The degree of speculation about this year’s Budget announcements was further compounded when the Office of Budgetary Responsibility uploaded their report on Budget changes prior to Rachel Reeves announcements to Parliament.

However, there are to be no changes to the main rates of Income Tax, NIC and VAT that affect wage earners across the UK, but the Budget Report highlights numerous changes to plug the gap in government finances. We have set out below the most impactful of these changes as they affect business owners and UK taxpayers.

Individuals — what changes and what to watch

Personal tax thresholds remain frozen

• The thresholds for income tax and employer National Insurance contributions will be frozen until at least April 2031 (with earlier freezes extended further by the new Budget).
• This “fiscal creep” means that as wages (or inflation) rise, more people will effectively pay higher rates of tax or move into higher tax bands even though nominal rates remain unchanged. 

Higher tax on investment, property and savings income

• Tax rates on dividends, property income and savings income are being increased by two percentage points. The dividend changes are due to take effect from April 2026 and the property and savings income a year later from April 2027. The dividend changes only apply to the basic and higher rate bands.
• Existing allowances (for example on dividends and savings) will continue to provide protection for people with low to moderate amounts of such income.

ISA reforms will see some limits reduced

• From 6 April 2027, the annual cash limit for ISA savings will be reduced to £12,000. The subscription limits for ISAs overall will remain at £20,000. Savers aged 65 and over will continue to be allowed to save up to £20,000 in a cash ISA each year. 

Two-child limit for Universal Credit (UC) to be scrapped

• The two-child limit introduced back in 2017 is to be scrapped from April of next year. The government has said that removing the two-child limit will lift 450,000 children out of poverty. There had been a concerted campaign over many years to have this cap removed.

Pension contributions via salary sacrifice will be limited

• For individuals using salary sacrifice schemes to contribute to pensions tax-efficiently, the relief will be capped so that only the first £2,000 of pension contributions per person per year remain exempt from National Insurance. Contributions above that threshold will be subject to NICs from 2029.
• This change is likely to hit higher earners and those with larger pensions contributions more heavily.

A new council-tax surcharge for high-value properties

• From April 2028, homes valued at over £2 million will attract a “High Value Council Tax Surcharge”.
• The surcharge will be banded: a property worth £2 million to £2.5 million will incur a surcharge of £2,500; properties worth more will pay higher surcharges (up to £7,500 for properties valued over £5 million).
• The surcharge will be collected locally (with council tax) but the revenue will go to central government.

New taxes on electric vehicles, online gambling and imports

• A new per-mile Electric Vehicle Excise Duty (eVED) will be introduced for battery electric cars and plug-in hybrids from April 2028. This is intended to replace some of the lost revenue from fuel duty. The rate will be 3p per-mile for fully electric vehicles and 1.5p for plug-in hybrids.
• The government is removing the customs-duty relief for low-value imports (£135 or less), a move aimed at levelling the playing field for UK retailers competing with foreign-based online sellers. This change will take effect from March 2029 at the latest.
• There will be tighter rules for VAT on ride-sharing taxi apps (preventing misuse of a scheme intended for tour operators).
• Changes to the taxation of online gambling are also on the way. This includes an increase in Remote Gaming Duty from 21 per cent to 40 per cent from 1 April 2026 and the abolishment of Bingo Duty from the same date.

Other changes with possible future effects

• Some changes to Capital Gains Tax for non-resident individuals, share exchange/reorganisation rules, and inheritance-related trust charges for former non-domicile residents were also announced.

Businesses — what changes and what to watch

Business rates relief and targeted support for certain sectors

• The government plans to make permanent lower business rates for over 750,000 retail, hospitality and leisure properties amounting to nearly £900 million per year from April 2026.
• A support package worth £4.3 billion will help businesses with rate bill increases following revaluations from April 2026.
• For film studios, 40 per cent business rates relief will be maintained for ten years, until 2034. 

