Business and Corporation Tax in 2026

While this guide has so far focused on personal tax matters, the following section turns to the business landscape, setting out the key corporate tax rates, deadlines and forthcoming legislative changes that business owners need to be aware of.

Whether you are an owner-managed business, a growing enterprise or multinational group, a clear understanding of these rules is critical to managing risk, cash flow and compliance in 2026 and beyond.

Introduction to Corporation Tax 
Corporation Tax Rates
Quarterly Instalment Payments
Year-End Planning Considerations
Owner-Managed Planning
Capital Allowances
R&D Tax Relief
Corporate Interest Restriction
Permanent Establishment Risks
International and Transfer Pricing
Pillar 2 - Global Minimum Tax
Corporation Tax - Key Deadlines
E-Invoicing - Why It Matters

An introduction to Corporation Tax

Corporation tax planning remains one of the few areas where the timing and structuring of transactions can still have a material impact on cash flow, even in a stable-rate environment.

The associated company rules now capture many arrangements that were not historically within scope and for which businesses may not have planned.

Stability and continuity were again the key messages coming from the Chancellor in the Autumn Budget, following the Corporate Tax Roadmap to the end of the parliament published in 2024.

As stated in the roadmap, the government is committed in this parliament to capping the top rate of Corporation Tax at 25%, and making full expensing a permanent feature of the capital allowances regime.

In addition, the government intends to retain R&D and Patent Box reliefs as well as the Substantial Shareholding’s Exemption, features of the tax regime which make the UK an attractive location for multinationals to headquarter.

The Autumn Statement in 2025 saw welcome increases in the limits for Enterprise Tax Relief Incentives, and saw a call for evidence to improve the effectiveness, targeting and impact of such tax incentives for start-ups and scale-ups in order to encourage investment, growth and business confidence.

Tax rates – 25% mainstream company rate

The main rate of corporation tax remains at 25%.

Businesses with profits of less than £50,000 continue to be taxed at 19%, and for businesses, with profits of between £50,000 and £250,000 a tapered rate applies.

These thresholds are divided between companies in a corporate group and other associated companies, potentially reducing them significantly.

Quarterly Instalment Payments (QIPs) - change from “related 51% group companies” to “associated companies”

Companies are required to make payments in quarterly instalments where annual taxable profits exceed £1.5 million (or £10 million if this is the first period in which it is defined as large). There is also an accelerated quarterly payment regime for “very large” companies with annual taxable profits exceeding £20 million.  These thresholds are also reduced based on the number of ‘associated companies’.

Prior to 1 April 2023, the QIPs thresholds were reduced by reference to the number of 51% group companies. For the first accounting period starting on or after 1 April 2023 this was widened to include all ‘associated companies’ which includes companies not in a corporate group, but under common control.

Associated companies were the subject of an HMRC one-to-many letter campaign in 2025 highlighting this as a risk area where HMRC are alert for errors or non-compliance. It is, therefore, recommended that companies undertake an annual review to ensure they are aware of any changes to the structure or ownership which may have resulted in an increase in the number of associated companies and consequently have reduced their QIPs and taxable profits thresholds.

Key Year-End Corporation Tax Planning Considerations

1. Losses

For loss making companies, the most effective use of their losses is a key tax planning point.

For loss making companies, the most effective use of their losses is a key tax planning point.

In certain circumstances, losses can be carried back, normally for 12 months. If a company is in a group with other companies that are tax-paying, a sideways loss relief claim via group relief may be possible.

When corporation tax rates are static, decisions are more likely to revolve around cash flow, as there is no particular tax arbitrage to be gained in relieving losses in a different period. This usually means the 12 month carry back or side-ways group relief are the most efficient use of losses.

For more complex situations, involving other claims and reliefs, the tax benefits have to be weighed up alongside the cash flow impact to determine the best course of action. Forecasts of future profits / losses should also be considered.

Where companies have previously surrendered losses for tax credits, through the R&D scheme perhaps, or loss carry back claims have been made, an amendment can be made within two years of the period end to reverse the claim.

In such situations, however, any repayment previously received would need to be repaid, and interest on underpayment of tax will need to be factored in.

The deductions allowance for group relief remains at £5m for those with large losses brought forward that they wish to group relieve.

2. Income and Expenditure

Normal year-end tax planning advice typically involves deferring income and accelerating expenditure where possible to take full advantage of all available allowances and deductions. There may be commercial reasons to consider the opposite dependent on the company’s specific circumstances.

