Chancellor Rachel Reeves has delivered her much anticipated 2025 Budget. Here are the measures of key interest to small and medium sized business owners.
In its economic and fiscal outlook, which is meant be published after the Budget speech but was mistakingly put online early and before Rachel Reeves spoke in Parliament, the Office of Budget Responsibility (OBR) said the government’s tax increases in Budget 2025 will raise £26 billion in 2029-30.
GDP forecasts
The UK’s growth forecasts have been revised down:
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2025: 1.5%, up from 1% in March’s Spring Statement
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2026: 1.4%, down from 1.9%
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2027: 1.5%, down from 1.8%
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2028: 1.5%, down from 1.7%
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2029: 1.5%, down from 1.8%
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2030: 1.5%, a new forecast
Income tax and National Insurance thresholds
The income tax personal allowance, the higher-rate threshold and additional-rate
thresholds are frozen at £12,570, £50,270 and £125,140, respectively, until 2030-31.
National Insurance thresholds will also be frozen.
Dividend, savings and property tax
The government said it is raising taxes on property, dividend and savings income because “income from those sources face no equivalent of National Insurance that employees pay”.
There will be 2 percentage points increase to the basic and higher rates of tax on dividends, from 8.75% to 10.75% and 33.75% to 35.75% respectively from April 2026. There is no change to the dividend additional rate.
Separate tax rates will be created for property income. From April 2027, the property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%.
The tax rate on savings income will increase by 2 percentage points across all bands from April 2027.
Salary-sacrifice pensions
Salary-sacrifice pension contributions above £2,000 will be taxed.
Tax support for entrepreneurs
The government has launched a consultation on how to make support more “founder-friendly.”
The consultation says it is seeking “views on the effectiveness of existing tax incentives, and the wider tax system, for business founders and scaling firms, and how the UK can better support these companies to start, scale and stay in the UK”.
Penalties for late tax filing
The penalty for taxpayers submitting a Corporation Tax return late wil double from 1 April 2026.
Late submission penalties will not apply for quarterly updates during the 2026-27 tax year for Income Tax Self Assessment (ITSA) taxpayers required to join Making Tax Digital (MTD). The government will apply the new penalty system for late submission and late payment to all ITSA taxpayers not already due to join the new system from 6 April 2027.
Penalties due for late payment of ITSA and VAT will increase from 1 April 2027.
Funding for small businesses
The Budget references the British Business Bank’s (BBB) new five-year strategic plan which was launched earlier this week. It said it is “a step‑change in how it will support small businesses, including scaling companies, using its increased permanent financial capacity of £25.6 billion”. The BBB will invest at least £5 billion in growth-stage funds and scale-up companies.
Fuel duty
Fuel duty will be frozen at the current rate until September 2026, after which the 5p cut first introduced in 2022 will be “reversed through a staggered approach”. From April 2027, the fuel duty rates will be uprated annually by RPI.
Business rates
Permanent lower tax rates for more than 750,000 retail, hospitality and leisure (RHL) properties, paid for by higher business rates on properties worth more than £500,000.
The RHL multipliers will be 5p below their national equivalents, making the small business RHL multiplier 38.2p and the standard RHL multiplier 43p in 2026-27. The government said small and standard RHL properties will pay the lowest tax rate since 1990-91 and 2010-11 respectively.
From 1 April 2026, business rates bills in England will be updated to reflect changes in property values since the last revaluation in 2023. The government said half of ratepayers will see no bill increases. For those experiencing bill increases there will be a support package worth £4.3 billion:
- A £3.2 billion Transitional Relief scheme providing support to the largest ratepayers, including airports and hospitality.
- A “Supporting Small Business” scheme to help the smallest businesses worth over £500 million.
- Expanding the Supporting Small Business scheme to businesses who were eligible for RHL relief which the government says “protects independent pubs and shops as they transition to permanently lower tax rates”.
On the future of business rates, the government said:
“The government is also taking the next steps to reform business rates, building on the interim report published in September. The government is supporting businesses to expand and grow by providing an additional two years of Small Business Rates Relief for businesses expanding into a second property, and continuing work to transform business rates by publishing a call for evidence exploring how to tackle barriers to investment.
“The call for evidence also explores concerns a small number of ratepayers have raised around the ‘Receipts & Expenditure’ valuation methodology and its impacts on long-term, high value investments.”
Reduced capital allowances writing-down allowances
from 1 January 2026, the government will introduce a new 40% first year allowance for main rate expenditure, including most expenditure on assets for leasing and expenditure by unincorporated businesses. From 1 April 2026 for corporation tax and 6 April for income tax, main rate writing-down allowances will reduce from 18% to 14%.
Ending £135 customs duty exemption
From March 2029 at the latest, the customs duty relief on low value items below £135 will be removed. A consultation has been launched.
Expansion of investor tax reliefs
The government will increase the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) company investment limit to £10 million, and £20 million for Knowledge Intensive Companies (KICs), as well as increasibg the lifetime company investment limit to £24 million, and £40 million for KICs.
The VCT income tax relief will decrease to 20%.
