Budget 2026: What Changed for UK Business Owners

Budget 2026 left the main rates of Corporation Tax, income tax on earnings, National Insurance and VAT unchanged. Beneath those headline rates, the Chancellor announced several changes that will materially affect UK business owners.

The R&D Claim Notification Form is to be abolished for claims made from 1 April 2027. Business Asset Disposal Relief will be restricted to a £500,000 lifetime limit. A proposed Founders’ Relief could give a 10% Capital Gains Tax rate on qualifying gains of up to £10m. The Budget also raises tax on savings and property income again, reshapes capital allowances, and sets out plans to rewrite the taxation of company distributions.

Most of these changes land on or around 6 April 2027. From today that is a little over five months, not the comfortable run-up it might sound like. For business owners the useful question is not which rates moved, but how these measures affect the next R&D claim, the next significant equipment purchase, and the eventual sale.

Who this applies to

Owner-managed business directors and shareholders, anyone who claims R&D tax relief or Patent Box, anyone planning capital investment, and anyone considering a sale, a succession or an Employee Ownership Trust.

R&D: the Claim Notification Form is abolished

The most directly relevant announcement for R&D claimants is the removal of the Claim Notification Form for claims made on or after 1 April 2027, to be legislated in Finance Bill 2026-27. From autumn 2027 the Additional Information Form will also be simplified and rationalised through secondary legislation, with the government stating it will retain the information needed to assess compliance risk. The Budget scores the combined administrative package as a forecast Exchequer cost of £45m, £60m and £65m across the forecast years.

This is good news, and overdue. A company caught by the notification requirement that missed its deadline lost the claim entirely, however well the underlying work qualified. That is a poor way to run a tax incentive.

One point of mechanics matters: the trigger for abolition is the date the claim is made, not the accounting period it covers. Work from your intended filing date rather than from your year end.

So do you still need to pre-notify?

Until the change takes effect, in most cases yes. The notification deadline is six months after the end of your period of account, so a 31 December 2026 year end runs to 30 June 2027. That window closes well before most companies finalise their accounts, which means a first-time claimant will usually need to notify in order to preserve the claim. Companies that have claimed R&D relief in the previous three years are generally exempt.

Do not assume a notification deadline already missed will simply be disregarded once the change arrives. The measure sits in Finance Bill 2026-27, it is not yet law, and HMRC has published no transitional guidance.

That exemption is unchanged. A company need not notify if it has made a valid R&D claim in the three years ending on the last day of the notification period, setting aside claims for accounting periods beginning before 1 April 2023 that were made by amendment on or after that date. First-time claimants must always notify.

Most importantly, removing a form removes an administrative barrier. It does not reduce the obligation to establish eligibility or to keep robust technical evidence. The claim must still show that the project sought to achieve an advance in science or technology by attempting to overcome scientific or technological uncertainty, assessed from the perspective of a competent professional in the field. The project does not need to have succeeded in order to qualify. That test sits in the Guidelines, not in the form, and it has not moved. Our blogs on the notification rules and exemptions and technological versus commercial uncertainty cover the position that still applies.

Capital allowances: relief pulled forward, and slowed

For a manufacturing or engineering business weighing an equipment purchase, this is likely to matter sooner than any disposal relief.

• The main rate writing down allowance falls by two percentage points to 12%, from 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax.
• The main rate first year allowance rises from 40% to 50% for expenditure incurred on or after 1 January 2027.
• Full expensing is maintained, and the Corporation Tax main rate stays capped at 25% under the Corporate Tax Roadmap.

The direction is to reward new expenditure and slow relief on everything already sitting in the pool. Businesses with large existing pools will see relief arrive more slowly for years. Businesses planning significant qualifying expenditure have a reason to look closely at the timing around 1 January 2027, when the higher first year allowance begins.

What did not change

• Corporation Tax rates. Main rate capped at 25%, small profits rate and marginal relief unchanged.
• The main rates on earnings. No increases to income tax on earnings, National Insurance or VAT. Note the wording: income from savings and property is a different matter, covered below.
• R&D tax relief rates. The merged scheme and enhanced support for R&D intensive SMEs continue unchanged. The announcements are administrative.
• Patent Box. The regime is not mentioned in the Budget document or the accompanying entrepreneurship prospectus.
• Employee Ownership Trust relief requirements. The eight relief requirements and the four-year disqualifying event window for disposals on or after 30 October 2024 are unchanged, as is the 50% restriction that applied from 26 November 2025.