The following "Income" and "Expenditure" points explain this in more detail:

  • Income Income is brought into the charge to tax in accordance with generally accepted accounting principles (GAAP). The general principle is that income arises as and when the work is done or goods are supplied, and not when a business is paid. It may be possible to accelerate income into an earlier accounting period or defer into a later one, however, accounting policies must be applied on a consistent basis and be in accordance with GAAP.

  • Expenditure There are several ways a company can affect which accounting period expenses arise in, for instance, expenditure on planned repairs can be timed to fall into either an earlier or later period. Provisions can be made in the accounts for future costs to accelerate a tax deduction, or a company could review existing provisions to see whether they could be reduced or reversed. Generally, if a provision is in line with GAAP then it is allowable for tax purposes unless there are specific rules prohibiting deduction for the particular expenditure being provided for.

The following specific areas of expenditure are particularly worth reviewing:

  1. Bad debts Debtors should be reviewed in detail so that any impairments or provisions can be made for bad debtors. It is important that evidence is kept, showing that the circumstances giving rise to the provision or write-off were in existence at the balance sheet date.
  2. Stock Care needs to be taken in this area; however, a company may be able to make specific provisions against damaged, slow-moving or obsolete stock.
  3. Bonuses If a company intends to make bonuses, the timing is important to determine which year tax relief falls into. To accelerate tax relief into a period before the year end, a provision for bonuses can be made, but it must be able to demonstrate that the liability to make the payment existed at the balance sheet date, and the bonuses are paid within nine months of the year end. If the liability didn’t exist at the balance sheet date or if payment is deferred until more than nine months after the year end, the tax relief will arise in the later period.
  4. Pension contributions Employer pension contributions (including schemes such as SIPP or SASS for directors and their families) are allowable on a paid basis. Relief can be accelerated by ensuring payments are made early just before year end or held back to get relief in the later period.

Practical Year-End Corporation Tax Planning Checklist

As part of the year-end process, companies should consider the following practical steps:

1. Review associated company count

Confirm whether any changes in ownership or control during the year affect the number of associated companies, as this impacts corporation tax rates, marginal relief and quarterly instalment thresholds.

2. Model marginal relief impact

Forecast taxable profits to determine whether the company falls within the marginal relief band and assess whether legitimate planning can optimise the effective tax rate.

3. Decide loss utilisation strategy before year-end

Consider whether losses should be carried back, surrendered as group relief or retained for future use, balancing cash flow needs against longer-term tax efficiency.

4. Review provisions, bonuses and pensions pre-close

Ensure provisions are supportable under GAAP, bonus liabilities are properly established, and pension contributions are timed appropriately to secure relief in the intended period.

5. Confirm filing deadlines and exposure to increased penalties

Review all relevant filing obligations and be mindful that late filing penalties for corporation tax returns will increase for filing deadlines on or after 1 April 2026.

Close Company Considerations and Owner-Managed Planning

For owner-managed and family-owned businesses, corporation tax planning cannot be considered in isolation. Decisions around remuneration, dividends and intra-company balances frequently have both corporation tax and personal tax consequences, and it is key to ensure alignment to prevent unnecessary tax leakage or compliance risk.

Close company issues – benefits and loans to participators

Many SMEs are “close companies” for tax purposes, meaning they are controlled by five or fewer shareholders (or directors). This status brings with it a number of additional tax considerations.

Benefits and expenses Care should be taken to ensure that expenses and benefits provided to directors and shareholders are properly reviewed prior to the year end. Items that are not wholly and exclusively for the purposes of the trade may give rise to:

  • A corporation tax add-back in the company, and
  • A benefit-in-kind charge on the individual, with associated reporting obligations.

Early identification allows corrective action to be taken before accounts are finalised, reducing the risk of HMRC challenge.

Loans to participators

Loans or advances made by close companies to shareholders or directors can trigger a corporation tax charge under the loans to participators rules if not repaid within nine months and one day of the accounting period end. The tax is repayable only nine months and one day after the period when the loan is cleared, but this can result in a significant temporary cash flow cost.

Timing is therefore critical. Repayment, formal dividend declarations, or bonus planning should be considered before the accounting period end to avoid unintended charges and reporting complications.

Alignment of corporation tax and dividend planning

With corporation tax rates now relatively stable, planning for owner-managed businesses increasingly focuses on optimising the interaction between corporation tax and personal tax.

