Overview of Key Policy Shifts
On 23 June 2026, HMRC released a policy paper titled “Tax Update 2026: Simplification, Modernisation and Fairness”, introducing a set of significant reforms aimed at trimming administrative burdens and advancing fairness. Some highlights include:
- Businesses: R&D and creative-sector expenditure credits will be excluded from Corporation Tax's Quarterly Instalment Payment (QIP) profit thresholds, reducing cash-flow pressures. (kpmg.com)
- Individuals & Trusts: Modernisation of dividend taxation and new Capital Gains Tax relief for gifts of business assets. (kpmg.com)
- Employment Tax: Call for evidence on PAYE Settlement Agreements (PSAs) and formalizing National Insurance easements for globally mobile workers. (kpmg.com)
- Indirect & Customs Tax: Digitalization initiatives including AI pilots, e-invoicing networks, and customs modernisation. (kpmg.com)
Implications for Different Stakeholders
For Businesses
- Cash flow improvements: Removing R&D and similar credits from QIPs means companies won’t be pushed into paying instalments prematurely, especially when margins are slim.
- Foreign operations: A new foreign branch exemption (FBE) becomes mandatory from 1 January 2027 (with certain oil & gas firms affected earlier from 1 September 2026). Overseas profits and losses will generally be segregated and not offset against UK profits. (swgroup.com)
For Individuals & Trusts
- Those who receive dividend income or who use trusts should prepare for tax rate adjustments and revisions to how distributions are taxed. (kpmg.com)
- Easier access to Capital Gains Tax (CGT) relief when gifting business-assets could unlock opportunities for transfers and succession planning. (kpmg.com)
For Globally Mobile Individuals
- Expect increased documentation and compliance requirements as HMRC works toward fairer tax outcomes in cases involving reverse hybrids (e.g., U.S. LLCs). (kpmg.com)
What Businesses & Individuals Should Do Now
- Review whether you will be in the scope of foreign branch exemption from Q1 2027. Begin structuring overseas operations accordingly.
- For those expecting income from dividends or trusts, run forecasts under both old and new proposed rates. Revisit shareholders’ agreements and trust structures.
- If you qualify for Land Remediation Relief, watch for upcoming reforms as recent consultations suggest major design changes are coming. Proactively tracking eligible spend and confirming evidence now may pay off. (gov.uk)
Example Scenarios
| Situation | Before Update | After Update | Actionable Tip |
|---|---|---|---|
| Software company heavily investing in R&D | QIP liabilities tied to overall profits; early instalments required | Credit-expenditures excluded from QIP thresholds | Update cash flow models; possibly delay instalment filings during transition |
| UK-resident business with foreign permanent establishment | Overseas losses may offset UK profits | FBE mandates separation of income/losses for UK Corp Tax | Review tax accounting; consider restructuring to maintain reliefs |
| Owner of business assets planning divestment | Gifted assets could trigger high CGT burden | New reliefs available for business asset gifts | Consult asset valuation and timing now; ensure compliance with CB rules |