Tax - Corporate: Insights For In-house Counsel - Autumn 2025

1. Autumn Budget 2025

The Budget will be delivered on 26 November 2025. The Chancellor faces significant economic challenges, including a highly volatile geoeconomic climate, anaemic economic growth, and persistently elevated public sector net debt and her policy choices are restricted both:

• fiscally – by her two 'non-negotiable' fiscal rules, and
• politically – by the Labour government's 2024 Manifesto pledge not to raise income tax, employee National Insurance Contributions (NICs), or VAT: collectively the three biggest revenue-raising levers available.

The Chancellor will seek to balance any additional borrowing and spending cuts, with tax policy changes that together encourages growth, and maintains confidence, in the economy. Against this backdrop, speculation is rife that a broad array of revenue raising tax changes is under consideration by HM Treasury.

For more detail on speculated measures, please visit our Budget Tracker.

2. Spring Tax Update 2025

Following commitments made at Autumn Budget 2024 (and in its Corporate Tax Roadmap – for more on which see: Insights for In-house Counsel Spring 2025 - Tax), the Government announced a package of measures aimed at simplifying the tax system.

Included in the measures announced were:

Transfer pricing

Draft legislation (for inclusion in Finance Bill 2025-26) has been published that will:

• Narrow the regime by exempting most UK-to-UK transactions from the transfer pricing regime
• Widen the regime by expanding the 'participation condition'
• Align the interpretation of the UK rules with the OECD Transfer Pricing Guidelines, and
• Make it easier for HMRC to make transfer pricing determinations.

In addition, HMRC published a consultation that proposed two additional changes to the UK's transfer pricing regime:

• First, to limit the current exemption from transfer pricing for small and medium-sized enterprises (SMEs) to small entities only, bringing medium-sized enterprises into scope, and
• Second, to introduce a new reporting requirement for certain cross-border related party transactions.

Permanent establishment

Draft legislation (again for inclusion in Finance Bill 2025-26) has been published that will amend:

• The UK's domestic law definition of permanent establishment to align it more closely with the definition used in the OECD Model Tax Convention, and
• The application of the 'investment manager exemption' to both expand its scope to cover a wider range of investment transactions and remove Condition D (the 20% test).

The intention is to make the law in this area easier to understand. It is important to emphasize that the changes only apply to the UK's domestic rules; they do not affect the application of any of the UK's existing double tax treaties.

Diverted profits tax (DPT)

As part of the overall package of changes to the UK's transfer pricing regime, draft legislation has been published to repeal the DPT. However, the 'essential features' of DPT will be preserved in a new corporation tax charge on 'unassessed transfer pricing profits' (UTPP). This represents a welcome simplification and should have the bonus of bringing some clarity to the application of double tax treaties in this area.

Modernisation of the stamp taxes on shares

The Government has also (finally) published its response to the 2023 Stamp Taxes on Shares modernisation consultation. It has confirmed that stamp duty, and stamp duty reserve tax (SDRT), is to be replaced with a single, self-assessed, tax on securities, to be administered online. It is anticipated that the new tax will be introduced in 2027. Draft legislation has not yet been published.

For the full package of consultations, calls for evidence and supporting documents, see: Tax update spring 2025: simplification, administration and reform.

3. HMRC increases VAT recovery for defined benefit (DB) pension investment costs

On 18 June this year, the UK Government increased the availability of input tax recovery for DB pension schemes' investment costs with immediate effect. However, the extent of the good news will remain unclear until the associated guidance is published (scheduled to occur "by autumn 2025").

Until the recent change in policy, HMRC's position meant that it was far easier for employers to recover input tax on costs relating to the administration of DB pension schemes than on investment costs relating to management of the scheme's assets. Input tax on administration service costs could be recovered by the employer as a business overhead, provided the VAT invoice was addressed to it - even if the pension fund trustee contracted and paid for the relevant services. However, the position has been significantly more difficult for input tax on investment costs. Broadly, HMRC took the view that these investment costs relate to the trustee's management of the pension fund assets rather than the employer's business. This meant that only a proportion of the input tax could be treated as an overhead of the business and even to achieve that it was necessary to use certain structuring methods e.g. bringing the trustee into the employer VAT group.

The policy change is, therefore, a welcome reform for taxpayers. However, important detail remains outstanding. In particular, whether it will be necessary to continue to use the traditional structuring methods (such as bringing the trustee into the employer VAT group) to allow all the input tax on investment costs to be treated as an employer overhead or whether (as is the case with administration fees) it will be sufficient for employers to hold a valid VAT invoice in respect of the supply, even if the trustee contracts for and pays for the service.