Tax on savings and property income rises again

Budget 2025 increased the rates of tax on savings and property income by two percentage points across all bands from April 2027. Budget 2026 adds a further two percentage points from the same date, taking the rates to 24%, 44% and 49% at the basic, higher and additional rates. The government states that 84% of income tax payers will be unaffected.

Scottish and Welsh taxpayers should check their own position, since rate-setting powers over non-savings, non-dividend income are devolved. For a director drawing a salary this changes nothing. For an owner who also holds rental property, or who has built up savings outside tax wrappers, the combined four-point increase from April 2027 is worth modelling now rather than discovering later.

Founders’ Relief: a 10% rate for companies that have reached scale

The largest new measure is a Capital Gains Tax Founders’ Relief, giving a 10% rate on up to £10m of lifetime gains for qualifying disposals of shares made on or after 6 April 2027. The detail sits in a technical consultation that closes on 30 November 2026.

The headline is generous. The conditions are not. As proposed, the company must have turnover of at least £10m and at least 15 qualifying full-time employees in the accounting period before disposal, be a UK trading company still carrying on the trade it was formed for, and have a substantial UK presence across the five accounting periods before disposal. The individual must have held 25% of the ordinary share capital when the trade commenced, have held the shares for five years, and have been UK resident for five continuous tax years.

On top of that, the company must meet at least two of three tests: compound turnover growth averaging 25% a year over three consecutive accounting periods within the ten years before disposal; equivalent 25% growth in qualifying full-time equivalent employees; or an innovation test requiring qualifying R&D expenditure of £1.5m or more, for which all the conditions to claim were met, and for which the company did claim, across an accounting period or periods ending within the three years before disposal.

Read plainly, this relief is aimed at companies that have already reached substantial scale. Many owner-managed businesses will not meet the turnover and employment thresholds, let alone the growth tests. We will publish a dedicated blog working through the conditions in detail.

How settled are these conditions?

Less settled than the announcement suggests, and that is worth knowing if you fall just outside. The consultation does not only ask how the relief should be administered. It asks whether the company conditions will "effectively focus Founders’ Relief on UK trading companies that have reached sufficient scale", whether they create practical difficulties or unintended consequences, and whether there are "alternative criteria which might provide a robust and objective means of identifying innovative companies other than the R&D test". A government that had settled on its thresholds would not be asking the last of those.

The Treasury’s own costing points the same way. It builds in a behavioural response in which some near-qualifying companies restructure so that individuals become eligible, and names the size of the tax base as a principal uncertainty. Early commentary has concentrated on the same issue, with the Startup Coalition describing the criteria as tight and intending to argue that they fit startup growth poorly, and Blick Rothenberg warning that narrow conditions could leave long-standing family businesses and smaller owner-managers worse off while the benefit flows mainly to venture-backed companies.

None of that means the thresholds will move. It does mean they are a live question rather than a closed one, which is a reason for anyone sitting near the boundary to respond before 30 November rather than wait and see.

The point that deserves attention

The innovation test ties a personal Capital Gains Tax relief to the quality of a company’s R&D claim, and the consultation is explicit about what follows. If HMRC later takes compliance action on that R&D claim and determines that a condition the individual relied on was not met, the individual loses entitlement to Founders’ Relief and must pay the additional tax due, with interest.

That is a new kind of consequence. Until now, an incorrect R&D claim could cost the company the relief, interest and the cost of the enquiry, with penalties depending on the circumstances. Under this design it could also cost a shareholder a substantial Capital Gains Tax sum, years later, on a disposal that had nothing to do with the claim. The consultation also proposes a statutory right for individuals to request supporting information from the company, since much of the evidence sits with the company and some of it will relate to periods beyond normal record-keeping requirements.

Business Asset Disposal Relief is halved

The BADR lifetime limit falls from £1m to £500,000 for disposals made from 6 April 2027, legislated in Finance Bill 2026-27. The 18% rate is unchanged, and the Chancellor stated that around three in four claimants would be unaffected.

The two reliefs are not additive. The £10m Founders’ Relief lifetime limit is reduced by amounts claimed under the BADR and Investors’ Relief limits from 6 April 2027.

