How the UK Tax System Became So Complicated

The Evolving Tax Landscape in the UK: What You Need to Know in 2025

As we move into 2025, the United Kingdom’s tax environment continues to evolve. These changes reflect the government’s commitment to enhancing competitiveness, simplifying tax structures, and aligning with global tax reforms. At Cutts & Co Accountancy, we are here to ensure you stay informed and prepared for these developments.

Pillar Two Rules
A New Era in Tax Compliance

One of the most significant introductions in 2025 is the implementation of the Pillar Two rules. These rules require multinational groups within scope to pay a minimum tax rate of 15 percent. Already adopted in the UK and nearly 50 other jurisdictions, these regulations introduce substantial new compliance obligations.

Businesses with operations in the UK must begin preparing for their first information return filings, which are due by June 2026. In addition to this, groups need to register with HMRC within six months from the end of their first accounting period that falls under the new rules. For example, companies with a December year-end will have to register by 30 June 2025.

Modernising R and D Tax Relief

The Research and Development tax relief system is also being updated. From 1 January 2025, companies operating on a December year-end will transition into a new, unified regime for R and D tax relief.

This modernised system is part of HMRC’s efforts to reduce errors and fraudulent claims in R and D tax matters. As part of this change, a new disclosure facility will be launched on 1 January 2025. This facility provides companies with a means to voluntarily correct any past over-claimed R and D tax relief.

The creative industries have also received increased support through this regime. From the start of 2025, relief for visual effects work will be enhanced, increasing the effective after-tax benefit from 20.4 percent to 29.25 percent for qualifying costs. This move aims to support one of the country’s key growth sectors.

Changes in Capital Gains Tax

New developments in Capital Gains Tax are also expected. From 6 April 2025, the rate of CGT on carried interest will rise to 32 percent. In addition to the rate change, broader reforms are being implemented to ensure the fair treatment of carried interest within the tax system.

This shift signals an ongoing effort by the government to create a more equitable tax landscape.

Spring Statement and Consultations

The Spring Statement, scheduled for 26 March 2025, is expected to unveil several important consultations and updates from previous discussions. Although it is not intended to be a full-scale fiscal event, it will offer valuable insights into the government’s strategic direction on taxation.

Businesses and tax professionals should be aware of the potential outcomes and be ready to adjust their tax planning accordingly.

Global Tax Competitiveness

The UK’s position in the global tax framework remains a topic of active focus. According to the 2024 International Tax Competitiveness Index, the UK ranks 30th overall. This ranking suggests potential areas for simplification and reform to better promote long-term economic development.

The index highlights the need for the UK to continually assess and refine its tax policies to remain competitive on the global stage.

Conclusion

In summary, the UK tax landscape is undergoing substantial changes as we progress through 2025. These developments are influenced by both domestic priorities and international tax reforms. Staying informed of these changes is crucial for both individuals and businesses seeking to remain compliant and make the most of available tax incentives.

At Cutts and Co Accountancy, we are committed to guiding our clients through this evolving environment. Whether you are navigating the new Pillar Two rules, adapting to the updated R and D tax regime, or responding to changes in CGT, our expertise is here to support you.

Make sure you stay ahead of the curve. Speak with our team today to understand how these changes may affect your situation and how we can help you manage your tax strategy effectively.