UK Finance Bill 2026-27 — Pillar Two Side-by-Side Enters UK Law

What the UK Published on 13 July 2026

13 July 2026 was the UK's "Legislation Day" (or "L-day") — the annual point in the tax cycle when HM Treasury and HMRC release draft clauses for the next Finance Bill for technical consultation ahead of the Autumn Budget. Among the measures published in the draft Finance Bill 2026-27 collection on GOV.UK is the headline international-tax item: legislation implementing the OECD's January 2026 Pillar Two Side-by-Side package into the UK's global minimum tax rules.

This matters because the UK was one of the first major economies to legislate Pillar Two — its Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) have applied to accounting periods beginning on or after 31 December 2023 under Finance (No. 2) Act 2023. The 13 July draft brings that framework into line with the latest OECD administrative guidance, adding a set of new safe harbours that will materially reduce the compliance and top-up-tax burden for many in-scope groups. The technical consultation on the draft closes on 7 September 2026, with final legislation expected in Finance Bill 2026-27 after the Autumn Budget.

The Side-by-Side Package the UK Is Adopting

The Side-by-Side package originates from a political agreement reached between the G7 and the United States on 28 June 2025, and was turned into detailed technical guidance by the OECD/G20 Inclusive Framework in January 2026. The core idea is that the US minimum-tax regime (the GILTI/NCTI rules) and the OECD's GloBE rules will operate "side by side" rather than on top of each other — removing the threat that US-parented groups would face additional top-up tax (via the Income Inclusion Rule and Undertaxed Profits Rule) in other countries on income already taxed in the US.

The OECD's 88-page Side-by-Side package does three things: it introduces the Side-by-Side safe harbour that carves US-parented groups out of the IIR and UTPR; it adds further permanent and transitional simplifications for all groups; and it extends the transitional Country-by-Country Reporting (CbCR) safe harbour by a year. The UK's 13 July draft is the mechanism by which these OECD-level agreements become enforceable UK statute. Without domestic legislation, the safe harbours would have no legal effect for groups filing under UK MTT/DTT.

The Four Safe Harbours Entering UK Law

The draft legislation introduces or extends five safe-harbour mechanisms. A safe harbour, in Pillar Two terms, lets a group treat a jurisdiction as meeting the 15% minimum — so no detailed GloBE calculation and no top-up tax is required for that jurisdiction — provided defined tests are met. The table below summarises what the 13 July draft delivers, based on the OECD package it implements.

Two-Track Effective Dates

One of the most important practical points in the 13 July draft is that it does not switch everything on at once. The measures split into two tracks with different commencement dates — a distinction in-scope groups must get right when they plan their fiscal-year elections.

In other words, the Side-by-Side safe harbour and related elements can apply to accounting periods beginning on or after 1 January 2026, while a further tranche of amendments to the MTT and DTT rules takes effect for accounting periods beginning on or after 31 December 2026. Groups with calendar-year accounting periods therefore need to consider Side-by-Side elections for their FY2026 return even though the legislation itself will not be finalised until after the Autumn 2026 Budget — an example of Pillar Two's characteristic retrospective-feeling commencement.

Who Is Affected

The UK MTT and DTT — and therefore these amendments — apply to multinational and large domestic groups with consolidated annual revenue of €750 million or more in at least two of the previous four accounting periods, mirroring the OECD GloBE threshold and the CbCR threshold. That captures the largest UK-headquartered groups and, through the DTT, the UK operations of foreign-headquartered groups. Registration with HMRC is required within six months of the end of a group's first in-scope accounting period.

Practically, three populations should read the 13 July draft closely:

• UK-parented multinational groups: these groups compute UK MTT (the IIR) on low-taxed foreign subsidiaries. The new safe harbours can remove entire jurisdictions from the top-up calculation, and the extended CbCR safe harbour keeps first-phase simplification available for another year.
• UK subsidiaries of foreign groups: these entities are exposed to UK DTT (the QDMTT), which collects any UK top-up before another country's IIR can. Even where a group's parent is elsewhere, UK constituent entities must factor the UK amendments into their DTT position.
• US-headquartered groups with UK operations: the Side-by-Side safe harbour is squarely aimed at them — see the next section.

What It Means for US-Parented Groups

The Side-by-Side safe harbour is the centrepiece for US-headquartered multinationals. Under the OECD package the UK is implementing, MNE groups whose Ultimate Parent Entity sits in a qualifying jurisdiction can elect the Side-by-Side safe harbour for fiscal years beginning on or after 1 January 2026, which excludes the group from the IIR and UTPR. The policy rationale — set out in the OECD guidance and analysed by advisers such as Mayer Brown and RSM — is that the US minimum-tax regime (rebranded from GILTI to Net CFC Tested Income under the 2025 One Big Beautiful Bill Act) already imposes a sufficiently robust minimum level of tax on US groups' foreign earnings.