Key considerations include:

  • The availability of distributable reserves when dividends are declared.
  • The timing of dividend declarations relative to the accounting period end.
  • The impact of marginal relief on effective corporation tax rates where profits fall between £50,000 and £250,000.
  • Ensuring that dividends are not used inadvertently to clear director loan balances without appropriate documentation and timing.

In many cases, a modest shift in timing between salary, bonus and dividend payments can materially affect overall tax efficiency. Aligning these decisions with corporation tax forecasts ensures that reliefs are maximised and cash flow is managed effectively.

Capital Allowances and investment reliefs

Capital allowances continue to play a central role in year-end corporation tax planning and for businesses making significant investments in plant, machinery or infrastructure, they offer valuable opportunities to accelerate relief and improve cash flow.

There were a few changes announced in the Autumn budget with regards to the capital allowances regime, however it is generally business as normal for most taxpayers. The annual investment allowance is to remain at its permanent rate of £1 million, and full expensing is still in force.

We did however see the rate of the writing down allowance (WDA) for Main Pool Plant and Machinery, which is currently 18%, reduce to 14% from 1 April 2026, and we see a new 40% First Year Allowance introduced which will benefit those businesses involved in the leasing of assets starting in January 2026.

The reduction to the WDA will mostly be felt by those businesses with large unrelieved balances in their pools or those engaged in activities which are excluded from First Year Allowances and those acquiring used assets or carrying out historical capex reviews in excess of the AIA. However, the introduction of the new 40% FYA for businesses who lease assets to third parties should help offset some of the reduction experienced from the WDA restrictions.

As more and more layers of complexity are added to the Capital Allowances regime, with exclusions applied for one regime and not for others, it has never been more important to discuss your position with a Capital Allowances specialist. If the business incurs significant capital expenditure it is worth considering the timing of the expenditure to ensure relief is maximised and the allowances available are fully utilised.

As more and more layers of complexity are added to the Capital Allowances regime; it has never been more important to discuss your position with a Capital Allowances specialist

Matt Bell, Tax Director & Head of Capital Allowances

R&D Tax Relief For Qualifying Innovation Projects

R&D tax relief remains a valuable incentive for businesses undertaking qualifying innovation projects. The financial benefits can be significant, particularly as relief is now available “above the line” for all claimants under the merged scheme, regardless of company size. However, this increased visibility has been accompanied by heightened compliance risk.

HMRC has significantly intensified its enforcement activity in this area, including the issuing of nudge letters, targeted enquiries and, in more serious cases, dawn raids and prosecutions involving R&D agents. Businesses should therefore exercise caution and avoid high-risk practices.

Particular care should be taken when approached by “no win, no fee” advisers, as such arrangements can result in inflated or non-compliant claims. Companies are strongly advised to consult their Corporate Tax advisers before engaging any third-party agent.

Looking ahead, the Advanced Assurance process is under review, with consultation outcomes expected in Spring 2026. Early indications suggest that the scheme may become more targeted and focused, reinforcing the need for robust processes and evidence.

Key planning considerations include:

  • Identifying qualifying projects and associated costs early in the accounting period.
  • Ensuring timely pre-notification and accurate completion of the Additional Information Form.
  • Maintaining robust documentation evidencing technological uncertainty and advancement.
  • Reviewing subcontracting arrangements to ensure they meet current compliance requirements.
  • Seeking professional advice to mitigate risk and optimise relief, including potential integration with the Patent Box regime.

Corporate Interest Restriction (CIR)

The CIR regime continues to be a critical area for corporate groups which are at least partially debt financed.

It is essential for groups to ensure that a reporting company has been appointed for CIR purposes within the relevant statutory deadlines, where required or beneficial to do so, as missing these deadlines can result in:

  • missed opportunities to bank excess interest capacity,
  • or, to make elections which could eliminate or reduce an interest disallowance which might otherwise result in a tax charge even where a group is loss making for accounting purposes.

The start of a new fiscal year is often an ideal time for corporate groups to review their internal group debt profile, and consider whether there are any opportunities to:

  • refinance and reduce their overall debt to eliminate a structural UK interest disallowance for example,
  • or, to push debt to overseas subsidiaries with unutilised debt capacity.

Highly geared groups predominantly carrying on UK rental businesses, can also often benefit from making Public Infrastructure Exemption (PIE) elections.