Expansion of Enterprise Management Incentives scheme
The company eligibility limits for the Enterprise Management Incentives scheme (EMI) will be increased.
Tax compliance
Various measures are being introduced to tackle non-compliance with tax.
It includes £25 million over the next five years to recruit additional Insolvency Service staff to disqualify more rogue directors. The Company Directors Disqualification Act 1986 will be amended to extend the circumstances in which directors who break the law can be disqualified.
For non-compliance on the high street such as by illegal mini-marts, barbershops, vape shops, nail bars and car washes, a new dedicated small business evasion and enforcement team will be set up with 350 HMRC criminal investigators deployed to carry out “more targeted criminal interventions tackling the most serious fraud and evasion by small businesses”.
The OBR report says: “Many of the compliance measures announced are designed to target non-compliance from small businesses. HMRC estimates that the compliance package will target around one-third of the small business tax gap.”
The latest HMRC figures show that the amount of 60% of tax gap is attributed to small businesses.
Regional business support
Greater Manchester, West Midlands, West Yorkshire, South Yorkshire, Liverpool City Region, the North East, and the Greater London Mayoral Strategic Authorities will be given £13billion in funding to invest in skills, business support and infrastructure.
Apprenticeships
The government will provide £725 million for the Growth and Skills Levy to help support apprenticeships for young people.
The cost of training for apprentices aged under 25 to be made free for small businesses.
Artificial intelligence (AI)
The government said AI champions will drive adoption of AI across the government’s industrial strategy eight priority sectors (IS-8).
Shaheen Sayed, chief commercial officer of reinvention services, Accenture has been named as the champion for Professional Business Services, and Chris Dungey, chief technology officer high value manufacturing, Catapult will be working with the advanced manufacturing sector. Previously announced was Lucy Yu, CEO and founder of the Centre for Net Zero, as AI champion for clean energy.
The government is also expanding the BridgeAI adoption programme into all high-growth modern industrial strategy sectors. BridgeAI offers funding and support opportunities, such as connections with experts to assess and implement AI solutions within high-growth businesses.
Soft drinks industry levy (SDIL)
The government will reduce the threshold at which the SDIL applies from 5g to 4.5g sugar per 100ml and remove the exemptions for milk-based and milk substitute drinks with added sugar. These reforms will be implemented on 1 January 2028, following consultation on the legislation. Open cup beverages, such as those bought in cafes, will remain unaffected. The government has published a summary of responses to its consultation on these reforms.
Cooperatives
The Department for Business and Trade has launched a consultation on how to better support cooperatives.
UK Internal Market
A new £16.6 million UK Internal Market package will provide “one stop shop” support service to help businesses in Northern Ireland navigate the Windsor Framework.
Living Wage and Minimum Wage
As previously announced, the UK’s Living Wage will increase to £12.71 per hour, the Minimum Wage for 18-20-year-olds and the rate for 16–17-year-olds and those on apprenticeships will increase to £8 per hour, a 6% rise.
Tourist tax
As previously announced, mayors in England will be given new powers to introduce a tourist tax on overnight stays in their area.
Retail, leisure and hospitality licensing
The government has launched the first National Licensing Policy Framework to “rebalance the licensing regime and support a modern licensing system”. It has also updated guidance to “ensure relevant authorities consider the need to promote economic growth in their licensing decisions”. The Budget said: “If these changes do not sufficiently improve licensing outcomes, the government will consider making statutory changes.”
The government will appoint a new retail and hospitality envoy to help deliver the changes.
Employee Ownership Trusts
Capital Gains Tax relief available on qualifying disposals to Employee Ownership Trusts will be reduced from 100% of the gain to 50%.
Public procurement
Each government department will appoint a senior procurement innovation champion, responsible for defining and delivering its innovation priorities through procurement.
The government will aso launch an innovation marketplace to “accelerate access for strategically important innovative firms” and establish a “task-and-finish group” to remove internal barriers to innovative procurement.
UK Listing Relief
To encourage investment in the UK, the government will introduce the new UK Listing Relief, a three-year exemption from Stamp Duty Reserve Tax for companies listing in the UK.
Non-compete clauses
The government has published a working paper on options for reform of non-compete clauses in employment contracts.
The paper says “non-compete clauses play a part in restricting employee movement, limiting knowledge spillovers, and can undermine incentives for innovation”.
Electric vehicles tax
The government will introduce a new mileage-based tax for electric vehicles and plug-in hybrid cars from 2028.
E-invoicing
The government will require all VAT invoices to be issued in a specified electronic format from April 2029.
It has also published the outcome of a consultation on business use of e-invoicing. It says:
“…to develop a regime which addresses the needs of diverse business communities, we will continue to engage extensively with stakeholders on the policy design. We will publish an implementation roadmap at Budget 2026 to give businesses and their advisors clarity and certainty of what to expect”.
VAT for private hire vehicle operators
From 2 January 2026, all private hire vehicle operators (PHVOs) such as taxis will be required to pay VAT.
The government said the move is intended to stop the PHVOs who “exploit an administrative scheme intended for tour operators to lower their effective VAT rate”.