UK Budget 2026: Key business and employment tax announcements

Chancellor John Healey handed down his “breathing space” Budget on 28 October 2026. While there were no wide-ranging tax increases, a number of measures were announced impacting businesses and the taxation of employment. We summarise some of the key announcements and what they could mean for you and your clients.

Business and corporation tax measures

Making Tax Digital

The quarterly update penalty easement currently in place for taxpayers in the 2026-27 tax year will also apply to those joining MTD for the first time in 2027-28. 

As explained in our previous article on self-assessment penalties, the easement applies only to quarterly update submissions. All other MTD penalties will continue to apply. 

Taxpayers entering MTD in 2026-27 will no longer receive the penalty points easement beyond this tax year. Penalty points will apply to this group from the quarter one deadline of 7 August 2027.

An exemption from MTD will also apply to the following taxpayers from 2027-28 until further notice:

• Taxpayers eligible for qualifying care relief.
• Non-UK resident foreign entertainers or sportspersons.
• Taxpayers who would otherwise be required to use MTD from 2027-28, based on qualifying income in their 2025-26 return, but have a reasonable expectation that they will become non-UK resident for the 2027-28 tax year. (Taxpayers in these circumstances should contact HMRC and explain the expected change in circumstances. If HMRC accepts it, the taxpayer will be exempt from MTD for 2027-28 and 2028-29 tax years.)
• Taxpayers who continue to trade but whose notification of bankruptcy (sequestration in Scotland) or Individual Voluntary Arrangement (IVA) is received by HMRC before signing up to MTD.

HMRC will provide further guidance to help relevant taxpayers understand the steps they may need to take.

Trading allowance

The trading allowance will increase from £1,000 to £3,000 from the 2027-28 tax year.

Taxpayers with gross trading income below the trading allowance are not required to calculate trade profits or submit a self-assessment return in respect of this income.

If a taxpayer’s gross trading income exceeds the trading allowance, they can deduct either the amount of the allowance or their actual expenses when completing their self-assessment return.

Capital allowances

The rate of first year allowance (FYA) for expenditure on new assets, otherwise qualifying for the main capital allowances rate, incurred on or after 1 January 2027, has been increased from 40% to 50%.

This allowance benefits unincorporated businesses, broadly where the expenditure is not eligible for relief at 100% by the annual investment allowance. Other expenditure exclusions apply for this FYA.

The main writing down allowance rate will reduce from 14% to 12% from 1 April 2027 for corporation tax purposes and from 6 April 2027 for income tax purposes.

Income tax rates on property income

The income tax rates on property income will increase by a further 2% for the 2027-28 tax year for taxpayers, other than Scottish taxpayers. From 2027-28, the property basic, higher and additional rates will be 24%, 44% and 49%, respectively. The rates had previously been set at 22%, 42% and 47% following the 2025 UK Budget.

The Scottish Government has the power to increase the rates of income tax on property income for Scottish taxpayers from 2027-28. Any changes to income tax rates on property income for Scottish taxpayers will be announced in the upcoming Scottish Budget in December.

Capital gains tax (CGT) reliefs

The lifetime limit for Business Asset Disposal Relief has been reduced to £500,000 for qualifying disposals made on or after 6 April 2027. 

Special rules will apply to contracts entered into but not completed before 6 April 2027, as well as certain share reorganisations and exchanges of securities. Legislation for this change will be included in the Finance Bill 2026-27.

A new Founders’ Relief has been announced for qualifying disposals of shares and securities made on or after 6 April 2027. This is intended to “support founders and early investors who have made a significant long-term contribution to the creation of the UK’s most high-growth and innovative companies.” A 10% rate of CGT will apply to gains up to a £10 million lifetime limit.

The Government has issued a consultation on the practical application of the new relief which closes on 30 November.

Employment tax measures

Mandatory payrolling of benefits in kind

The Finance Bill 2026-27 will introduce legislation requiring employers to report and payroll most benefits in kind and taxable expenses through real time information. 

As outlined in our article on the phased introduction of benefits in kind, the requirements will apply to company cars and vans, car and van fuel, and medical benefits from 6 April 2027.

From 6 April 2028, they will extend to all other benefits in kind, except employment-related loans and employer-provided living accommodation. 

Vehicle benefits in kind – updates to charges and rates

The van, car fuel and van fuel benefit charges have been increased by the September Consumer Price Index (CPI) of 3.5% for the 2027-28 tax year as follows:

• Van benefit charge: £30,200
• Car fuel benefit charge multiplier: £4,310
• Van fuel benefit charge: £825

Legislation will be introduced in the Finance Bill 2026-27 to set company car tax rates for the 2030-31 tax year. Rates for years prior to this have already been enacted. The rates will increase by 1% for all vehicle bands to a maximum appropriate percentage of 40%.

National Insurance Contributions (NICs) thresholds and rates

The Class 1 Lower Earnings Limit and the Class 2 Small Profits Threshold will be increased by the September CPI to £6,916 and £7,355 per annum, respectively. 

Voluntary Class 2 and Class 3 NICs rates will also be uprated by 3.5% to £3.80 and £19.05 per week, respectively.

Consultation responses and new consultations issued

Finally, the Government made some consultation-related announcements alongside the Budget. These included:

• Corporation Tax Simplification for Business Investment consultation (closing 21 November 2026)
• Founders’ Relief: Technical consultation (closing 30 November 2026)
• Call for evidence: Modernising Corporation Tax Administration (closing 20 January 2027)
• Government response to the Tax Support for Entrepreneurs call for evidence
• Summary of responses to Timely Payments in Income Tax Self Assessment (ITSA) consultation
• Summary of responses to Modernising the taxation of distributions and repayments of capital from companies consultation
• Summary of responses to Modernising and standardising company tax returns consultation

We’ll agree which of these consultations we'll be responding to in the coming days.

The Government also issued a summary of responses to the Reporting company payments to participators – modernising the reporting framework consultation, and announced that it would not be proceeding with implementation of the new reporting requirements at this time.

Details of all Budget 2026 measures can be reviewed on GOV.UK.

Understand what the tax changes mean for you

Learn how these measures will impact you by signing up to our Autumn Tax Update webinars:

• Autumn Tax Update (part one): Employers and businesses - 4 November, 11:00
• Autumn Tax Update (part two): Personal, VAT and tax administration – 11 November, 11:00

Visit our UK and Scottish Budget hub for more Budget content.

Let us know your views

The UK Government is interested in hearing from a wide range of sectors to support policy decisions. If you want to have your say, please contact us with your thoughts.