Proactive planning and timely action are vital to optimising a group’s interest deductibility position and to precent unnecessary tax liabilities from arising.

UK Permanent Establishment (PE) Risks and Remote Workers

Recently updated OECD guidance on remote working is expected to increase the risk for many corporate groups of inadvertently creating taxable PEs where the historic PE risk may have been considered low or negligible. In addition to non-UK entities with UK based remote workers being at risk, the updated OECD guidance is also expected to increase the overseas PE risks for UK entities carrying on activities in many overseas jurisdictions.

Groups carrying on cross-border activities should consider reviewing their existing arrangements to ensure that home working or other remote work patterns do not trigger unexpected local tax, registration and ongoing compliance obligations.

The OECD’s updated guidance underlines the need for robust policies and for the regular review of workforce deployment, even where workers are formally contracted through an employer of record.

International and Transfer Pricing Developments

International controlled transactions schedule (ICTS)

Taxpayers with existing UK transfer pricing obligations might need to start preparing for ICTS. The design of the ICTS will be further consulted in 2026 and is expected to be implemented from accounting period starting on or after 1 January 2027.

This would be the first submission requirement for transfer pricing documentation in the UK. There are some practical considerations for taxpayers to prepare for ICTS submission, including:

1. Data management

  • Identify the internal system to source the data from
  • Note other tax workstreams/ projects that requires similar data or data source; integrate the system if appropriate, for example, CbCR
  • Assess the quality of the data, undertake gap analysis; and remediate accordingly

2. Stakeholders and workflow/ project management

  • Notify relevant stakeholders such as the IT department
  • Factor in request/ approvals/ notification for this work including budget request and resource/ headcount planning and how this impact on internal and external deadlines

UK-to-UK transactions

Domestic intercompany transactions will be removed from the scope of the transfer pricing legislation in the UK on the condition that there is no risk of loss. For example, consideration should be given to domestic intercompany transactions whereby the onward related party may have other cross border transactions; and may have implemented certain transfer pricing methodologies that underestimated its cost base.

Small-medium enterprise (SME) exemption

The government has announced that the SME exemption will continue to be in place. Taxpayers should continue to monitor the SME thresholds, ensuring that they meet the number of employees threshold and one of the financial thresholds.

Pillar 2 - Global Minimum Tax

Pillar 2 is an international framework designed to enforce a 15% minimum tax rate in every jurisdiction, to counteract the shifting of profits by large multinationals to low tax jurisdictions. Over 140 jurisdictions have already signed up to these rules, with more expected to sign up in due course.

The most immediate implications from the introduction of the Pillar 2 rules in the UK, which are broadly the rules that introduce a 15% global minimum tax, are that any in-scope multinational groups (i.e. any group with annual consolidated revenue in excess of $750m for two out of four years) must have registered for the UK Domestic Top-up Tax (DTT) as early as 30 June 2025, even where no top-up tax liabilities are expected.

It is important for in-scope groups to register for the UK DTT as soon as possible, even if the deadline has been missed, and to start preparing for the upcoming local and group compliance and reporting obligations that are due to follow.

Groups should also review their global structures and processes to ensure an adequate readiness for completing other qualifying domestic top up tax returns and underlying calculations as they arise.  There may also be a need for in-scope groups to refresh existing Pillar 2 compliance plans following the publishing of the OECD/G20’s Side-by-Side Package which includes proposals for targeted simplifications of the rules.

Corporation Tax Filing Obligations and Key Deadlines

The filing deadline for the normal CT600 Corporation Tax Returns remains 12 months after a company’s period of account, even for long periods. There are various other filing deadlines to be considered during the year:

Corporate Interest Restriction (CIR) returns and group CIR reporting company appointments (potentially required where a corporate group’s UK aggregate net tax-interest expense is over £2m in a 12-month period, especially relevant where a group is loss making).

  • The CIR return and CIR reporting company appointment must be filed and made respectively, no later than 12 months after the end of the relevant accounting period;
  • and, some CIR elections such as the Public Infrastructure Election must be made before the end of the accounting period to which it is to have effect.

Reviewing and publishing a UK tax strategy, relevant to Multinational Enterprise or MNE groups.

  • A UK tax strategy must be published online and made freely available to the public, before the end of the year following the relevant financial year in which the conditions were met.

Country by Country (CBC) Reporting.

