Autumn Budget 2026: from announcement to action
Chancellor John Healey delivered his first UK Autumn Budget on 28 October 2026. Shaped by the narrative of providing breathing space in a time of global uncertainty, the government delivered a number of modest short-term, targeted measures to ease the cost of living and doing business.
With the Chancellor constrained by manifesto pledges, these weren’t funded by broad based tax increases. Instead we saw a number of tax rises aimed at specific groups and sectors and a willingness to utilise some of the fiscal headroom. Buried in the detail there were also announcements signalling longer term reform across a number of areas.
Contents
Business tax
In line with the government’s manifesto commitments, the headline rates haven’t moved.
Main corporation tax rates are unchanged, and full expensing remains in place. Banks face a temporary increase in their surcharge.
Capital assets
For capital assets outside full expensing, the first-year allowance rises from 40% to 50% for spending from 1 January 2027. At the same time, the yearly relief on balances in the main pool drops from 14% to 12% from 1 April 2027. That means more relief upfront on new equipment, and slower relief on legacy pool balances. Leasing businesses, partnerships and sole traders who can’t use full expensing benefit most from the higher first-year relief. Companies with large existing asset pools will feel the squeeze, so it’s worth checking past spending to make sure every allowance has been claimed and every eligible asset has been pooled. Overall, the UK continues to compare favourably internationally for investment in plant and machinery.
Research and development
Along with a streamlining of the additional information form (from autumn 2027), any claims made from 1 April 2027 will no longer need a separate claim notification form, removing a common trap for first-time claimants or claimants who have had a gap between claims.
Business rates
From April 2027, the small business rates relief threshold for retail, hospitality and leisure properties rises from £12,000 to £18,000 in rateable value for 100% relief, with a corresponding adjustment of £15,000 to £21,000 for tapering relief. This takes more high street businesses out of rates altogether, although vape shops and adult gaming centres are excluded from some of the reliefs. Retail, hospitality and leisure operators should check where their rateable value falls against the new threshold.
Corporation tax simplification
The government has published a summary of responses to the 2026 consultation, announcing it will prescribe the format of corporation tax computations, on a longer and more flexible timetable. Enforcement arrangements for prescribed computations will not be implemented at this time. From 1 April 2028, companies must file amended company tax returns online.
The government has also launched a new consultation on simplifying corporate tax for business investment, with a focus on practical fixes rather than changes to the underlying rules. The government committed to ongoing consideration of a 'limited' self-assessment approach to application of reduced rates of withholding, while balancing concerns that changes might undermine lender certainty, thereby impacting borrowers. Additional engagement is proposed ahead of further announcements. While the introduction of new guidance is good news, it’s not yet clear whether this will coincide with an 'unpausing' of the concessionary treatment of errors arising from administrative failings.
Employment tax
While there were no significant employment tax announcements, several smaller updates affect employers.
Employers and their employees will keep feeling cost pressure from frozen thresholds for income tax and National Insurance contributions (NIC). Employer NIC will remain at 15%, and income tax and NIC thresholds are to stay frozen until April 2031, pulling more employees into higher tax brackets through fiscal drag.
The government has reconfirmed the introduction of mandatory payrolling of benefits in kind and removing the need for P11D reporting. This will start from April 2027 on a phased basis, initially for medical benefits and company vehicles and their fuel, with most other benefits in kind payrolled from April 2028. This changes both the reporting process and the timing of the payment of Class 1A NIC liabilities to a real-time basis. With HMRC’s continued compliance focus, accurate data in each pay period is essential. Employers wishing to payroll non-mandated benefits from April 2027 must register to do so. Employers can also register for their globally mobile employees to be excluded from payrolling, so their benefits continue to be reported through the P11D process. Registration opens in November and employers must register before the start of the tax year.
There was a renewed commitment to the enforcement of compliance through a further increase in compliance officers reinforcing the need for employers to ensure accurate reporting. Employment tax has historically been an end-of-tax-year consideration, but employers are now expected to consider their obligations, and the impact on employees, in real time. Year-end reporting will become a reconciliation process, with few changes expected to in-year payroll filings.
Businesses will be able to pay a higher tax-free mileage rate to their employees who use their own cars for business. The previously announced 55p per mile rate for the first 10,000 business miles is to be made permanent, and, from 6 April 2027, the rate payable for mileage above 10,000 miles during the year will rise from 25p to 35p per mile. Employers will need to both update their travel and expenses policies as well as model the additional potential employment cost if they choose to reimburse at the increased rates.
