Rachel Reeves’ Budget on Wednesday 26th November included several announcements that will potentially affect the taxation of some companies in the project finance sector, subject to the final legislation receiving Royal Assent.
Main Pool Rate Reduction
From 1 April 2026, the main pool rate writing-down allowances will reduce from 18% to 14%.
In addition, a new 40% First Year Allowance (FYA) for main rate expenditure – including most expenditure on assets used for leasing and expenditure by unincorporated businesses – will be introduced from 1 January 2026. This FYA is likely to be particularly beneficial for any expenditure that does not qualify for the 100% immediate expensing (as immediate expensing only applies to new plant & machinery).
Oil and Gas Price Mechanism (OGPM)/Energy (Oil and Gas) Profits Levy (EPL)
It was confirmed that the temporary EPL will be replaced by the permanent OGPM when the EPL ends on 31 March 2030 or earlier if the EPL price floor is triggered. The OGPM rate will be 35% (EPL rate is currently 38%) with thresholds of USD 90 per barrel for oil and 90p per therm for gas.
Potential Changes to Transfer Pricing Legislation
Legislation will be included in Finance Bill 2025-26 to simplify taxation of related party transactions, non-resident companies trading in the UK, and profits diverted from the UK, for chargeable periods beginning on or after 1 January 2026.
The proposed changes represent some of the most significant changes to UK transfer pricing legislation in about 20 years. The measures aim to:-
- bring certain transactions that may currently fall outside the scope of transfer pricing legislation into scope where the substance of the transactions warrants it (via the Participation Condition);
- simplify the rules governing the taxation of intangibles transactions between related parties;
- clarify that the rules should be interpreted in accordance with OECD principles;
- better align UK rules in relation to guarantees – for example, guarantees that lower the rate of interest for a borrower might be considered arm’s length, provided that they do not go beyond implicit support. Where a guarantee results in an increase in the amount borrowed, this is likely to be considered non-arm’s length;
- extend the rules to apply to medium sized companies; and
- change the transfer pricing regulations relating to UK-UK transactions. Specifically, where it can be shown that there is no loss of tax from a transaction between two parties located in the UK (most probably because they pay corporation tax at the same rate), these transactions could be outside the scope of transfer pricing legislation.
This final change may be particularly relevant to certain project finance transactions as they could involve shareholder/subordinated debt between UK resident parties or transactions between these parties.
Landfill tax rates
The standard rate of Landfill Tax will increase by RPI and the lower rate by the cash amount of the increase in the standard rate, maintaining the differential between the two rates in cash terms. As a result, from 1 April 2026 the standard Landfill Tax rate will be increased from £126.15 per tonne to £130.75 per tonne and the lower rate will increase from £4.05 per tonne to £8.65 per tonne.
Climate Change Levy (CCL)
The main rates of CCL for gas, electricity and solid fuels will be uprated in line with RPI from 1 April 2027. The main rate for liquefied petroleum gas will continue to be frozen. The reduced rates will remain at an unchanged fixed percentage of the main rates. From 1 April 2026, the CCL rate for electricity and gas will be £0.00801 per kilowatt hour (kWh).
Business Rates
From 1 April 2026, the small business multiplier will decrease from 49.9p in 2025-26 to 43.2p in 2026-27, and the standard multiplier will decrease from 55.5p to 48p.
VAT treatment of land intended for Social Housing
There will be a consultation on reform of VAT rules to incentivise the development of land intended for social housing.
Funding of Infrastructure Schemes
The Chancellor confirmed that a further £891 million will be committed to complete the publicly funded works for the Lower Thames Crossing, after which the private sector will take forward construction and long-term operation. The North Sea Future Plan has also been published, which sets out support for ongoing investment opportunities in oil and gas.
Operis has provided tax and accounting services to businesses involved in transactions within these sectors. If you have any questions regarding the above or would like to speak to someone at Operis about how the measures announced in the Budget may affect you, please get in touch.
