‘Breaking The Cycle of Austerity, At a Cost’
If the 2024 Autumn Budget was one of the most eagerly and anxiously anticipated in decades, the follow-up in 2025 was arguably one of the most feared. Chancellor Rachel Reeves opened her speech in an apologetic tone, which only raised concerns further. In reality it served as more of a continuation of what went before rather than a drastic change, and whilst the Labour government has brought in some new schemes to tax the wealthiest, it is still the working population and small businesses that will bear the brunt of the changes, most notably through the increased minimum wage and the frozen thresholds for personal tax.
Significant investment into the NHS, Education, Transport, Defence and Energy is all positive news, however the Chancellor did not shy away from the fact that everyone would have to contribute to this. There were no increases in corporation tax rates or the VAT threshold however, which was a welcome relief.
As usual, we have taken time to analyse the budget and highlight what we believe are the most important points for our clients. There are many things that small business owners will need to consider following the changes, and as always, we will be there to assist. This is just a brief overview of a much larger budget; full details are available online at gov.uk.
Key Changes
- National Minimum Wage: From April 2025, the minimum wage will rise by 50p per hour to £12.71 for workers aged 21 and over, a 4.1% increase. For 18-20 year olds this is now £10.85 per hour (8.5%), and £8 per hour for 16-17 year olds (6%). This will put more pressure on employers, particularly those in the retail and hospitality sectors.
- Tax on Investment Income (including Dividends): One of the biggest new changes is a 2% increase in tax on dividends, savings and property income. The changes will come into effect from April 2026 for dividends and April 2027 for savings and property income (Please note that the additional rate is unchanged for dividend income – see table below for more detail). This feels particularly harsh on owner-managed businesses and income plans will need to be reviewed accordingly. The tax-free limit on cash ISAs has also been reduced from £20k to £12k. There is still tax-free relief available for the £8k differential, however this must now be invested in stocks and shares instead. This is to incentivise more investment in stock markets.
| Savings & Property Income | Existing Rate | New Rate |
| Basic rate | 20% | 22% |
| Higher Rate | 40% | 42% |
| Additional Rate | 45% | 47% |
| Dividend Income | Existing Rate | New Rate |
| Basic rate | 8.75% | 10.75% |
| Higher Rate | 33.75% | 35.75% |
| Additional Rate | 39.35% | 39.35% |
* This overview is for information purposes only and does not serve as professional advice. If you have questions about anything in this document, please contact our team who will be happy to assist.
- Salary Sacrifice Pensions: From April 2029, any salary-sacrificed pension contributions over £2k will be subject to national insurance. This was uncapped previously. This will also be an important change to consider when planning future income.
- Freeze on Tax Thresholds: The freeze on income tax thresholds has been extended by 3 years to 2031. This stealth tax on workers is a particular favourite of recent governments as it allows them to bring in substantial amounts of tax revenue without increasing tax rates. This is expected to be the biggest source of new tax revenue in the budget.
- Electric Vehicles (EVs): The government has now confirmed the rumoured new mileage tax, starting from April 2028. This will be an annual charge of 3p per mile for fully electric vehicles and 1.5p for plug-in hybrids. We still consider EVs to be the best option for company cars, as the savings are still compelling in comparison to expensive petrol/diesel cars, however this is an additional cost to consider.
- ‘Mansion Tax’: A new council tax charge has been announced for homes worth more than £2m, starting from April 2028. This will be charged on a sliding scale between £2.5k for a £2m valued home up to £7.5k for a home worth £5m or above.
- Capital Allowances: Two new changes were announced, one positive – the introduction of a new 40% First Year Allowance (FYA) and one negative – the reduction of ‘main rate’ Writing Down Allowances (WDAs) from 18% to 14%. Due to existing policies such as Annual Investment Allowances and Full-Expensing Relief being superior, the 40% FYA will mostly benefit non incorporated businesses or leasing companies with annual asset purchases above £1m.
Silver Linings
- Corporation Tax: There are no major changes to Corporation Tax rates, which remain on a sliding scale between 25% and 19%. This is a small relief for business owners.
- VAT Threshold: No changes to the VAT registration threshold, which will remain at £90,000. This is a relief for business owners that operate close to the limit.
- Inheritance Tax: A welcome change to IHT rules will allow the transfer of the 100% Business Property Relief and Agricultural Property Relief allowance between spouses, starting April 2026.
- Energy Bills: The government has reduced levies which they say will reduce the average energy bill by £150, from April 2026.
- Student Loans: The student-loan repayment threshold will be frozen for 3 years.
- Rail Fares: Rail fares will be frozen for the first time in 30 years, great news for employers and employees alike in major commuter areas.
* This overview is for information purposes only and does not serve as professional advice. If you have questions about anything in this document, please contact our team who will be happy to assist.
- Fuel Duty: The tax on petrol and diesel will remain frozen, with a temporary 5p cut extended to September 2026, benefiting motorists and transport companies.
- Child Benefit: The two-child cap will be removed from April 2026. This is great news for those with larger families that are eligible for the relief, although will require significant government revenue to fund.
Other Notable Changes
- Capital Gains Tax: The 100% relief on business sales to employee ownership trusts will be reduced from 100% to 50%.
- Full Expensing Relief will continue, serving as an incentive for businesses to invest in new technology and equipment.
- Making Tax Digital: The rollout will continue for businesses with varying income levels over the next four years, with all businesses with a turnover of over £20,000 set to go to digital by 2028.
- HM Revenue and Customs will receive even more resources to tackle non-compliance, and there are plans to improve customer support. We can vouch that the latter certainly needs investment! The added compliance burden further places value on ‘enquiry protection’ insurance policies and the importance of proper record keeping.
- Finally, there will be significant increases on taxes in the gambling industry, mostly centred on Remote Gaming Duty. Tax on Bingo will be abolished however, and the changes will not affect Horse Racing, good news for those that love a ‘team building’ outing!
* This overview is for information purposes only and does not serve as professional advice. If you have questions about anything in this document, please contact our team who will be happy to assist.