The National Minimum Wage (NMW) and National Living Wage (NLW) rates will rise by 3.9% for all age ranges from 1 April 2027, further increasing the cost of employment. The NLW rate for adults aged 21 and over will increase from £12.71 to £13.21 per hour. The Chancellor stopped short of equalising the minimum wage rates for young adults with those aged 21 and over.
Previously announced measures of note were unaffected. These include the £2,000 cap on NIC savings for employers and employees from pension contributions made via salary sacrifice due to be introduced from April 2029. Employers who make contributions above the threshold are advised to model the increase in NIC costs as a result of the restriction, and to check payroll software readiness ahead of the change.
In summary, the Budget brings additional costs for employers who should consider the employment cost-saving opportunities available to them and ensure their approach to employee reward and reporting is as compliant as possible.
Private tax
Private tax
Rachel Stace
Partner, Grant Thornton
You could be forgiven for thinking that today’s Budget headlines suggest a quiet year for personal tax but the detail says otherwise.
Frozen allowances and bands are set to increase the overall contribution of income tax to the growth in government revenues as fiscal drag brings more people into the higher tax brackets through inflation.
This effective income tax increase, combined with measures announced in earlier Budgets, such as bringing pensions into inheritance tax from April 2027, demonstrate the direction of travel in relation to personal taxation in the UK.
Savers and landlords face the sharpest income tax increase. The Chancellor has added a further two percentage points to tax on savings and property income from April 2027, on top of the two points already announced. The rates across the tax bands become 24%, 44% and 49%, one point short of the 50% additional rate last seen in 2012/13. On a combined basis, today’s increase in the rate is set to boost income tax revenues by £160 million in 2027/28 with a further £1.13 billion in 2028/29. Dividend and employment income are unaffected by this further increase.
For capital gains tax, the picture is mixed. There is no increase in the main rate which will be welcome for many, in particular business owners, but the Business Asset Disposal Relief (BADR) lifetime limit halves to £500,000 from 6 April 2027, cutting the maximum saving for higher and additional rate taxpayers from £60,000 to £30,000. A new Founders’ Relief offers a 10% rate on up to £10 million of lifetime gains. While the final conditions are subject to consultation, the proposed conditions are very stringent and claims are likely to be much less common than for BADR.
Many shareholders will also be interested to know that following a consultation over the summer the government has confirmed it will press ahead with a comprehensive overhaul of the taxation of distributions (dividends) from 6 April 2028, which is forecast to result in up to £800 million of additional tax receipts a year due to reclassifying transactions as income rather than capital gains.
Consultation on the legislation, including new anti-avoidance rules, will take place next year. While we don't know what the legislation will look like and where the new lines between income and capital will be drawn, we do have just under 18 months of certainty under the existing landscape.
There were also some notable omissions from the Chancellor’s announcements. Agricultural and Business Property Relief were not mentioned, so the inheritance tax exposure for farmers and family businesses remains, despite Burnham’s comments that this area would be revisited. The bigger disappointment is the lack of a clear direction on capital taxes. After three Budgets of uncertainty and speculation as to direction of travel, taxpayers are likely to need to continue to plan around Budget events when considering major asset disposals.
Entrepreneurs
The Chancellor has announced Founders’ Relief, a 10% capital gains tax rate on up to £10 million of lifetime gains from 6 April 2027. To help pay for it, the existing BADR lifetime limit halves from £1 million to £500,000 on the same date.
It looks generous but, as proposed, the relief is hard to qualify for. It could reward a well-timed burst of growth over years of steady building, and it puts a clock on those who grew early.
Three groups stand out.
- Founders of fast-growing companies. The company must pass two of three tests: (i) 25% annual average compound growth in turnover over three consecutive years in the 10 before sale, (ii) the same in headcount and/or (iii) significant research and development (R&D) spending with a qualifying claim (or claims) in the three years before disposal. Companies must also have at least £10 million turnover and 15 full-time employees in the year before the sale. Founders must have held 25% from the start, owned their shares and been UK resident for five continuous years, and the company must still be carrying on its original trade. Anyone who pivoted or built the business partly overseas risks missing out. Unusually, founders need not work in the business, so early investors with 25% may qualify too.
- Owner-managers who won’t qualify. For them the reward on sale has fallen again. In just over two years, BADR has gone from 10% on £1 million of gains to 18% on £500,000, worth at most £30,000.