For a US group with UK constituent entities, the UK's implementation removes a key source of double top-up risk: without it, the UK could in principle apply UTPR top-up tax to the UK entities of a US group. With the safe harbour written into UK law, that exposure falls away for groups that qualify and elect — although UK DTT can still apply to genuinely low-taxed UK profits, since a QDMTT is preserved under the Side-by-Side design. For the broader US-angle mechanics of the package and how it interacts with GILTI/NCTI and BEAT, see our companion guide on the Pillar Two Side-by-Side Package 2026.

What In-Scope Groups Should Do Now

The 13 July draft is not yet final law, but the effective dates mean groups cannot wait for Royal Assent to act. The following steps reflect the sequence advisers are recommending in response to L-day.

1. Confirm scope and registration status: re-run the €750 million test across the relevant four-year window and confirm the group is registered for UK MTT/DTT within the six-month window after its first in-scope period.
2. Map jurisdictions against the new safe harbours: for each jurisdiction, assess whether the permanent Simplified ETR, Transitional CbCR, or substance-based-incentive safe harbour could remove it from full GloBE calculation.
3. Test Side-by-Side eligibility: if the UPE is in the US (or another qualifying jurisdiction), model the effect of electing the Side-by-Side safe harbour for FY2026 and confirm the election mechanics.
4. Reassess FY2026 provisions: revisit current-year Pillar Two provisions in the group's accounts to reflect the safe harbours that will apply from accounting periods beginning on or after 1 January 2026.
5. Check the CbCR safe-harbour extension: confirm which jurisdictions can now rely on the Transitional CbCR Safe Harbour for the extra year (fiscal years beginning on or before 31 December 2027).
6. Engage with the consultation: if the draft clauses create drafting ambiguity for the group's structure, respond before the 7 September 2026 close — this is the window to influence the final text.
7. Document positions defensively: because the group is applying draft law to live accounting periods, keep contemporaneous records of the basis for each safe-harbour position for later review against the final Finance Act.

Consultation Timeline & Next Steps

The 13 July publication starts an 8-week technical consultation that closes on 7 September 2026. The government has said the Pillar Two Side-by-Side measures will apply for accounting periods beginning on or after 1 January 2026, with the further MTT/DTT amendments applying for accounting periods beginning on or after 31 December 2026. The finalised clauses are expected to be introduced in Finance Bill 2026-27 following the Autumn 2026 Budget, progressing to Royal Assent as the Finance Act in 2027.

The UK's move follows a wider pattern: the Netherlands ran a consultation on its own Side-by-Side implementation bill that closed on 14 July 2026, and other Inclusive Framework members are legislating on similar timelines. For groups operating across multiple jurisdictions, the key is that the substance of the safe harbours is common (it comes from the OECD package), but each country's commencement date and election mechanics differ — so a single global position still needs local confirmation.

Frequently Asked Questions

Does the UK Finance Bill 2026-27 change the 15% minimum tax rate?

No. The 15% global minimum effective tax rate and the €750 million revenue threshold are unchanged. The draft legislation implements the Side-by-Side package's safe harbours and simplifications; it does not alter the headline rate or scope of the UK's Multinational Top-up Tax or Domestic Top-up Tax.

Is this draft legislation already law?

Not yet. The clauses published on 13 July 2026 are draft legislation released for an 8-week technical consultation that closes on 7 September 2026. They are expected to be finalised in Finance Bill 2026-27 after the Autumn 2026 Budget and to receive Royal Assent as the Finance Act in 2027. However, the measures are designed to apply to accounting periods that have already begun (from 1 January 2026 for the Side-by-Side package), so affected groups must plan on the basis of the draft.

Which safe harbours does the draft introduce?

It introduces the Side-by-Side safe harbour, an Ultimate Parent Entity safe harbour, a permanent Simplified Effective Tax Rate safe harbour and a Substance-Based Tax Incentive safe harbour, and it extends the existing Transitional CbCR Safe Harbour by one year to fiscal years beginning on or before 31 December 2027.

Do US-headquartered groups still owe UK top-up tax?

Under the Side-by-Side safe harbour, a qualifying US-parented group can elect out of the UK's IIR and UTPR (the Multinational Top-up Tax) for fiscal years beginning on or after 1 January 2026, because the US minimum-tax regime is treated as sufficiently robust. The UK Domestic Top-up Tax (a QDMTT) can still apply to genuinely low-taxed UK profits, so UK operations are not automatically exempt from all top-up tax.

What is the deadline to respond to the consultation?

The technical consultation on the draft Finance Bill 2026-27 legislation closes on 7 September 2026. Groups whose structures create drafting uncertainty should submit comments before that date, as it is the main opportunity to shape the final statutory wording.

For a foundational explanation of how the 15% global minimum tax works, see our BEPS Pillar Two explained guide, and for the US-angle mechanics of the package the UK is implementing, see the Pillar Two Side-by-Side Package 2026 guide.