The first Budget from a new Chancellor, working with a new Prime Minister, was always going to attract significant attention. At Frazier & Deeter, we work with many innovative, rapidly growing businesses, so we were particularly interested in what the Budget would mean for them.

It was encouraging to see support for these companies, and the need to keep successful businesses in the UK as they grow, emerge as recurring themes.

The UK is already a strong place to start an innovative business. It has a world-class research base and entrepreneurial ecosystem, while tax incentives such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) help attract capital during the earliest and riskiest stages of a company’s development. In 2024/25 alone, companies raised £1.575 billion through EIS and £276 million through SEIS.

However, creating businesses is only half the challenge. The UK must also help them scale and retain the entrepreneurial and value-creating heart of those businesses as they grow.

Against this background, the Budget’s £5 billion increase in the financial capacity of the British Business Bank is significant. This includes £1.4 billion for investment in equity funds backing high-growth businesses and £450 million for a new venture debt product. These measures should broaden the funding options available to businesses as they move beyond their earliest stages.

Potentially more significant over the longer term is the Mansion House Accord. Its 17 signatories have committed to an ambition of investing 10% of their defined contribution default funds in private markets by 2030, including 5% in UK private markets.

As of 31 December 2025, signatories held £11.1 billion in UK private markets, representing 3.3% of their defined contribution growth-phase assets, with a further £3 billion of UK private-market deals signed. However, only £500 million of the £11.1 billion was classified as private equity, compared with £8 billion invested in property and real estate.

That distinction matters. As innovative companies progress through Series A and subsequent funding rounds, they need increasingly deep pools of patient growth capital. International investors will remain an important part of that ecosystem, but greater reliance on overseas funding can influence where management, investment and, ultimately, value creation are located.

There is much in the Budget to welcome. However, the greater opportunity lies in unlocking Britain’s institutional capital to support the innovative businesses the UK has been so successful in creating. If businesses are to start, scale and stay in the UK, UK capital must scale with them.

The remainder of our Budget Alert considers the key announcements and what they may mean for businesses, founders, employees and investors.

Business Taxes

R&D Tax Relief

The Budget simplifies the administration of R&D tax relief without changing its core rates or structure.

The R&D Claim Notification Form will be removed from 1 April 2027, while the Additional Information Form will be simplified from autumn 2027. These changes should reduce administrative barriers, particularly for early-stage companies previously required to notify HMRC before submitting their Corporation Tax returns.

Companies claiming under the merged R&D expenditure credit scheme will continue to receive a taxable, above-the-line credit equal to 20% of qualifying expenditure. At the 25% Corporation Tax rate, this provides a net benefit of approximately 15p for every £1 spent on qualifying R&D.

Enhanced R&D Intensive Support will remain available to loss-making SMEs that meet the 30% R&D intensity threshold, providing a benefit of up to approximately 27p for every £1 of qualifying expenditure.

These administrative changes do not reduce HMRC’s expectations around eligibility. Companies must still demonstrate that projects meet the statutory criteria and maintain robust documentation covering the scientific or technological advance sought, the uncertainties encountered, the work undertaken and the methodology used to identify qualifying expenditure.

Foreign Permanent Establishment Exemption Reform

For accounting periods beginning on or after 1 January 2027, the Branch Exemption Election will apply automatically to overseas branch profits, meaning those profits will be taxed only in the relevant overseas jurisdiction. For UK oil and gas companies, the change will take effect from 1 September 2026.

Previously, companies could choose between bringing worldwide profits within the scope of UK Corporation Tax or electing to exempt eligible overseas branch profits.

Although this should simplify the position for many companies, it may create disadvantages where an overseas branch is loss-making, as those losses will no longer be available for relief in the UK. Companies with overseas branches should review how the change could affect their individual circumstances.

Capital Allowances

Full expensing will remain available for qualifying assets, while First-Year Allowances will increase from 40% to 50%. At the same time, Writing-Down Allowances for main-pool assets will decrease from 14% to 12%.

The changes will apply to expenditure incurred from 1 April 2027 for Corporation Tax and from 6 April 2027 for Income Tax.

The higher First-Year Allowance will affect the timing of tax relief and could influence future investment decisions. Businesses considering significant capital expenditure should assess how the revised rates may affect their plans and cash flow.