- Smaller businesses more broadly. In our recent survey, energy support was the top request from businesses with turnover below £50 million. Yet the biggest help goes to around 10,000 energy-intensive manufacturers, with up to 25% off electricity bills from April 2027. Most others get only a pause on new policy costs and, from 2028, a freeze on the Climate Change Levy for electricity. Employer NIC is unchanged, but the NMW and NLW rise (the latter by 3.9% to more than £13 an hour).
What to do next
Founders’ Relief is out for consultation until 30 November, so the rules could still change. Founders planning a sale in the near term need to decide whether to complete before 6 April 2027 and use the current £1 million limit, or wait in the hope of qualifying for the new relief. Model that decision now, not in March, because contract timing and how the deal is paid for both affect the answer. Founders who might qualify should test their own figures now and respond to the consultation if the design doesn’t work for their business. If your company relies on the innovation test, your R&D claim matters more than ever. If HMRC later successfully challenges it, founders could lose the relief and owe the extra tax with interest.
Financial services
Budget 2026 presents a mixed but strategically important picture for the financial services sector. Banks face a targeted increase in taxation, with the Bank Corporation Tax Surcharge increasing from 3% to 6% for 15 months from 1 January 2027. But beyond banking, the government is sending a clear message that financial services, and particularly asset managers, pension funds and private capital, have a central role to play in delivering the UK’s growth ambitions.
That ambition is backed by significant additional investment capacity, including £15.4 billion for the National Wealth Fund and £5 billion for the British Business Bank, while the Mansion House Accord is expected to unlock around £25 billion of additional investment into UK private markets. However, some of the most significant developments for the financial services sector sit beneath those headline announcements.
The government has published responses to a number of consultations undertaken over the summer, alongside important tax changes affecting company distributions and capital returns, offshore structures and foreign sovereign investors, as well as measures intended to address double taxation for certain UK residents investing through US LLCs. For asset managers, funds and their investors, the devil is very much in the detail - these changes could have a significant bearing on how investments are structured and how returns are taxed. Importantly, the government has recognised the need to preserve capital treatment for genuine investment and asset-manager co-investment returns as the distributions reforms are developed. There is a considerable amount for the sector to digest.
Overall, while there are clear revenue-raising measures, the wider direction is one of encouraging investment and maintaining UK competitiveness. The challenge will be ensuring that the detailed tax and regulatory changes support, rather than cut across, those ambitions.
Share schemes
Share schemes
Alex Murdoch
Partner
Introduction of the EMI2 regime
The government has confirmed its intention to rebrand the Company Share Option Plan (CSOP) as Enterprise Management Incentives 2 (EMI2), and double the size of option grants which can be made under the regime.
Alongside renaming, the government will implement three crucial changes to the current regime from 6 April 2027:
- A higher limit: The individual limit on the value of shares under a new EMI2 option will double the current CSOP limit, from £60,000 to £120,000
- No more limit interaction: An employee with EMI options can additionally receive the full £120,000 of EMI2 options (meaning a combined maximum of up to £370,000)
- A longer exercise window: Options can be exercised for up to 15 years, to match growth cycles at successful scale-ups
Companies approaching the gross assets or employee limits should consider what these changes mean for their approach to employee incentives and be ready to make further grants under the EMI2 regime where relevant. Businesses currently offering CSOP options should urgently review their plans ahead of 6 April to ensure they are ready to benefit from these changes.
Companies which have previously considered the CSOP limits too low to appropriately incentivise their employees, or who do not meet the eligibility criteria for EMI and are looking for a viable alternative, should review their remuneration strategy to see if the new EMI2 regime could meet their needs (either on its own, or alongside other forms of incentive).
E-Invoicing
Indirect Tax: E-Invoicing
Adam Broughton
Digital Tax – Indirect tax transformation and technology Partner
This Budget moves e-invoicing in the UK a step closer to reality for businesses. HMRC has published a detailed implementation roadmap setting out the key activities between now and mandatory go-live in April 2029. Over the next 12 to 18 months, the government will finalise the detailed requirements and scope and define technical specifications such as data standards and Access Point certification. The aim is full clarity between October 2027 and April 2028, giving businesses and software providers at least 12 months’ notice.
Much of the roadmap was expected, but some points stand out. All VAT-registered persons will be in scope unless an exemption applies. VAT-registered businesses without a UK location will be treated like UK ones, which differs from several EU mandates. A 12-week consultation opens today, closing on 20 January 2027, on the further benefits digital reporting could bring to businesses and government.
As we’ve seen in other countries, this isn’t just a change in invoice format. It’s a step towards providing more real-time data to HMRC. Businesses should use this time wisely now to improve the data in their systems and embed the right controls and processes across the end-to-end business to be compliant.
