For many companies, the Budget 2026 is less about a change in the headline corporation tax rate, which remains stable, and more about the detail underneath it. Here, there are important changes to capital allowances and to the taxation of international operations that could affect investment decisions, cash tax and the way UK groups structure overseas activity. 

The announcements build on changes already made or proposed during 2026. Companies should therefore distinguish between rules already in force, measures taking effect shortly and Budget proposals that still require legislation. 

Corporation Tax rates remain stable 

The Government has preserved the main Corporation Tax rate at 25%, in line with its Corporate Tax Roadmap commitment to cap the headline rate at that level during the Parliament. The 19% small profits rate and marginal relief framework also remain in place. 

For most companies this provides welcome certainty for forecasting. However, the effective rate can still depend on factors including associated companies, losses, reliefs and the timing of expenditure. In addition to the above rates, the government has opted to temporarily increase the Corporation Tax Surcharge on Banking Companies from 3% to 6% on surcharge profits above an allowance of £100m from 1 January 2027 to 31 March 2028. This is then scheduled to return to 3%, although the seasoned observer might note that it is easier to put taxes up than to cut them. 

Capital allowances: faster upfront relief, but slower writing-down allowances 

The Budget 2026 makes two notable changes to capital allowances for main-rate plant and machinery. The 40% first-year allowance (FYA), introduced for qualifying expenditure from 1 January 2026, will increase to 50% for qualifying new expenditure incurred from 1 January 2027. This can be valuable where full expensing is unavailable, including for qualifying UK leasing assets and unincorporated businesses. However, cars, second-hand assets, gifts and assets leased overseas remain outside the FYA. Further exclusions may apply to assets provided under non-qualifying activities, long funding leases or arrangements caught under the anti-avoidance rules. 

At the same time, the main-pool writing-down allowance (WDA) will fall again, from 14% to 12% from 1 April 2027 for Corporation Tax purposes. The rate was only reduced from 18% to 14% in April 2026 and so this represents a significant extension in the time for Companies holding substantial existing main pools or acquiring assets that do not qualify for more generous first-year reliefs to obtain tax relief. For businesses with chargeable periods, which straddle those dates, a hybrid rate will apply. 

Other important allowances remain available. Companies can continue to claim 100% full expensing on qualifying new and unused main-rate plant and machinery, with a 50% first-year allowance for qualifying special-rate expenditure. The Annual Investment Allowance remains £1 million, subject to the usual rules concerning availability and apportioning the allowance between groups or related businesses. 

The practical message is that the timing and classification of expenditure matter. Businesses planning significant capital investment should model which allowance is available rather than assuming that the headline 50% FYA will apply to every asset. 

R&D tax reliefs: simplifying R&D claim process 

Steps have been taken to simplify the supporting information required for submission alongside an R&D claim, as well as removing the requirement for the Claim Notification Form. Full details are provided in our R&D changes note [please link] 

Foreign branches: exemption becomes mandatory 

A significant international change takes effect for accounting periods beginning on or after 1 January 2027. The foreign permanent establishment (PE) exemption, which is currently elective, will become mandatory for UK-resident companies with overseas branches. 

Broadly, profits and losses attributable to a foreign PE will be excluded from UK Corporation Tax. This strengthens the territorial nature of the UK system but removes the ability for companies expanding overseas to obtain UK relief for foreign branch losses before later exempting foreign branch profits. 

The draft legislation includes transitional provisions designed to prevent foreign PE losses and other amounts being carried into the post-transition regime, together with targeted anti-avoidance rules. Groups with overseas branches should review existing loss positions and forecasts before the new regime applies. 

Pillar Two and cross-border tax simplification 

Large multinational groups also face continuing changes under the Organisation for Economic Co-operation and Development (OECD) Pillar Two framework, which imposes a global minimum effective tax rate for groups with annual global revenues of at least €750 million in 2 of the past 4 years. 

Draft Finance Bill 2026-27 legislation includes a new side-by-side package and ultimate parent entity safe harbour for accounting periods beginning on or after 1 January 2026. The purpose of these changes is to provide reduce top-up tax liabilities for eligible jurisdictions that already maintain a qualifying parallel minimum tax regime. In particular, it has been specifically designed to integrate US parented multinational groups, acknowledging they already face minimum tax exposure under the US GILTI/NCTI frameworks.  

Further changes, including a substance-based tax incentive safe harbour, which limits the reduction to effective tax rate due to qualifying tax incentives (such as R&D relief), applies to periods starting on or after 1 January 2026 and a simplified effective tax rate safe harbour and technical amendments to the UK Multinational Top-up Tax and Domestic Top-up Tax rules from 31 December 2025. The transitional safe harbour rules have also been extended by a year. 

Alongside these measures, the Government has published a Corporate Tax Simplification for Business Investment programme. It identifies financing and international activity as areas where overlapping rules and reporting requirements could be simplified. This is a programme for further reform rather than an immediate rewrite of the international tax rules, so companies should not assume existing compliance obligations have disappeared. 

What should companies do now? 

Companies should consider: 

• updating Corporation Tax forecasts using the continuing 25% headline rate 

• reviewing planned capital expenditure to establish whether full expensing, AIA, the 50% FYA or WDAs will give the appropriate relief 

• modelling the effect of the 12% WDA on existing and future capital allowance pools 

• reviewing foreign branch structures and accumulated losses before the mandatory PE exemption begins 

• for groups within Pillar Two, checking how the latest safe harbours and technical amendments affect calculations and reporting. Simplification does not eliminate paperwork and affected US owned UK businesses must still navigate UK Overseas Return Notifications, Pillar Two returns and local data file requirements 

Conclusion 

The Budget 2026 preserves stability at the headline Corporation Tax level, but changes some of the rules that determine when companies receive tax relief and how cross-border profits and losses are treated. The increase in the FYA may accelerate relief for some investment, while the reduced WDA delays relief elsewhere. International groups, particularly those operating through foreign branches or within Pillar Two, should pay close attention to the measures taking effect from 2027.