometre) vehicles and to a maximum of 39% (currently 37%) for all other vehicle bands. It will continue, therefore, to remain more attractive to offer EVs than hybrid or internal combustion engine vehicles through company car schemes – though the disproportionate increase in the zero emission appropriate percentage reflects the tricky balance between encouraging widespread EV adoption and maintaining an appropriate public revenue from motoring if uptake increases as hoped.

Clarificatory legislation will also be introduced, effective from 1 April 2025, to ensure that EVs remain exempt from Vehicle Excise Duty, and the 100% first year capital allowances available for EVs and EV charging points will be extended until 31 March 2026 for corporation tax and 5 April 2026 for income tax. This maintains the strong tax incentive for both individuals and businesses to transition to cleaner vehicles.

Contrary to speculation, the government announced that it would extend the current 5p cut in the rate of Fuel Duty, which was introduced at the Spring Statement 2022. The cut will now expire on 22 March 2026 instead.

Energy profits levy reform

The Chancellor has announced a number of reforms to the Energy (Oil and Gas) Profits Levy (EPL) which will take effect from 1 November 2024. Introduced in May 2022, the temporary EPL aimed to tax the exceptional profits of energy companies active in the UK or on the UK Continental Shelf.

The Autumn Budget reforms include:

• a 3% rise to the EPL, bringing the rate to 38%;

• extending the end date of the EPL from 31 March 2029 to 31 March 2030;

• removing the EPL’s 29% Investment Allowance; and

• reducing the rate of the Decarbonisation Investment Allowance from 80% to 66%.

In early 2025, the government plans to release a consultation discussing its response to price shocks following the conclusion of the EPL.