As part of the October 2024 Budget, the newly elected Labour government introduced a 'Corporate Tax Roadmap,' a framework designed to provide stability and certainty for businesses over the next five years. The roadmap aims to foster a predictable tax environment, encouraging investment and long-term planning. However, while the document outlines broad policy intentions, it also leaves room for flexibility in response to unforeseen economic developments.
In his session, Industry Accountants 2025 - Labour's Corporate Tax Roadmap What does it Mean for Business Carl Bayley breaks down the key aspects of the roadmap and explore what it means for businesses across the UK.
Corporate Tax Rates: A Pledge for Stability?
One of the most significant aspects of the roadmap is its stance on corporate tax rates. The government has committed to maintaining the main corporation tax rate at 25% for companies with profits exceeding £250,000. Meanwhile, the small profits rate of 19%, applicable to the smallest businesses, will also be retained, along with the marginal relief system for businesses with profits between the two thresholds.
Although the roadmap suggests that the UK’s tax regime will remain competitive, it also provides some leeway for future adjustments. While businesses may welcome the commitment to stability, the possibility of policy shifts in response to economic changes introduces an element of uncertainty.
Capital Allowances: Supporting Investment
Labour has pledged to maintain full expensing, allowing businesses to claim 100% upfront relief on qualifying new and unused plant and machinery investments. Additionally, the £1 million Annual Investment Allowance (AIA) remains in place, providing 100% relief on a wider range of plant and machinery, including second-hand assets.
The roadmap also signals potential changes to capital allowance rules, including clarifications on qualifying expenditures, simplifying legislation, and reviewing the treatment of pre-development costs. There is also a proposal to explore extending full expensing to assets purchased for leasing, though previous governments have struggled to implement such changes.
R&D Incentives: Evolution, Not Revolution
Research and development (R&D) tax relief remains a focal point, with Labour indicating its intention to retain the existing framework. The merged R&D Expenditure Credit scheme and enhanced support for R&D-intensive SMEs will continue, with additional measures aimed at improving guidance and increasing the use of advanced clearances.
The roadmap outlines plans to establish an expert advisory panel, improve transparency through a disclosure facility, and consult on broadening access to advanced clearances. However, businesses should remain vigilant, as successive governments have struggled to strike a balance between promoting innovation and curbing potential abuses of the system.
International Taxation and Transfer Pricing Reforms
For multinational corporations, the roadmap introduces a series of reforms aimed at tightening tax compliance. These include revisions to transfer pricing regulations, changes in the treatment of permanent establishments, and updates to the diverted profits tax.
Notably, Labour intends to lower the exemption threshold for transfer pricing rules, potentially bringing medium-sized businesses into the compliance net. Although the exact definition of ‘medium-sized’ remains unclear, it is expected to align with the Companies Act criteria: turnover above £10.2 million, a balance sheet over £5.1 million, or more than 50 employees.
Additionally, the government plans to repeal the Digital Services Tax once a global framework under Pillar One and Pillar Two of the OECD's tax reform initiative is fully implemented. Increased reporting of cross-border transactions and a review of cost contribution arrangements are also on the agenda.
Key Reliefs and Exemptions: No Major Overhauls
The roadmap confirms that the UK’s corporate tax base will largely remain unchanged. Businesses can take comfort in the continued availability of key reliefs, including:
No restrictions on the deductibility of interest and finance costs.
Retention of the substantial shareholdings exemption.
Continued exemption of dividends from corporation tax.
Maintenance of current loss relief provisions, although the possibility of tweaks to ‘non-key’ features remains open.
Stability with a Caveat
Labour’s Corporate Tax Roadmap presents a vision of stability and continuity, reassuring businesses that drastic tax hikes or sweeping policy shifts are not on the immediate horizon. The maintenance of corporate tax rates, capital allowances, and key reliefs should provide businesses with a clearer framework for planning investments.
However, the roadmap also leaves room for policy adjustments, particularly in response to economic pressures or international tax developments. Businesses should remain alert to potential refinements in capital allowances, transfer pricing, and R&D incentives, as these areas could see more significant shifts over time.
Ultimately, while Labour’s roadmap lays the groundwork for a stable corporate tax environment, businesses will need to keep a close watch on evolving regulations and be prepared to adapt their tax planning strategies accordingly.
For the full session, please click here. In this course Carl Bayley covers the following topics:
- Corporation Tax rates – what can we expect?
- Marginal rate tax planning opportunities
- Capital expenditure – how to maximise the available reliefs
- Planning for increasing tax-driven employment costs
- The gaps in the roadmap – what else might we see and how can we plan for it?
The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.
