Chancellor announces Iran war temporary tax supports

In a speech to the House of Commons last week, the Chancellor of the Exchequer Rachel Reeves announced the UK Government’s long awaited economic response to the war in Iran which includes a range of temporary supports to help families and businesses with the cost of living.

The speech included the announcement of the following tax measures:

• a UK wide scheme will run from 25 June 2026 to 1 September 2026 which will include targeted cuts to agri-food tariffs and a temporary cut in the rate of VAT on summer attractions from 20 percent to 5 percent over the summer holidays,
• the 5p fuel duty cut is being extended until 31 December 2026. Therefore the planned increases announced in last Autumn’s budget that were scheduled to take place on 1 September and 1 December 2026 will no longer go ahead. The main rate of fuel duty will remain at 52.95p per litre,
• the duty rate on red diesel will be cut from 10.18p per litre to 6.48p per litre from 15 June until 31 December 2026,
• over the next 12 months, when hauliers renew their Heavy Goods Vehicle vehicle excise duty, they will pay £1 only, and
• increases are being made to Approved Mileage Allowance Payments, Mileage Allowance Relief and self-employed mileage. These are being backdated to 6 April 2026.

The Government also published a policy paper last week making changes to the taxation of UK tax resident companies who conduct part of their business through foreign permanent establishments (PE).

For most companies, it will be mandatory for profits and losses attributable to a foreign PE to be exempt from UK tax for accounting periods beginning on or after 1 January 2027. For those companies conducting oil and gas extraction and exploration through foreign PEs, this measure will apply from 1 September 2026.

The changes essentially will make the existing foreign branch exemption election mandatory and whilst this will be of benefit to, for example, companies with profitable Irish PEs, those with Irish loss-making PEs who have not elected will lose the additional corporation tax benefit provided by these losses against their UK profits.