For more detail, please see our briefing.

4. G7 Statement on Global Minimum Taxes

On 28 June, the G7 published a statement outlining a high-level political understanding on how the G20/OECD Pillar Two global minimum tax might interact with the U.S. system.

Pillar Two seeks to ensure that large multinationals enterprises pay an effective tax rate of at least 15% in each jurisdiction where they operate. Pillar Two operates through a combination of rules that, in certain circumstances, allow additional tax to be levied on a subsidiary of a multinational that has undertaxed profits in a different jurisdiction.

Many jurisdictions (including the UK and the European Union) have already introduced legislation to implement Pillar Two. By contrast, the US has been reluctant to implement the rules. The current Administration has argued that Pillar Two is discriminatory because it disproportionately targets US parented groups. The situation deteriorated further with the inclusion of section 899 in the House version of the One Big Beautiful Bill (OBBB). Section 899 was designed to allow the imposition of retaliatory US tax measures on any investor from any country that has implemented "unfair foreign taxes", including Pillar Two (alongside both Digital Services Taxes and Diverted Profits Taxes).

According to the G7 statement, a side-by-side system has been agreed (in principle) whereby (a) the domestic and foreign profits of US parented groups will be fully excluded from the application of Pillar Two rules, in exchange for (b) the removal of section 899 from the final Senate version of the OBBB.

The G7 agreement was broadly welcomed but progress on formalising a high-level political understanding into detailed rules that are acceptable to the full membership of the OECD/G20 Inclusive Framework has been difficult and faces significant hurdles. Speculation continues that if a formal agreement is not reached "quickly", section 899 could be revived.

For more detail and analysis of the wider implications, see: our briefing on transatlantic tax policy and the art of the deal.

5. New HMRC registration requirement for financial institutions under CRS/FATCA

The UK has recently amended its rules relating to the implementation of the Common Reporting Standard (CRS) and FATCA. Broadly, under these rules, "financial institutions" are required to provide details of their non-resident account holders to HMRC.

One aspect of the recent amendments is the introduction of a requirement on most financial institutions to register with HMRC by 31 December, even if they have no accounts to report. The registration requirement is a one-off process with which relevant financial institutions will need to comply.

Private capital (and other financial services) businesses should review the status of their various entities to assess whether they are affected by the new registration requirement.

6. New UK carried interest tax regime: more detail provided

Over the summer, the Government provided additional detail, including draft legislation, in relation to the UK's new regime under which, from 6 April 2026, all carried interest will be taxed as trading income, but with a bespoke effective rate of around 34.1% available for so-called "qualifying carried interest".

Helpfully, we now know that there will only be one requirement that carried interest must meet to be "qualifying" – with the Government not taking forward the other proposed requirements.

The single condition for "qualifying" status is that the carried interest must not be (what is currently called) income-based carried interest (IBCI). Broadly, carried interest will be at least partly IBCI unless the underlying fund has a weighted average holding period for its assets of at least 40 months. Currently, the IBCI rules do not apply to employees, but that exclusion will be removed under the new regime. However, in better news for taxpayers, amendments will be made to make it easier for carried interest not to be IBCI, in particular, in relation to private credit, fund of funds and secondary strategies.

In a welcome Government concession, the draft rules include some limitations for non-residents. However, the new regime is likely to generate complex international issues, especially in relation to jurisdictions that will not respect the UK's categorisation of the carried interest as a trading profit.

For more detail, please see our briefing.

7. Permission to appeal to Supreme Court granted in BlueCrest "salaried members" case

Under the UK's salaried members rules, a member of an LLP can be treated as an employee rather than self-employed for tax purposes, such that employers' NIC and PAYE obligations arise. Broadly, the regime will not apply if the individual has any of three facets of true partner-like status, including "significant influence" over the LLP.

In January, the Court of Appeal, overturning the decisions of the lower tribunals, held that "significant influence" must be construed narrowly. It held that the influence must derive from the legal rights and duties of the members and indicated that the focus should be only on strategic influence which itself should be over all the affairs of the partnership.

This decision markedly restricts the scope of significant influence as compared to the lower tribunals' interpretation. Indeed, the need for the influence to be derived from the members' legal rights and duties goes further in narrowing the concept than even HMRC contended.

However, there may be another twist in the saga, as BlueCrest has been granted permission to appeal to the Supreme Court, with the hearing expected later this autumn.

As we await the Supreme Court's view, most firms are adopting a wait and see approach. An exception to this is those relying solely on "significant influence" to prevent the salaried members rules applying – with many of those revisiting their LLP deeds to ensure that the influence is properly embedded in the legal rights and duties of the members.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.