Legislation Day (L-Day) 2025

Draft Finance Bill 2025-26

The Government published draft legislation for potential inclusion in Finance Bill 2025-26, this legislation will be open for technical consultation until 15 September 2025. 

The legislation was split into three overarching categories i) closing the tax gap, ii) putting the tax system on a fairer and more sustainable footing and iii) maintaining the tax system. In addition, there has also been draft legislation published to amend the UK’s Pillar 2 legislation following stakeholder feedback and to maintain consistency with the latest OECD guidance. There were also amendments to ensure that R&D Expenditure Credits operate in Northern Ireland as intended.

What’s included in the Draft Finance Bill? 

Closing the tax gap

Alongside the actions in the HMRC Transformation Roadmap focused on closing the tax gap (see below), the Government released a package of draft legislation aligned to this priority. This included draft legislation for the following previously announced measures.

• Tackling tax non-compliance in the umbrella company market: This legislation creates a joint and several liability for Pay As You Earn (PAYE), allowing HMRC to pursue recruitment agencies (or the end client) for payroll taxes that an umbrella company fails to pay on their behalf. Regulations giving effect to this measure for National Insurance contributions purposes will be laid separately.
• Making Tax Digital (MTD) for income tax: MTD for Income Tax is due to become mandatory for landlords and sole-traders with qualifying income over £50,000 from April 2026  Draft legislation was published focused on specific areas of the regime, including streamlining End of Year Process for MTD for Income Tax, finalising design of MTD and exempting and deferring certain taxpayer groups from digital requirements and lowering the Income Threshold to £20,000 from April 2028.
• Better use of new and improved third-party data to make it easier to pay tax right first time: This draft legislation follows the consultation which closed at the end of May, focused on improving the quality of data acquired from third parties for tax administration. The intention is that this new and improved data will be used to help taxpayers get their tax right the first time, and reduce the opportunity for error and evasion by, for example, being able to accurately pre-populate more sources of income in tax returns. The new requirements, which the Government have confirmed will come in no earlier than April 2027, will be particularly relevant for the suppliers of this data, such as financial institutions and providers of card acquiring services.
• Charity compliance measures: The published draft legislation seeks to bring in new rules to strengthen HMRC compliance powers to challenge abusive arrangements and poor compliance, which will come into effect from April 2026. 

There was also draft legislation to modernise and mandate tax adviser registration with HMRC, alongside specific anti-avoidance measures aimed at the tax advisory market including proposals to close in on promoters of marketed tax avoidance and enhancing HMRC’s powers to tackle tax advisers who facilitate non-compliance.

Putting the tax system on a fairer and more sustainable footing

Following on from the announcements at Autumn Budget the Government has published draft legislation:

• Carried Interest: Draft legislation to introduce a new regime for carried interest, particularly relevant for the private capital industry. Under the new regime carried interest will be treated as trading income subject to Income Tax & Class 4 NICs from 6 April 2026. Where carried interest meets the qualifying conditions it will be subject to a rate of 34.1%. Read our insight for further detail.
• Agriculture Property Relief (APR) and Business Property Relief (BPR) reform: The Government has published draft legislation in respect of the previously announced reform to the inheritance tax reliefs, APR and BPR, which will apply from 6 April 2026. As expected, this includes the introduction of a new £1 million allowance to which 100% relief will apply, with any remaining qualifying property benefitting from a lower 50% relief. Further detail can be found in our insight here.
• IHT on pensions: As announced at Autumn Budget 2024 most unused pension funds and death benefits will be brought into scope of Inheritance Tax from 6 April 2027. Following a technical consultation on the processes required to implement these changes which closed at the beginning of the year the Government has published draft legislation to implement the change. Of particular note is the confirmation by the Government that personal representatives will be liable for the reporting and payment of any Inheritance Tax on the pension component of an estate, rather than pension scheme administrators as originally proposed. 
• Non-dom reform: While no legislation was published on L-Day, the Government did confirm that they plan to make a number technical fixes to legislation contained in Finance Act 2025 that replaced the special tax rules relating to domicile. It’s understood that the intention behind these changes will be to ensure that the legislation works as intended rather than inadvertently leading to more substantive reform and the government will set out further details on these amendments in due course.

Draft legislation was also published bringing Employee Car Ownership Schemes within the scope the benefit in kind rules as company cars from 6 October 2026.

