Key business tax updates

The 2025 Budget underscores the Government’s commitment to providing certainty for businesses, maintaining the Corporation Tax rate at 25% while introducing a range of measures to strengthen compliance and support investment.  

Key updates include stricter penalties for late filing, adjustments to capital allowances, changes to gambling duties, and expanded Enterprise Management Incentive (EMI) schemes. Together, these reforms aim to balance stability with incentives for growth, helping companies plan for the long term while ensuring accurate reporting and fostering innovation across sectors

Corporation Tax 

The Government will leave both the main rate (25%) and small profits rate (19%) rate unchanged. 

However, the Budget introduces a tougher corporate tax penalty and compliance framework to improve on-time filing, accuracy, and reduce avoidance. Key measures include doubling the penalties for late Corporation Tax returns, strengthening HMRC enforcement powers, and increasing interest on late payments. Businesses are now under greater obligation to ensure accurate reporting and timely submissions, with stricter sanctions for both companies and advisers facilitating non-compliance. 

Late filing penalties will now double with effect from 1 April 2026: 

	Current rate	New Rate
Return late	£100	£200
Return is more than 3 months late	£200	£400
Three successive failures, return late	£500	£1000
Three successive failures, return is more than 3 months late	£1000	£2000

Capital allowances 

With effect from 1 April 2026, for businesses that fall within the charge to Corporation Tax, and 6 April 2026 for businesses that are within the charge to Income Tax, the writing down allowance (WDA) on the main pool of plant and machinery will be reduced from 18% per annum to 14%. The writing down allowance for the special rate pool remains unchanged at 6%. 

A hybrid rate will apply where periods straddle the relevant dates. 

The existing policy of full expensing for companies will remain, as will the £1m Annual Investment Allowance (AIA).  

In addition to this, the Government has announced a new 40% First Year Allowance – this will be utilised where the £1m AIA or other allowances are unavailable. 

The 40% first year allowance will also be available for unincorporated businesses and assets used for leasing. 

VAT & customs duty

Both the rates of VAT and the thresholds remain unchanged. 

As expected, the Government has opened a consultation regarding the removal of the £135 customs duty for low-value imports, with a view to removing the relief from March 2029 at the latest. Under the current rules, businesses importing goods from overseas were able to import cheaper goods without paying any tariffs. 

Tax updates for the gambling industry 

Taxes on in-person gambling will remain unchanged. 

However, the Remote Gaming Duty is set to increase from 21% to 40%, effective 1 April 2026. This change is expected to have a significant impact on the rapidly growing online gambling market. 

A new rate for General Betting Duty will be introduced for general bets placed remotely, effective 1 April 2027. The remote rate of 25% will apply to all remote betting, with the exception of UK horseracing, which will remain unchanged. 

Bets placed via self-service betting terminals on licensed betting premises will not be considered remote bets and will continue to be subject to the 15% rate for general bets. The General Betting Duty rates for general bets made on UK premises, horse and dog pool bets, financial spread bets, and non-financial spread bets will remain unchanged. 

Additionally, Bingo Duty, currently charged at 10%, will be abolished from 1 April 2026. 

Enterprise Management Incentive (EMI) schemes 

The Government is expanding the size limit for companies eligible to grant EMI options. From April 2026, companies with up to 500 employees (instead of the previous 250) will qualify.  

The gross assets threshold for qualifying companies is being raised to £120 million. Previously the limit was much lower at £30 million. 

The maximum value of share options a company can grant under EMI is being increased from £3 million to £6 million. 

The period in which the option can be exercised is being extended from 10 years to 15 years. Eligible companies will be able to request for this measure to be applied retrospectively to existing EMI contracts which have not already expired or been exercised by April 2026. 

These reforms bring welcome changes, allowing scale ups and larger companies, not just start-ups, to grant EMI options, whilst allowing employers to attract and retain talent more effectively.

Key Takeaways

Capital Allowances: Whilst the generous AIA and full expensing reliefs remain available, any expenditure left in the general pool will now take longer to obtain full relief 

Corporation Tax penalties: The increased penalties will mean it is now more important for returns to be filed on time 

Low value imports: With the removal of this on the horizon, it will hopefully level the playing field for UK based business in the face of competition from cheaper imports coming in from abroad