Implications of the UK Budget announcements for large corporates

What was announced?

• The headline corporation tax rate has been capped at 25%.
• The small profits rate of 19% and marginal relief (for those companies with taxable profits of less than £250,000) also remain unchanged.

What are the implications?

The stability in the corporation tax rate provides large businesses with the certainty required to aid long-term planning. By maintaining the rate at 25%, the UK remains competitive within the G7. The unchanged small profits rate and marginal relief ensure that smaller subsidiaries within large groups are not disproportionately affected, maintaining a balanced tax burden across different business sizes.

What was announced?

With effect from 6 April 2025:

• Employer National Insurance Contributions (NICs) will increase from 13.8% to 15%.
• The threshold for employer NICs will be reduced from £9,100 to £5,001.
• The employment allowance will increase from £5,000 to £10,500 and the £100,000 employers’ NI cap on businesses that can claim is removed – making the allowance available to all employers.

What are the implications?

For businesses, the increase in the main rate of Employer’s National Insurance is likely to have the largest impact from the Budget in the short-term.

For large corporates, the increase in employer NICs represents a significant rise in employment costs. This, coupled with the reduced threshold (partly mitigated by the employment allowance), will increase the financial burden on businesses, particularly those with large workforces. Companies may need to reassess their employment and reward strategies and budgets to accommodate these higher costs. Additionally, the increased cost differential between employed and self-employed labour may lead to more scrutiny and enforcement of off-payroll working rules (IR35).  There will be a number of employment issues to consider in ensuring businesses operate efficiently bearing in mind the increase in National Minimum Wage and the introduction of the Employment Rights Bill.

What was announced?

• Maintaining permanent full expensing (100% First Year Allowances) for qualifying new main rate plant and machinery for this parliament.  In addition, there is a commitment to extend this to assets for leasing or hiring when fiscal conditions allow.
• Annual Investment Allowance remains at £1 million.
• Rates of Writing Down Allowances and the Structures and Buildings Allowance are maintained.
• There is a commitment to explore how capital allowances can be simplified and greater clarity on the tax treatment of pre-development costs. 

What are the implications?

The continuation of relatively generous capital allowances, including full expensing, significantly reduces the effective cost of capital investments, with a view of promoting business investment.

Large businesses should now be able to plan substantial investments with confidence, knowing that these tax reliefs will remain stable for the time being. The Government has also announced their intention to provide clarity on what qualifies for different capital allowances with the aim to further ease compliance and planning processes, and ultimately reduce administrative burdens.

What was announced?

• Maintenance of the merged R&D Expenditure Credit (RDEC) scheme and enhanced support for R&D Intensive SMEs.
• Establishment of an R&D advisory panel and improved guidance with the aim of enhancing the administration of R&D reliefs.
• Launching an R&D disclosure facility by the end of 2024.
• Consultation on widening the use of advance clearances.
• The Spring Budget announced that the 39% audio-visual expenditure credit would apply to UK visual effect costs of film and high-end TV productions without the 80% cap for expenditure incurred from 1 January 2025.

What are the implications?

For large businesses heavily invested in innovation, the stability and generosity of R&D tax reliefs are crucial. The merged R&D Expenditure Credit scheme sets out to ensure that large companies can continue to benefit from significant tax credits, with the aim of encouraging high levels of R&D activity. Enhanced guidance and the potential for advance clearances are likely to provide greater certainty and reduce the risk of disputes with HMRC.

What was announced?

• Further consultations on reforms to transfer pricing, permanent establishments, and diverted profits tax, including the potential removal of UK-to-UK transfer pricing.
• Consultation on additional changes to the transfer pricing legislation, including the potential of lowering thresholds for exemption and introducing reporting requirements for cross-border transactions.

What are the implications?

Large multinational businesses will need to prepare for potential changes in transfer pricing regulations, which could impact their tax planning and compliance strategies. The removal of UK-to-UK transfer pricing could simplify domestic transactions. However, new reporting requirements for cross-border transactions may increase administrative burdens but will also provide greater transparency and theoretically reduce the risk of tax base erosion. 

What was announced?

• Commitment to implementing Pillar 2 of the OECD’s global tax framework.
• Confirmation of the Government’s intention to legislate for the introduction of the undertaxed profits rule for accounting periods commencing on or after 31 December 2024.
• A commitment to consider opportunities for simplification or rationalisation of the UK’s rules for taxing cross border activities.

What are the implications?

Pillar 2 sets out to ensure a minimum effective tax rate of 15% globally and the implementation of the OECD Pillar 2 framework will significantly impact large multinational enterprises.

These changes will require large businesses to reassess their global tax strategies and ensure compliance with new international standards, potentially increasing their tax liabilities in low-tax jurisdictions.

A start on simplifying and rationalising the UK’s rules for cross border activities was the repeal of the Offshore Receipts in Respect of Intangible Property (ORIP) rules for receipts arising from 31 December 2024.