Business Summary & What You Need to Know
It was more a case of what didn’t change in this year’s budget as far as businesses are concerned. Many firms were looking for some respite from the Chancellor on Wednesday to ease the pressure on rising costs. In the end, there was little Christmas cheer offered by Rachel Reeves.
GDP is expected to grow by 1.5% in 2025, higher than the OBR’s 1% forecast from earlier this year. In subsequent years, the estimations are as follows:
- In 2026, the economy is forecast to grow by 1.4%, below the previous forecast of 1.9%.
- In 2027, GDP is forecast to expand by 1.6%, falling short of March’s estimate of 1.8%.
- In 2028, GDP is estimated to rise by 1.5%. In March of this year, the OBR said this figure would be 1.7%.
- In 2029, the economy will expand by 1.5%, again falling short of the previous estimate of 1.8%.
Due to weaker underlying productivity growth, the OBR estimates that tax receipts will be £16 billion lower in 2029/30 than initially forecast in March 2025.
Average inflation is expected to fall over the next three years:
- In 2025: 3.5%, an increase of 0.2% from the OBR’s original forecast.
- In 2026: 2.5%, up from the OBR’s 2.1% forecast from March.
- In 2027: 2%.
National debt will stand at £2.6 trillion this year. £1 in every £10 the government spends is on debt interest.
Here are some of the specific policy changes affecting businesses:
- Increases to both the National Living Wage (NLW) and National Minimum Wage (NMW)
From 1 April 2026, the NLW paid to workers aged 21 and over will rise by 4.1%, from £12.21 to £12.71 an hour, increasing annual income by approximately £900 a year for full-time employees. For those aged 18 to 20, the NMW will rise by 8.5% from £10 to £10.85 an hour, equivalent to around £1,500 a year if working full-time. For 16 and 17-year-olds, and those on apprenticeships, the NMW will rise by 6%, going from £7.55 to £8 an hour.
IMPACT: Business owners facing an increase to costs (25% hike in wages for some employees over a period of just 12 months : April 2025 – 2026).
2. Fully Funded Apprenticeships for Under-25s
This will make them effectively free for small and medium-sized businesses (SMEs) from April 2026.
IMPACT: Business owners who do not pay the apprenticeship levy will no longer have to fund 5% of the training cost for apprentices aged over 22.
3. Lower Business Rates
The government said it would calculate business rates for 750,000 High Street retail and hospitality firms using a lower percentage of the rateable value of premises, but this lower tax rate was not as generous as expected. At the same time, many firms have seen their rateable value increase and face the phasing out of a Covid-era 40% discount from April. The net result is that, despite some transitional relief, lots of them will see significant increases in their business rates bill.
Transitional relief, external caps the increase in rates for each year. For properties outside London with a rateable value of £20,000 to £100,000, the limit is 15% in 2026-27, 25% in 2027-28, 40% in 2028-29 (plus inflation).
UK Hospitality estimates that an average pub would pay £12,900 more over those three years, while an average hotel would pay £205,200 more. (Source BBC News article)
You can view your premises rateable value here: Find a business rates valuation – GOV.UK
4. A spousal exemption for agricultural and business asset IHT relief
Unused combined business and agricultural asset IHT relief will become transferable between spouses and civil partners.
IMPACT: A simplification which means less administration and worry on first death. Planning still required for trading businesses valued at over £2m where shares are owned by a married/civil partnership couple.
EFFECTIVE DATE: April 2026
5. Reduced Capital Gains Tax (CGT) relief for Employee Ownership Trusts (EOTs)
When a business is sold to an EOT, CGT relief will fall from 100% to 50% starting from November 2025. This will raise £0.9 billion from 2027/28 onwards.
IMPACT: More tax for business owners to pay if selling to an EOT.
EFFECTIVE DATE: April 2027
6. No VAT, Income Tax, or NIC Increases
IMPACT: Income tax and NIC thresholds will remain unchanged until April 2031. This creates “fiscal drag” — keeping thresholds frozen while wages rise. This is generally considered a stealth tax.
EFFECTIVE DATE: Immediate
7. Higher Dividend Taxes
IMPACT: Dividend tax increases by 2 percentage points:
- Basic rate: 8.75 → 10.75%
- Higher rate: 33.75 → 35.75%
- Additional remains at 39.35%
You’ll no doubt want to ask your accountant about the “director’s salary-to-dividend” ratio and if this increase requires any change to your remuneration structure.
EFFECTIVE DATE: April 2026
8. Higher Taxes on Rental Income
IMPACT: Finance-cost relief for landlords capped at the basic 22% rate. Landlords will be staring down the barrel of higher taxes which usually means higher rent for tenants.
At the same time, those businesses who personally own their premises and receive rent from their limited company will see their income tax rates rise.
New property-specific income rises 2 percentage points across all bands
- Basic rate: 20 → 22%
- Higher rate: 40 → 42%
- Additional remains: 45 → 47%
EFFECTIVE DATE: April 2027
9. Mileage-Based Charge for Electric Vehicles
IMPACT: New Mileage-Based Charge for Electric Vehicles. A per-mile charge of 3 pence/mile (BEVs) and 1.5 pence/mile (PHEVs).
EFFECTIVE DATE: April 2028
10. Pension Salary Sacrifice NIC Cap
IMPACT: Only the first £2,000 of employee pension contributions via salary sacrifice will be NIC-exempt. Excess contributions will attract both employee and employer NICs.
EFFECTIVE DATE: April 2029
11. Capital Gains Tax Changes
Very little announced here:
- Business Asset Disposal Relief (BADR) Changes (“Entrepreneurs relief”). BADR rate increased from 14% to 18% starting April 2026. This was already previously announced
- Threshold Freeze. Freeze on CGT annual exempt allowance at £3,000 for 2025–26.
IMPACT: Higher taxes for business owners when selling.
Produced by Tom Hatley – Christopher Little & Co Financial Advisers