Chancellor John Healey has presented his first budget after months of promises from the equally new Prime Minister, Andy Burnham, that the new government will focus on “reindustrialising Britain”.
In his first speech to Parliament, Burnham said that his government will “build a pro-business culture and an innovation-led economy in all parts of the UK, finally capturing the long-term benefits of the invention that is the DNA of our nation, backing our start-ups and scale-ups to stay in the UK where they were founded.”
Despite the budget being largely focused on domestic support over commercial, a strong message was woven throughout, with an ambition to lift small businesses and unleash innovation across Britain.
Below, we summarise the key updates affecting businesses across R&D Tax Credits, Capital Allowances, Business Rates and Energy Reliefs.
R&D Tax Credits
Removal of the pre-notification requirement (from April 2027)
Following the Chancellor’s ethos on enabling small businesses investment within the UK economy, the Government has pledged to remove the pre-notification claim requirement from April 2027.
This will positively impact both small and large businesses claiming R&D Tax Credits, easing a significant administrative barrier that has been known to prevent many businesses from accessing the relief they are entitled to.
Additional Information Form (AIF) simplified (from Autumn 2027)
Businesses can expect another simplification of administration in the form of the AIF, one of the mandatory requirements involved in submitting an R&D tax claim. We await documentation outlining exactly how the AIF will be simplified.
Stability for R&D Tax Credit rates
Despite the Prime Minister’s stated focus on an innovation-led economy, the Chancellor left R&D Tax Credit rates untouched. The rules for qualifying expenditure and tax credit rates for both the merged R&D scheme and the ERIS scheme will stay the same, giving further stability to businesses investing in innovation.
For most claimants, this news promises greater certainty. After several years of reform, businesses can continue to plan their R&D investment knowing that the rules will not be changing.
Capital Allowances
Full expensing retained
Full expensing will remain permanent, providing certainty for claims on qualifying new and unused assets. UK companies paying Corporation Tax can claim 100% First Year Allowance (FYA) and 50% on Special Rate Allowances.
Main Pool rate reduces further to 12%
The Main Pool (or General Pool) Writing-Down Allowance (WDA) will fall from 14% to 12% from April 2027. This follows a reduction from 18% to 14% in April 2026 and will affect assets in the existing WDA pool, second-hand assets, most cars and assets acquired for leasing activities.
40% First Year Allowance (FYA) increased to 50%
For new Main Pool (or General Pool) expenditure incurred from January 2027, the claim rate will increase from 40% to 50%, despite the 40% FYA having only been introduced in January 2026. This FYA is available on assets for leasing and expenditure by unincorporated businesses, allowing them to deduct 50% of the cost of qualifying assets from taxable profits in the year of purchase. Second-hand assets and cars are excluded.
Stability for the Main Rate of Corporation Tax, Small Profits Rate, AIA and LRR
The main rate of Corporation Tax remains at 25%, with the Small Profits Rate also remaining at 19%. There was no mention of changes to the Annual Investment Allowance (AIA), and no reforms were announced for Land Remediation Relief (LRR).
The changes to Capital Allowances are not fundamental, but they do not entirely promote stability and introduce additional technical complexities when making a claim. We encourage businesses to get in touch with an expert to review their allowances in light of these updates.
Business Rates
Following Burnham’s early intervention to cut Business Rates for pubs, social clubs and live music venues across England, the Prime Minister made it clear that he planned to “go further” by reforming Business Rates. The measures announced support small businesses, reflect his ambition for devolution and aim to support the high street.
Increase in the Small Business Rates Relief threshold from £12,000 to £18,000
In line with the Chancellor’s ambition to empower small businesses and protect Britain’s high streets, the relief threshold for retail, hospitality and leisure (RHL) businesses will rise from £12,000 to £18,000 in rateable value. As a result, around 70,000 businesses will be taken out of paying rates entirely.
Business Rates reduction of 35% for pubs, clubs and music venues (from April 2027)
The Budget reconfirmed that pubs, clubs and music venues will receive a 35% reduction in Business Rates from 1 April 2027. Although they currently benefit from a 15% reduction, this increase is a welcome measure to further support businesses in the hospitality and entertainment sectors.
Rates frozen for eligible businesses above the £18,000 threshold
All retail, hospitality and leisure (RHL) businesses will have their rates bills frozen in real terms until 31 March 2029. These measures will be funded by an increase in the tax on gambling from 20% to 25%.
RHL reliefs removed from gaming and vape shops
Gaming and vaping shops will no longer be eligible for RHL rates relief. Instead, they will move from the lower RHL multiplier to the standard Business Rates multiplier, increasing the amount of Business Rates they pay.
Businesses with a rateable value above £500,000 will not benefit from any of the aforementioned rate freezes.
Introduction of a General Anti-Avoidance Rule (GAAR)
The Government will introduce a General Anti-Avoidance Rule (GAAR) for Business Rates at the earliest opportunity. This is presumably in response to the recent court case that successfully challenged the current “box moving” rates mitigation approach for empty properties.
Fiscal devolution
Chancellor John Healey placed a focus on devolution, which was reflected in the Business Rates proposals through reforms such as:
- 100% of Business Rates will be retained locally by 2030.
- From 2028, 20% of Business Rates revenue will be given directly to mayors.
It is worth considering whether retaining 100% of Business Rates locally may put less urbanised local authorities at a relative disadvantage. Currently, there is partial retention, with the remainder distributed through a weighted system to compensate authorities that generate less Business Rates revenue. This helps equalise the distribution of Business Rates wealth and prevent disparities. We await a more detailed explanation of this proposal.
Energy
No expansion of energy support beyond BICS
Given ongoing global conflicts and the strong focus on “reindustrialising” Britain, there was a possibility that further measures would be introduced to help manufacturers manage high energy bills, beyond the existing Climate Change Levy (CCL) exemptions and relief, the Energy Intensive Industries (EII) exemption scheme and the new British Industrial Competitiveness Scheme (BICS).
While reforms have been proposed for domestic energy costs, no additional support was announced for commercial businesses. For those not eligible for BICS, little additional support has been offered through this Budget.
There was also mention of a potential freeze on new levies being added. We await further information on this as part of next year’s Spending Review.
How Leyton can help
Not sure how Budget 2026 affects your business? We can help.
We’re specialists in tax and innovation incentives, and work regularly with HMRC to discuss the operation and delivery of its key tax relief schemes. That means our experts are well placed to guide you through the changes to Capital Allowances, Business Rates, R&D Tax Credits and Energy Tax Reliefs, helping you maximise your tax relief compliantly.
Speak to one of our experts to find out how we can help.
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