Key takeaways
No major business tax rises despite ongoing fiscal pressures
Corporation Tax stays at 25%; increases target banking and gambling sectors.
Support for entrepreneurship, employee ownership and investment
New reliefs and allowances encourage growth and business investment.
Compliance, anti-avoidance and tax reform remain on agenda
Investment in HMRC scrutiny signals greater enforcement and future tax reform.
The UK Budget 2026, delivered by Chancellor John Healey, will have once again been the most closely watched fiscal event for UK businesses.
With the government committed to its existing fiscal rules and election manifesto pledges, expectations of widespread tax and regulatory reform were tempered ahead of the announcement.
While the Budget included fewer major policy changes than some had anticipated, several targeted measures are expected to have important implications for large businesses. The government's approach focused on balancing economic stability with support for growth, investment and productivity, against an ongoing backdrop of domestic and global economic uncertainty.
This article examines the most significant Budget 2026 announcements and what they mean in practice for management and finance teams.
What changed?
A temporary increase in the Corporation Tax Surcharge was introduced for banks, Business Asset Disposal Relief (BADR) was reined in, the main rate of capital allowances fell and rates on rental income and savings rose. Meanwhile taxes on higher-stakes gaming machines were increased and the adult gaming and vaping industries were explicitly excluded from business rates relief.
Elsewhere, a new CGT relief aimed at founders was introduced, business rates reliefs were increased for the leisure and tourism industries, and, on the VAT and employee incentives fronts, there were a series of small but not insignificant changes that largely assist taxpayers.
What does it mean?
Bank Surcharge
To boost revenues and support households with the cost of energy, the Chancellor announced a temporary increase to the Bank Corporation Tax Surcharge from 3% to 6% for 15 months from 1 January 2027 to 31 March 2028. This surcharge applies to banking groups with profits of over £100 million. Counterintuitively, UK bank shares rose after the announcement of the surcharge, perhaps because investors had priced in a more severe longer-term outcome.
Founders’ Relief and Business Asset Disposal Relief
One of the more notable surprises in the Chancellor's speech was the announcement of a new capital gains tax (CGT) relief aimed at individuals who have invested their time, expertise and effort in founding and scaling qualifying UK companies.
Founders’ Relief is intended to take effect from 6 April 2027 and apply a 10% rate of CGT to qualifying disposals, subject to a lifetime limit of £10 million.
To qualify, individuals will need to satisfy a number of conditions relating to, among other things, the size and duration of their shareholding, and conditions relating to the individual's residence status and the company's activities being within the scope of UK corporation tax.
The company-related conditions are likely to prove quite challenging in practice. For example, companies that carry on activities that do not qualify for certain investor tax reliefs will not qualify for Founders’ Relief. Furthermore, there are turnover, employee and innovation tests. The first two must be met over three consecutive accounting periods and the third is judged by reference to expenditure qualifying for R&D tax relief.
Where those conditions are met, the relief will apply to gains realised on disposals of shares or securities in the company, up to the £10 million lifetime cap. The £10 million lifetime limit will be reduced by the amount of any gains in respect of which the individual has claimed Business Asset Disposal Relief or Investors' Relief on or after 6 April 2027.
The measure appears to represent a significant shift in policy towards supporting entrepreneurial founders of scaling businesses. The announcement is particularly notable when viewed alongside the reduction in the Business Asset Disposal Relief lifetime limit from £1 million to £500,000.
For more detail on Founders’ Relief, please see our separate Private Client Budget 2026 briefing.
Capital Allowances
Following on from the Rachel Reeves’ 2025 changes to the capital allowances regime, John Healey announced a decrease in the main rate writing-down allowance and an increase in the main rate first-year allowance. The main rate first-year allowance will increase from 40% to 50% for expenditure incurred on or after 1 January 2027. The main rate writing-down allowance will reduce from 14% to 12%, taking effect from 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax.
The practical impact of this is that while businesses can obtain a significant upfront deduction, further relief will be obtained more slowly over time, which could increase taxable profits in earlier years.