The three routes compared

Worked example

A founder disposes of her shares in a UK trading company in June 2028, realising a gain of £3m. Assume she is a higher rate taxpayer, the annual exempt amount is already used, there are no allowable losses, and she has made no previous BADR or Investors’ Relief claims.

If Founders’ Relief applies: £3m at 10% is £300,000.

If it does not, and BADR is both available and validly claimed: £500,000 at 18% is £90,000, and the remaining £2.5m at 24% is £600,000. Total £690,000.

The difference is £390,000, which is why the conditions repay careful reading rather than a glance at the headline rate.

Now assume she qualified on the turnover test and the innovation test, but HMRC later successfully challenges the company’s R&D claim. One of her two qualifying tests falls away, potentially removing her entitlement to Founders’ Relief. BADR is not necessarily an automatic fallback either. The normal BADR claim deadline is the first anniversary of the 31 January following the tax year of disposal, which for a 2028-29 disposal is 31 January 2031, and the application of the amendment and enquiry provisions would need to be considered. If no alternative relief is available, the £3m gain could instead be taxed at the 24% main rate, producing a liability of £720,000. That is £420,000 more than the Founders’ Relief figure, before interest.

Figures are illustrative and depend on the assumptions stated. The Founders’ Relief conditions are at consultation stage and may change before April 2027.

Why the completion date is not the whole answer

It is tempting to treat 6 April 2027 as a simple before-and-after line. It is not. Where a disposal is made under an unconditional contract, the date of disposal for Capital Gains Tax is generally the date the contract is made rather than the date of completion, and share reorganisations and exchanges carry their own rules that can move or defer the point of disposal entirely.

These are existing rules rather than new Budget measures, but they matter more than usual when a relief limit halves on a known date. Note also that previous changes to BADR have been accompanied by anti-forestalling provisions aimed at arrangements entered into before the change. Signing an unconditional contract before 6 April 2027 should not be assumed to secure the old limit until the Finance Bill is published. Any transaction being negotiated across that line needs the disposal date established properly, not assumed from the completion statement.

Employee share schemes and Employee Ownership Trusts

Several changes, all from 6 April 2027 and all in Finance Bill 2026-27.

• EMI2. The Company Share Option Plan is renamed EMI2. The individual option limit doubles from £60,000 to £120,000, the interaction with the EMI option limit is removed, and the exercise period extends from 10 to 15 years.
• EMI flexibility. The exercise window following a disqualifying event extends from 90 to 180 days, and shares and options set aside for employees can be held for 15 years without triggering the disguised remuneration rules.
• EMI notification. The separate requirement to notify EMI option grants is removed, with grants reported through the existing end-of-year return.
• EOT transition. Companies moving to an Employee Ownership Trust structure will retain access to EMI, removing a point of friction that previously forced a choice between the two.

Separately, for exit charges arising on or after 28 October 2026, the government is introducing an administrative easement to the Capital Gains Tax exit charge that applies when a trust ceases to be UK resident. That is an easement to the administration of the charge rather than a removal of it, and the underlying EOT relief requirements, including the trustee residence requirement, are unchanged. Our introduction to EOTs sets out how the structure works.

Employer costs and business rates

• Wages. From 1 April 2027 the National Living Wage rises 3.9% to £13.21 an hour, the National Minimum Wage for 18 to 20 year olds rises 3.9% to £11.27, and the rate for 16 to 17 year olds and eligible apprentices rises 3.9% to £8.31.
• Business rates in England. From April 2027 the Small Business Rates Relief thresholds for qualifying retail, hospitality and leisure properties rise from £12,000 to £18,000 for 100% relief, and from £15,000 to £21,000 for tapered relief. Bills for qualifying properties in those sectors are frozen in real terms for 2027-28 and 2028-29.
• Pubs, social clubs and live music venues. Relief increases by 20 percentage points, from 15% to a total of 35%, from 1 April 2027. The measure covers pubs, social clubs and all but the very largest live music venues in England.
• Trading Allowance. Rises from £1,000 to £3,000 from 6 April 2027.
• HMRC capacity. A further 670 compliance officers, on top of the previously announced 5,500 by 2029-30.

Profit extraction is being rewritten for 2028

The government confirmed it will reform the tax treatment of distributions so they are consistent regardless of legal form, company residence or transaction structure, with changes taking effect from April 2028 and draft legislation published for technical consultation during 2027. The Budget scores the measure at £55m and then £800m across the later forecast years, which indicates the scale of what is intended.