  • Where a CBC Report is being filed in the UK, this must be filed with HMRC within 12 months of the end of the relevant reporting year (UK annual CBC notifications are no longer required).

Senior Accounting Officer (SAO) notification for companies or groups with consolidated UK turnover in excess of £200m.

  • SAO certificates must be submitted to HMRC no later than the deadline for filing the company’s accounts at Companies House i.e. six months after the end of the accounting period for public limited companies, and nine months for other companies.

Pillar 2 (Global Minimum Tax) – Applicable for corporate groups with consolidated annual revenues in excess of €750m.

  • Registration for the UK Pillar 2 Domestic Top Up Tax is required within 6 months of the end of the first relevant accounting period in which the size thresholds are met for at least two of the previous four years, with the first in-scope period being any relevant accounting period beginning on or after 31 December 2023. For calendar year end groups, the first registration deadline was therefore 30 June 2025.
  • Filing: The first Pillar 2 GloBe Information Returns and UK Domestic Top Up Tax Returns are due 18 months after the end of the first period within the scope of these rules i.e. as early as the end of June 2026, with subsequent returns being due within 15 months of the relevant period end i.e. as early as the end of March 2027. Payment of any UK top-up tax is due at the same time as these Pillar 2 returns.

Other sector-specific or group-specific deadlines may apply (e.g. for Construction Industry Scheme (CIS) returns, or for groups with special reporting obligations).

Penalties and interest can apply to late filings and late payments across all these areas, and missing deadlines can have significant financial and reputational consequences.

There is also a two-year deadline for amending a company’s tax return to consider, as this is also the final deadline for amending CT returns to submit claims including for R&D tax relief, group and consortium relief, and for making certain capital allowances claims.

Please ensure you carefully review your company’s specific circumstances and deadlines, as these may vary depending on company type and group structure.

E-invoicing and the future of digital compliance

E-invoicing refers to the electronic exchange of invoice data in a structured format, such as XML or UBL, rather than sending PDFs or paper invoices. This development is being driven by governments worldwide to close VAT gaps, reduce fraud and modernise tax compliance.

For UK businesses, mandatory e-invoicing for all VAT invoices is scheduled to begin in April 2029, following HMRC’s consultation and the Autumn 2025 Budget announcements. Similar mandates are already in place or due soon in other jurisdictions, including Germany, Belgium, Poland, France and the UAE.

Why does e-invoicing matter?

E-invoicing is not just a compliance requirement; it offers significant operational benefits. It streamlines processes, reduces manual errors and accelerates payment cycles. Businesses can expect cost savings of up to 60–80% on invoice processing, improved fraud prevention through real-time reporting and a clear digital audit trail. It also supports sustainability goals by eliminating paper and postage.

Who is impacted?

All VAT-registered businesses in the UK will need to comply, regardless of size or sector. Multinational groups face additional complexity as they navigate varying global requirements. Internally, finance, tax, IT and operations teams will need to collaborate to ensure readiness.

What are the legislative changes?

The UK will likely adopt a decentralised “four-corner” model, avoiding a central government portal. HMRC is expected to publish a detailed roadmap in 2026. Across Europe, the VAT in the Digital Age initiative will require real-time e-invoicing for cross-border transactions by 2030, while the UAE will complete its phased rollout by 2027.

Practical E-invoicing planning actions for year-end

Year-end is an ideal time to start preparing. Businesses should take the time to:

  • Review current invoicing systems and assess data quality to determine readiness for structured e-invoicing formats.
  • Identify gaps in systems, processes or controls, and budget for any required upgrades or software changes.
  • Engage early with key stakeholders, including tax, finance, IT and operations teams.
  • Monitor HMRC consultations and wider global developments to ensure alignment with emerging UK and international requirements.
  • Test interoperability with customers and suppliers to reduce the risk of disruption once mandates are introduced.
  • For multinational groups, map compliance obligations across all relevant jurisdictions.

Starting preparation early will reduce compliance risk and allow businesses to benefit from the efficiency gains and operational improvements that e-invoicing can bring.

Corporation tax planning remains one of the few areas where the timing and structuring of transactions can still have a material impact on cash flow, even in a stable-rate environment. The associated company rules now capture many arrangements that were not historically within scope and for which businesses may not have planned.

Whether you are an owner-managed business, a growing enterprise or a multinational group, a clear understanding of these rules is critical to managing risk, cash flow and compliance in 2026 and beyond.

Francis Hudson

Tax Partner at MHA

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