Gambling
As anticipated, the Budget imposed tax increases on the gambling sector, but they proved less severe than anticipated, prompting a jump in gambling companies’ share prices.
From April 2027, the rate of tax levied on slot machines (machine games duty) on higher-stakes gaming machines will increase from 20% to 25%, while the Gross Gaming Yield bands used to calculate gaming duty will be frozen until March 2028. At the same time, Adult Gaming Centres and vape shops will be excluded from parts of the business rates relief regime that remain available to other RHL businesses.
Concerns remain within the industry, with warnings that the increase could still render more betting shops unprofitable and place jobs at risk.
Local business rates
In an attempt to boost the UK’s hospitality and leisure sector, business rates relief will be increased from 15% to 35% for pubs, social clubs and all but the very largest live music venues in England. Music venues with a rateable value of £1 million or above will continue to benefit from the previously announced 15% relief in 2026-27 and real-terms freeze in 2027-28 and 2028-29.
Adult Gaming Centres and vape shops have been removed from the scope of certain business rates reliefs. As a result, affected businesses may face higher business rates liabilities from April 2027 and should factor this into future budgeting and property costs.
VAT
The Chancellor’s new reverse charge measure does not introduce VAT on cross-border services for the first time. Rather, it changes who is responsible for accounting for the VAT. From April 2027, non-VAT-registered UK businesses purchasing services from overseas suppliers will generally no longer be required to apply the reverse charge and possibly register for VAT. Instead, the overseas supplier will be required to charge and account for UK VAT directly.
The government confirmed that it will introduce a zero rate of VAT for land sold to registered providers of social housing, following consultation earlier this year. The measure is expected to take effect from 1 April 2027.
The VAT zero-rate on electricity has been extended to from March to July 2026.
Real Estate
While the Budget was relatively light on real estate-specific tax measures, landlords and other individuals deriving property income will be affected by the increase in the Income Tax rates applicable to property and savings income from 6 April 2027. The basic, higher and additional rates will rise to 24%, 44% and 49% respectively, increasing the effective tax burden on rental profits.
Employee incentives
The government announced that it intends to rebrand the Company Share Option Plan (CSOP) as EMI2 and:
increase the maximum value of tax-advantaged options that an employee may hold from £60,000 to £120,000 with effect from 6 April 2027;
remove the interaction between EMI2 and the Enterprise Management Incentive (EMI) option limits, allowing eligible employees to benefit from the full limits available under both schemes; and
extend the maximum exercise period for EMI2/CSOP options from 10 years to 15 years.
In addition, the Government announced measures intended to simplify the administration of EMI options. From 6 April 2027, employers will no longer be required to separately notify HMRC of the grant of EMI options. Instead, option grants will be reported through the existing annual EMI return process. Also, the EMI option exercise window following disqualifying events will be extended from 90 to 180 days.
What didn’t change
As expected, the Chancellor maintained the main rate of Corporation Tax at 25%.
The future
Looking ahead, the Chancellor expressed an intention to modernise the tax system by closing perceived loopholes and ensuring that individuals and businesses pay the tax that parliament intends.
While this part of the speech was relatively light on detail, the Chancellor referred to the taxation of company distributions as an area for future reform. In particular, the government appears to be considering whether changes are needed to reduce opportunities for sophisticated tax planning that can result in more favourable tax outcomes than those available to other taxpayers.
Although no specific measures were announced, this is an area that businesses and their advisers may wish to monitor closely ahead of future Budgets.
As ever, the Chancellor also emphasised the importance of improving tax compliance and narrowing the tax gap. Consistent with that objective, the government announced further investment in HMRC's compliance activities, including funding for an additional 670 compliance officers. This builds on previous commitments to recruit a further 5,500 compliance officers by 2029-30 and is intended to strengthen HMRC's ability to tackle non-compliance and recover unpaid tax.
If you would like to discuss how the 2026 UK Budget may affect your business, please get in touch with a member of the Hill Dickinson Tax team.
