With Budget 2025 now announced, after having been leaked two hours prior to the speech by the government, there’s a lot to digest. There are some obvious headlines and quite a few “stingers” hidden in the small print that were not included in the Chancellor’s speech. We will try to emphasize the key points for company directors at the outset before diving into more niche changes. Without doubt the hardest hit will be anyone relying on property income, as they’ve been specifically targeted by two measures in this budget, an extra 2% rise and the application of NIC to all rental income.
Unfortunately, it appears the measures heavily target small business owners, taxing their remuneration methods via Dividends and taxing their ability to make pension contributions. Apparently the government do not regard small business owners as “working people”, no matter how small the business.
2% Increase on income from Dividends, Property and Savings
A steep increase on taxes for anyone who is paid via dividends as well as landlords with the rate on dividends rising from 8.75% to 10.75% and property/savings from 20% to 22%. As many of our clients will be aware it’s already far less rewarding to be a company owner paid via dividends due to changes to the Corporation Tax regime, this now makes any tax advantages of being a shareholder mostly redundant.
For example, a director/shareholder on £12,570 salary and £37,500 Dividends will see an effective tax increase of £740 per year.
The only solution here is, if you are paid via dividends, to look at moving yourself over to a model where you are paid via salary instead, which will expose your business to Employer’s NIC obligations. Bad news for all small business owners
National Insurance Contributions applied to Property Income
All individuals with rental income will now be subject not only to a 2% increase on their income tax, but with NIC applied to all of this income from April onwards, they will pay an extra 8% up to £50,270 and 2% thereafter.
If you had £50,000 of rental income, you should expect your tax bill to increase by an additional £3,743 per year.
This change disproportionately effects younger landlords under pension age, as those above pension age are exempt from NIC.
£2,000 annual cap on salary sacrifice pension contributions
This announcement is short on detail and currently doesn’t come into effect until April 2029 – however it appears the government will seek to levy Employer’s National Insurance at 15% on all salary sacrifice pension contributions. It is likely that this will affect all clients with a SSAS or SSIP pension who are seeking to save for retirement.
Before we can work out the wider implications of this, we’ll need to await an announcement from the government defining what they regard as salary sacrifice – employer contributions are not necessarily salary sacrifice, but there’s likely to be a rule defining how much employers can contribute to a pension scheme before it’s deemed to be salary sacrifice.
The biggest likely losers here are PAYE employees, particularly those who earn between £100,000 – £125,000 per year. Within this threshold, it was very common to take some income via employer contributions as otherwise these taxpayers are subject to effective tax of 60% on income within this band. However, all employees who were taking advantage of pension planning are likely to lose out to some extent here, as well as employers who offered staff enhanced pension scheme contributions.
One interesting aspect of this, is that it makes owning commercial property via a SSAS even more attractive than it was before – if your business operates out of premises owned by your pension it appears you could bypass the 15% Employer’s NIC by charging rent to your business rather than making employer contributions.
All Income tax bands frozen until 2030/31
An effective tax increase on the entire economy due to inflation, none of the UK’s tax brackets will now increase until 2030/31 at the very earliest. With inflation in mind, this means more and more people will be pushed into higher tax brackets, despite seeing a fall in their effective purchasing power.
Northern Ireland based funding
Two changes on this front, the government announced a few days before the budget additional funding for Intertrade Ireland, a body which encourages trade between Northern Ireland and The Republic of Ireland.
Secondly, the government have announced an Enhanced Investment Zone for Northern Ireland – focused on the following sectors:
- agri-tech
- life and health sciences
- advanced manufacturing, materials and engineering
- fintech / financial services
- software
- screen industries
- low carbon (including green hydrogen)
This is earmarked to lead to tax incentives and direct government subsidies for these specific industries, the nature and amount of each to be determined by the NI Executive.
Minimum Wage Increases
There are new minimum wage rates announced for all staff beginning April 2026
Living Wage for over 21s to increase from £12.21 to £12.71
Minimum Wage for 18-20 to increase from £10.00 to £10.85
Minimum Wage for under 18s to increase from £7.55 to £8.00
This is likely to put significant pressure on the hospitality sector in particular.
Apprenticeship Funding for SMEs plus Jobstart Scheme
While further details have yet to be released, the government have announced that 18 to 21-years-olds will qualify for free apprenticeship training in SMEs. This seems to be part of a Job Guarantee Scheme, wherein people on Universal Credit can have a size-month paid work apprenticeship provided with the government covering 100% of the employment costs for 25 hours a week.
For Northern Irish based clients, there is a version of this already in place – under the Jobstart Scheme
This allows NI based employers to apply for funding to cover all costs of engaging an apprentice for 6 to 9 months.
Other Alterations
The below changes are more niche, so I have avoided elaborating on the impact here. If your business is directly affected by these, you should speak to us and we can review the impact
- There have been promises of enhanced rates relief for the hospitality sector, but no precise figure have been put on this as of yet.
- Non-reimbursed employment expenses for homeworking – The government will remove the deduction from Income Tax for non-reimbursed home working expenses. Employers can still reimburse employees for these costs where eligible without deducting Income Tax and National Insurance contributions.
- ISAs have now been altered – the overall annual limit of £20,000 per year remains the same, but cash ISAs are now restricted to £12,000 per year, with the remaining £8,000 only available for Stocks and Shares ISAs
- Under the Cryptoasset Reporting Framework (paragraph 4.155 tells us) UK reporting cryptoasset service providers will be required to report on their UK tax resident customers. Information for the first reports will be collected from 1 January 2026 and reported to HMRC in 2027.
- Inheritance Tax changes – Agricultural Property Relief and Business Property Relief can now be transferred between spouses, meaning if e.g. the spouse who operated a business dies, the surviving spouse may still be able to use these reliefs when passing the business on via their own estate.
- Electric vehicles are now subject to a mileage based road tax charge of 3p per mile
- A high-value council tax surcharge has been introduced on properties worth >£2 million, scaling up from an additional £2,500 to £7,500.
- The full expensing regime for capital purchases has been extended past April 2026.
- The rate for Written Down Allowance for capital purchases has been cut from 18% to 14%, the First Year Allowance rates have been enhanced
- Non-residents will no longer be allowed to make voluntary Class 2 NIC contributions – effectively blocking them from having the right to buy into the UK state pension.
- Customs Duty will now apply to small parcels of any value – the £135 small parcel threshold is abolished. meaning additional paperwork and tax obligations required for online retailers or any traders using these platforms.
- The tax relief available on Venture Capital Trust investments has been cut from 30% to 20%. Some thresholds have been increased for companies raising money via SEIS and EIS
Upcoming Government Plans
As always, in the small print, the government have snuck in a number of upcoming plans which, while not in place yet, have the potential to be enormously impactful on businesses
- The government aim to require all VAT registered businesses to produce full electronic invoices for business-to-business and business-to-government transactions from 2029. This means you will no longer be able to keep records in paper or excel for these transactions but will need to install an e-invoicing package like Xero, Quickbooks or other software alternatives
- “More timely payment for Self Assessment – The government will require income tax Self Assessment taxpayers with Pay As You Earn (PAYE) income to pay more of their Self Assessment liabilities in-year via PAYE from April 2029. The government will publish a consultation in early 2026 on delivering this” – unclear at this stage how this will work, but appears to be bad news for people working via a mix of PAYE and self-employment
- Increases to Corporation Tax late filing penalties – The government will double the penalty for taxpayers submitting a Corporation Tax return late from 1 April 2026. This will be legislated for in Finance Bill 2025-26.
As always, this is a general guide but we are ready to answer any specific queries about how the above changes affect your business directly.