Maintaining the tax system

• Private Intermittent Securities and Capital Exchange System (PISCES): PISCES will be a new type of market, regulated by the Financial Conduct Authority (FCA), where private companies can have their shares traded during controlled, intermittent events. It offers flexibility over timing and pricing, without requiring a public listing. Most importantly, it allows the company to retain control over the buyers of shares. Draft legislation has been released to allow companies to amend existing Enterprise Management Incentives and Company Share Option Plan option agreements to allow exercise in connection with a sale on PISCES without losing tax advantaged status, provided that the amendment is in line with requirements of the legislation. Several operators are being authorised by the FCA to operate PISCES markets and we expect auctions to commence by the end of the year.  
• Inland border facilities: Draft legislation to amend existing legislation, to make sure all border locations are responsible for providing and funding their own customs infrastructure.

The Finance Bill 2025-26 is expected to be published shortly after the Autumn Budget (for which the date is yet to be confirmed), and it will be at the Autumn Budget when the Chancellor will decide on its final contents.

Land Remediation Relief Consultation

Alongside L-Day the Government published a consultation on Land Remediation Relief, a 150% Corporation Tax relief for the costs of remediating contaminated or long-term derelict land. This consultation focuses on the impact and effectiveness of the relief, including to what extent businesses factor it into their decision-making process for the development of brownfield sites. Alongside this, the consultation is seeking views on how robust the relief is against potential abuse. It is open for comment until 15 September 2025.

HMRC Transformation Roadmap

Coinciding with L-Day, HMRC published a Transformation Roadmap outlining the Government’s vision for a more efficient, modernised and automated tax and customs system. The roadmap outlined a long list of actions that HMRC will take to achieve this, focusing on the following three strategic priorities i) improving day-to-day performance and the customer experience ii) closing the tax gap and iii) reforming and modernising the tax and customs system. There was a focus throughout on increased use of digital and AI, better use of data, including pre-population of tax returns to help taxpayers get their tax affairs right first time. For businesses that have been long awaiting confirmation on whether MTD for Corporation Tax will go ahead, the most substantive announcement was likely confirmation that HMRC do not plan to take this forward.

What’s in the Transformation Roadmap?

The roadmap included ambitious plans to become a digital-first organisation with a minimum of 90% of interactions undertaken digitally by 2030, compared to 76% at present. To achieve this there will be a focus on expanding the range and type of online services across tax regimes to customers and intermediaries. This included the flagship announcement that a new online service for all PAYE taxpayers will be available with functionality to check and update income, allowances, reliefs and expenses. The hope is that this push to digital will free up HMRC time to help businesses with complex tax affairs to deliver more certainty. 

Given the Government’s already laid out plans to close the tax gap, with announcements at the Autumn Budget 2024 and Spring Statement 2025 combined to bring in £7.5 billion additional tax revenue a year by 2029-30, it was no surprise that this featured heavily in the roadmap. Along with investment in additional resource – it’s previously been announced plans to recruit 5,500 new compliance officers 2,400 new debt management officers, there was a strong focus on investing in digital to help improve compliance, particularly the use of AI and third-party data to improve identification of compliance risks and the actions needed to prevent them, including provided automated nudges to help customers pay what they owe. There were also specific efforts focused at preventing wealthy and offshore tax evasion and addressing the small business tax gap. To complement this there will also be new measures aimed at the tax advice market.

The final priority area of the roadmap was to reform and modernise the tax and customs system.  Along with an overhaul of legacy IT systems, investment in technology, AI and data sharing, this priority area also includes steps to simplify and modernise the tax administration framework, with a focus on simplifying tax rules and reporting thresholds. 

Looking ahead to the Autumn Budget

With L-Day complete, and Parliament now having broken for summer recess until 1 September 2025, all eyes will be on the next major event in the tax policy (and wider fiscal) calendar – the Autumn Budget.

The date has not yet been announced. When in opposition Labour, in their Business Partnership for Growth publication, said they would hold it in the final two weeks of November, this hasn’t been regularly repeated since and last year they did depart from this, holding the Budget on 30 October 2024.  With the 2025 party conference season ending in mid-October, it’s most probable that it will be held towards the end of October or November. The Chancellor (in normal times) is expected to give the Office for Budget Responsibility at least 10 weeks’ notice.

With the UK’s growth prospects looking uncertain, including weak (or negative) GDP growth in the past few months, whilst there may not yet be a date there is already widespread media speculation on whether the Chancellor will meet her self-imposed fiscal rules and the potential for further tax rises. This is intensified further uncertainty to the global environment. Data from our latest Business Outlook Tracker* showed that businesses are bracing themselves for further tax rises, with 75% expecting that the Chancellor is likely to raise business taxes again this year.  

As we head towards the Autumn Budget we will be analysing the potential of further tax reform. You can sign up here to receive our insights.

*Censuswide on behalf of Grant Thornton UK surveyed 600 senior decision makers in mid-sized businesses (revenue between £50mn - £1bn) and 200 Large Corporate businesses (over £1 billion) between 19 June – 30 June 2025