The government published its response to the consultation on 28 October 2026 and confirmed it will proceed with all seven proposals, with some changes to the policy designs. The seven cover reductions of capital, demergers, the Income Tax treatment of distributions from non-UK resident companies, the interaction between debt, loans and the distributions legislation, loans and temporary extractions from non-UK resident companies, the Purchase of Own Shares rules, and a replacement for the Transactions in Securities anti-avoidance rules.

Several points from the response matter for owner-managed companies. Repayment of capital treatment following a share reorganisation will be limited to the capital originally subscribed, applying only to reorganisations after the legislation takes effect, so companies will not have to analyse historic share capital. Listed companies will be out of scope. The government intends to modernise statutory demerger relief so that commercial demergers are not affected, working through the statutory rules rather than anti-abuse provisions. The reformed Purchase of Own Shares rules are intended to continue supporting genuine business succession, including family handovers, though the proposed 5% minimum shareholding and employment requirements remain subject to technical consultation.

What the response does not do is confirm that every familiar route is safe. Respondents raised concerns about the absence of an exemption for arm’s length sales to unconnected third parties, and the government has said it will explore how to give greater clarity on the definitions of dividend, share capital and repayment of share capital rather than settling them now. Anyone whose succession plan relies on a buyback, a capital reduction or a demerger should treat April 2028 as a live date and watch the 2027 draft legislation.

What to do in the next five months

1. Check your notification position before filing. Nothing changes for claims filed before 1 April 2027. If you will claim after your six-month notification window has closed and no exception applies, the notification is what preserves the claim.
2. Review capital expenditure timing. The higher first year allowance starts for expenditure incurred on or after 1 January 2027, and the lower writing down allowance follows in April.
3. If a disposal is in prospect, establish the disposal date properly. The BADR limit halves on 6 April 2027 and Founders’ Relief begins on it, but contract dates and reorganisation rules can put the disposal somewhere other than where the completion date suggests.
4. Test the company against the Founders’ Relief conditions. Turnover, headcount and growth are measured over historic accounting periods, so whether you qualify in 2027 was partly settled by what happened in 2023.
5. Model the savings and property income increase if you hold rental property or taxable savings.
6. Respond to the Founders’ Relief consultation by 30 November 2026 if the conditions do not fit your business. The Treasury has said the window is shorter than usual.

Lexmore’s View

Budget 2026 left the main rates of Corporation Tax and income tax on earnings unchanged, but made significant changes to reliefs, capital allowances and the taxation of savings and property income. There is no single verdict that holds for every business. The effect depends on investment plans, payroll costs, which reliefs you can reach and the timing of any eventual sale.

The BADR reduction disadvantages owners who would otherwise have claimed the relief on gains above the new £500,000 limit, unless another relief produces a better outcome. Founders who qualify for the proposed Founders’ Relief could benefit substantially, while those who do not may face higher liabilities where the reduced BADR limit applies. On present drafting that second group is much the larger of the two, and the conditions deciding which group you are in are still open to consultation.

The abolition of the Claim Notification Form is unambiguously welcome. It was a procedural deadline that cost companies relief they were otherwise entitled to.

The innovation test deserves more attention than it is likely to get. For the first time, the robustness of a company’s R&D claim may determine whether a shareholder keeps a Capital Gains Tax relief, and an enquiry opened years later can reach back and take it away. Read the conditions. Check your own numbers against them. Say something before 30 November if they do not fit.

Preparing an R&D tax relief claim? The Budget has changed the claim notification process, but the technical requirements have not moved. Lexmore Tax Advisory helps businesses establish eligibility, prepare technically robust claims and meet their compliance obligations.

References

• Budget 2026, HM Treasury, 28 October 2026
• Budget 2026 in full, the complete document collection
• Founders’ Relief: technical consultation, closing 30 November 2026
• Modernising the distributions framework
• Entrepreneurship in the UK, HM Treasury
• Corporation Tax Act 2009, Part 13, sections 1045A and 1042C
• CIRD183000: R&D claim notification requirement
• Tell HMRC you are planning to claim R&D tax relief
• CG63970: Business Asset Disposal Relief, claims to relief
• Corporation Tax: the Patent Box
• CG67820: Employee Ownership Trusts, the relief requirements

John Healey, Chancellor of the Exchequer. Photo: © House of Commons, licensed under CC BY 3.0.