UK Budget 2025: Capital Allowances changes, Business Rates reform & R&D Tax Credits stability

The Chancellor, Rachel Reeves, has presented her long-awaited Budget 2025 to parliament.

After weeks of uncertainty and speculation, the budget largely focused on raising taxes to boost the UK’s welfare programme.

Among the new measures were some unexpected changes to the Capital Allowances scheme, along with minor clarifications and announcements affecting the provision of support for R&D tax relief, which otherwise remain untouched. Also announced were a package of reforms designed to rebalance the Business Rates system.

Below, we summarise the key updates affecting innovative businesses.

R&D Tax Credits

No changes to the R&D Tax Credits scheme’s rates and rules

No major changes were announced for the R&D Tax Credits scheme. This means that after several years of tweaks and changes, the rules for qualifying expenditure and tax credit rates will remain the same, providing some welcome stability for innovative businesses.

New pilot advance assurance service for SMEs claiming R&D tax relief

A new targeted pilot advance assurance service is set to be launched from Spring 2026, helping to give SMEs extra clarity before they submit their R&D tax relief claims to HMRC.

The background to this is that in March the UK Government opened a consultation into the use of R&D tax relief advance clearances to help to reduce error and fraud while also providing certainty for businesses submitting their R&D claims. While the results of this consultation are due to be published imminently, the advance assurance pilot appears to be an early outcome.

No regulation in the tax advice market

Following a UK Government consultation, it was expected that the tax advice market would face regulation, something which we at Leyton UK would have welcomed. Surprisingly, it was announced that tax advisors would not face regulation. Instead, HMRC will “work in partnership with the sector to raise standards in the tax advice market.”

While we would have preferred clear regulation, we acknowledge HMRC’s decision and are committed to continue setting the highest-possible standards in the industry.

Clarification on creative industries tax relief and RDEC

New legislation is being introduced to clarify how certain intra-group payments are treated for corporation tax purposes.

This relates to payments made on or after 26 November 2025 when one company in a group surrenders its Research & Development Expenditure Credit (RDEC), Audio-Visual Expenditure Credit (AVEC) and Video Games Expenditure Credit (VGEC) to another company in the same group.

Robert Strutt – Director of Tax at Leyton UK

Capital Allowances

Full expensing and corporation tax untouched

While there were some unexpected changes announced (see below), businesses will be relieved to see that the full-expensing Capital Allowance scheme is being kept including the 100% main pool first year allowance (FYA) and 50% special rate pool FYA.

The corporation tax rate also remains the same for all businesses.

Writing-down allowance reduced to 14%

From 1 April 2026 the main rate writing-down allowance (WDA) will drop from 18% to 14%, compromising assets that do not qualify for full expensing such as second hand assets and cars.

40% first year allowance (FYA)

From 1 January 2026 there will be a new 40% FYA for main rate expenditure which allows businesses to deduct 40% of the cost of qualifying assets from taxable profits in the year of purchase (although it excludes second-hand assets and cars).

One-year extension of 100% first year allowances for zero emission vehicles and chargepoints

For another year, businesses can continue to deduct the full cost (100%) of zero emission vehicles and EV chargepoint equipment from their taxable profits in the year of purchase until 31 March 2027 for corporation tax purposes, and 5 April 2027 for income tax purposes.

Northern Ireland enhanced investment zone

It’s been confirmed that the Enhanced Investment Zone for Northern Ireland will focus on advanced manufacturing, targeting industries in photonics and biotechnology.

This will provide enhanced Capital Allowance relief including enhanced structures and buildings allowances.

Ryan Watson – Head of Capital Allowances Leyton UK

Business Rates

New 2026 Rating List Published

The Valuation Office Agency (VOA) has published the draft 2026 rating list. This means property occupiers can now see what their new rateable value (RV) will be from April 1, 2026.

Changes to business Rates multipliers

There will be new Business Rates multipliers applicable from the 2026-27 financial year, with the multiplier applied depending on the property’s rateable value (RV) and its industry.

From 1 April 2025 retail, hospitality, and leisure (RHL) will have their own specific multipliers, which will be 5 pence lower than the non-RHL multipliers.

A new high-value multiplier will apply to all properties with a rateable value of £500,000 or above, including applicable RHL operators.

Transitional relief extended

Transitional relief will be in place for the entire duration of the 2026 rating list (April 1, 2026, to March 31, 2029). This relief is for eligible properties in England and Wales (full details TBC) and is designed to cap Business Rates liabilities where properties face large increases in their rateable value between the 2023 and 2026 lists. Properties not eligible for transitional relief will pay an extra 1p in rates liability to cover the cost of the scheme in England.

Targeted Business Rates retention

New Business Rates retention measures are set to be announced for specific local authorities. This is intended to assist them with funding local infrastructure and public services.

100% Business Rates relief for EVs

There will be 100% Business Rates relief for electric vehicle (EV) charging points and EV-exclusive forecourts for a period of 10 years.

Small business rate relief grace period extended

The small business rate relief grace period is being extended from 1 year to 3 years for eligible occupiers who move to a second property.

Limited opportunity for challenging 2023 RV

There is a limited window of opportunity to challenge your current 2023 rateable value if you have not already done so. A successful challenge now could impact your new 2026 rateable value and your rates liability for the next three years. Make sure you speak to our expert Business Rates team to see if there is potential to reduce your business rates liability before the deadline.

James Pullen – Business Rates Director Leyton UK

How Leyton can help

Note sure how Budget 2025 affects your business? We can help.

We’re members of HMRC’s consultative committee, which means that our experts are well placed to guide you through the changes to Capital Allowances, Business Rates and R&D Tax Credits, helping you to compliantly maximise your tax relief claims.

Speak to one of our experts to find out more about how we help.

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