Correcting Errors in Tax Returns

HMRC is modernising the process for correcting errors in tax returns. Penalties will continue to depend on the taxpayer’s behaviour, the potential loss of tax revenue and the level of cooperation provided.

Companies that take reasonable care should not face a penalty. Where careless errors are disclosed without prompting, penalties may range from 0% to 30%. Deliberate errors attract higher penalties.

HMRC also plans to require taxpayers to notify errors promptly. Under the proposed approach, failure to disclose an error without prompting could automatically be treated as deliberate behaviour, resulting in a higher penalty.

Businesses should therefore act promptly when identifying a potential tax error and seek professional advice on their disclosure obligations.

Other Corporation Tax Changes

The Budget also includes several measures that will require further analysis as more detail becomes available:

• Changes to the Corporate Interest Restriction rules for creative sector reliefs;
• The Corporation Tax treatment of investment life contract payouts;
• An Advanced Certainty Clearance Process for infrastructure projects involving more than £30 million of investment;
• Taxation of UK continental shelf exploration and exploitation rights;
• Updates to the taxation of leaseback arrangements; and
• The UK application of OECD Pillar Two requirements to groups with annual revenue exceeding €750 million.

We will consider the implications as further legislation and guidance are published.

Tax Incentives for Founders, Employees and Investors

New CGT Founders’ Relief

We welcome the announced introduction of Founders’ Relief from 6 April 2027, offering a reduced Capital Gains Tax rate of 10% on lifetime gains of up to £10 million.

The new relief appears similar to the former Entrepreneurs’ Relief, now called Business Asset Disposal Relief, which has been significantly curtailed over time.

Founders’ Relief aims to support founders and early investors who have made a substantial, long-term contribution to establishing and growing the UK’s most innovative, high-growth companies.

A consultation running until the end of November 2026 seeks views on how the relief will work in practice. Legislation will follow, applying to qualifying disposals made on or after 6 April 2027.

The consultation proposes minimum ownership thresholds and holding periods, as well as tests relating to company size, residence and trading status. It remains unclear whether UK companies undertaking a Delaware flip to attract US investment will qualify.

The legislation, due in early 2027, will be crucial. We will publish a detailed analysis at that time, including how eligibility could affect founders and companies planning US expansion.

Business Asset Disposal Relief Changes

For disposals made from 6 April 2027, the Government will reduce the Business Asset Disposal Relief lifetime gains limit from £1 million to £500,000. The relief provides a reduced Capital Gains Tax rate of 18% on qualifying disposals.

Founders and employees who do not qualify for Founders’ Relief will pay the main Capital Gains Tax rate of 24% on otherwise qualifying gains above the reduced £500,000 lifetime limit.

The Government estimates that the lower limit will affect a quarter of current claimants, while three-quarters will continue to receive relief on their entire gain. However, it is unclear how many of those affected will qualify for Founders’ Relief and avoid the impact of the reduction.

EMI Expansion and Simplification

Enterprise Management Incentives (EMI) is a UK tax-advantaged share scheme that helps eligible small, high-growth businesses recruit and retain employees. It also offers favourable tax treatment when employees acquire and subsequently sell their shares.

For companies ineligible for EMI because of their size or activities, the Company Share Option Plan (CSOP) has been the principal tax-advantaged alternative.

Going forward, CSOP will be renamed EMI2. The individual option limit will double from £60,000 to £120,000, while the maximum exercise period will increase from 10 to 15 years.

The longer exercise period should better reflect scale-ups’ extended growth cycles. The higher option limit will also enable companies that cannot use EMI to offer key employees a more meaningful stake in the value they help create.

The Budget also confirmed measures to simplify EMI, including extending the period for dealing with a disqualifying event from 90 to 120 days and removing the separate grant notification requirement. Grants will instead be reported through the annual Employment Related Securities return.

From 6 April 2027, EMI and EMI2 limits will operate independently. This will increase the maximum value of tax-advantaged options an eligible employee can hold across both schemes from £250,000 to £370,000.

Venture Capital Schemes for Investors

SEIS, EIS and Venture Capital Trusts are the UK’s three tax-advantaged venture capital schemes. They encourage investment in early-stage, high-risk and high-growth companies.

Following consultation during 2026, we welcome the Government’s plans to introduce technical changes in the next Finance Bill to reduce unnecessary administration and simplify the schemes.

The Government also recognises the value of the SEIS and EIS Advance Assurance process and aims to keep it fit for purpose as demand grows. Plans to improve the handling of routine and complex cases are welcome.

Stability and confidence are essential to sustaining investor appetite. These changes should make it easier for early-stage businesses to raise capital from investors.

UK Tax Treatment of US LLCs 

We welcome the Government’s proposed double taxation relief for distributions received by members of certain reverse hybrid foreign entities, including US Limited Liability Companies (LLCs). Relief is currently unavailable where the tax treatment differs between countries, for example, when the UK treats an entity as opaque but the other country treats it as transparent. 

The Government will shortly publish a further technical consultation on the proposed credit relief mechanism, with legislation to follow in a future Finance Bill.  

Double taxation of US LLC income can affect many US citizens living and working in the UK. We see the proposals as a welcome commitment to keeping the UK a leading destination for global talent and investment, especially for US taxpayers. However, it is disappointing that changes are unlikely to take effect until 2028, leaving the current problems unresolved in the meantime.

VAT and Indirect Taxes

New VAT Obligations for Overseas Businesses

Under the reverse charge, overseas businesses supplying services to UK businesses can often do so without registering for and accounting for UK VAT. Responsibility for accounting for the VAT instead sits with the UK customer.

From April 2027, where an overseas business supplies certain services to a UK business that is not VAT-registered, the overseas supplier will be required to charge and account for UK VAT. The reverse charge will continue for supplies to VAT-registered UK businesses.

Some overseas businesses may therefore enter the UK VAT system for the first time. Suppliers will need to understand their customers’ VAT status and determine whether they must register, charge VAT and meet ongoing compliance requirements. Changes to customer onboarding, contracts and invoicing may also be required.

The commercial impact could be significant where customers are smaller businesses or operate in VAT-exempt sectors, as they may be unable to recover the VAT charged. In these circumstances, VAT could become an additional cost and affect pricing negotiations.

The Budget does not specify a minimum sales threshold for overseas suppliers. Further detail is expected through legislation and HMRC guidance, although our current expectation is that a nil threshold is likely to apply.

Medical Deputies

From 1 May 2027, the VAT exemption for supplying a deputy for a registered medical practitioner will be removed. These supplies will become subject to VAT at the standard rate.

Medical care services will remain exempt, making the precise nature of the service particularly important where customers cannot recover all the VAT incurred.

Donated Medicines

A new VAT zero rate will apply to medicines donated for qualifying purposes. This includes medicines supplied for NHS treatment through certain early-access arrangements, in connection with clinical trials or for continued treatment following a clinical trial.

Online Marketplaces

From 1 October 2027, online marketplaces will become responsible for collecting VAT on sales made through their platforms by UK VAT-registered businesses. Personal sales, second-hand goods and business-to-business transactions will be excluded.

Transferring responsibility to the marketplace could make VAT registration more attractive to some smaller businesses, where the administrative burden may previously have discouraged them from growing beyond the £90,000 VAT registration threshold.

Mandatory E-Invoicing

From April 2029 businesses will be required to issue VAT invoices in a specified electronic format and put a direct debit in place for VAT liabilities.

The direct debit requirement may create practical challenges for overseas businesses without a UK bank account. Businesses should monitor the rules and consider whether changes to their invoicing, finance and payment systems will be required.

Looking Ahead

The Budget contains measures that businesses will welcome and others that will require careful consideration. The detailed tax changes are important, but the bigger question is whether the package creates an environment in which businesses want to invest, grow and remain in the UK.

For innovative and high-growth companies, the Government’s recognition that supporting the scale-up phase is as important as helping businesses get started is encouraging. The additional capacity for the British Business Bank and the continuing effort to mobilise UK pension capital are positive steps.

However, policy announcements are only the beginning. The true measure of success will be whether they translate into greater availability of growth capital, increased business investment and more successful UK companies retaining their people, intellectual property and value creation in the UK as they expand.

The UK has many of the ingredients needed to build world-leading businesses. The challenge now is to ensure that the tax system, investment environment and wider policy framework work together to enable those businesses not simply to start here, but to scale and stay here.

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