Corporation tax, capital allowances and investment incentives adjusted

• Corporation Tax remains capped at 25 per cent for the duration of this Parliament.
• Writing-down allowances (the tax relief businesses claim when they buy capital items not qualifying for “full expensing”) will be reduced from 18 per cent to 14 per cent from April 2026, making it marginally less attractive to invest in some capital items unless they fall under the full expensing rules.
• From 1 January 2026, the government will introduce a new 40 per cent First Year Allowance for main rate expenditure. This will apply to most spending on assets for leasing and expenditure by unincorporated businesses.

Withdrawal of certain reliefs and tightening of anti-avoidance rules

• Relief for gains on disposals to Employee Ownership Trusts is being cut, from 100 per cent to 50 per cent. That reduces the appeal of these trusts as a tax-efficient exit strategy or ownership structure for both entrepreneurs and businesses.
• The Budget introduces new anti-avoidance rules addressing certain non-derecognition liabilities, among other technical reforms.

Changes to imports, compliance and VAT arrangements

• The removal of the low-value consignment relief (which previously exempted many foreign online retailers from customs duties on small-value imports) may benefit UK bricks-and-mortar retailers by levelling the playing field.
• More robust HMRC compliance and administrative reforms are planned, which the government expects will reduce the tax gap (the difference between what is owed and what is collected).

Minimum wage changes

• The National Living Wage (NLW) will rise from £12.21 to £12.71 per hour on 1 April 2026, a 4.1 per cent increase. The National Minimum Wage (NMW) for 18-20 year olds will also increase from £10.00 to £10.85, an 8.5 per cent increase, increasing pay by up to £1,500 a year. This change is part of efforts to narrow the wage gap between younger workers and those on the NLW. Additionally, the NMW for 16-17 year olds and the Apprentice Rate will both rise from £7.55 to £8.00 (a 6 per cent increase).

What this means in practice for different types of taxpayers

For a middle-income employee

If you are a typical employee with mainly salaried income and modest savings or investment income, the freeze on thresholds may slowly push more of your earnings into higher rate bands, reducing your disposable income over time. If you rely on dividends or rental income, your after-tax return may suffer due to the higher rates. Pension contributions made via salary sacrifice may lose some of their attractiveness if they exceed £2,000 per year, but modest savers should be relatively unaffected.

For higher earners, property owners, and investors

If you own a high-value home, rental property, or significant investments, these changes may hit you harder. The council-tax surcharge on expensive properties and the higher rates on investment income make clear that future tax burdens will increasingly fall on wealth, capital, and savings rather than earned income. Pension-savings advantages for high earners are reduced. For business owners, particularly those using or considering Employee Ownership Trusts, the reduction in reliefs may diminish some previously attractive exit or succession planning strategies.

For small businesses, investors and growth companies

The maintenance of Corporation Tax at 25 per cent provides some certainty, but reduced capital allowances and fewer reliefs may raise the effective tax cost of certain investments. On the plus side, support for high-streets (lower business rates for retail, hospitality, leisure) and targeted reliefs (e.g., for film studios) offer relief for businesses in those sectors. The removal of import-duty relief for low-value imports could benefit UK retailers by levelling the competitive field.

Broader context and likely economic impact

• The government expects these measures to raise around £26 billion per year by 2029–30, making this among the largest medium-term tax increases in recent decades.
• As a result, the overall tax take is projected to reach a record 38 per cent of GDP by 2030–31.
• Some planned reliefs and public spending measures are intended to offset cost-of-living pressures: for example, cuts to energy bills, freezing rail fares, and support for households on lower incomes.

What to keep an eye on

• Implementation: Many changes (pension-salary sacrifice cap, high-value property surcharge, vehicle mileage levy) come in over a number of years. The detail of how they will be applied may affect their actual impact.
• Behavioural responses: As thresholds remain frozen and investment incomes are taxed more heavily, individuals may shift the balance of their income (more salary, less dividends, changes to pension contributions) which could reshape personal tax planning strategies.
• Business planning and investment: Reduced writing-down allowances and withdrawal of some reliefs may influence decisions about capital expenditure, timing of investments, and business structure (especially for those considering Employee Ownership Trusts).
• Compliance and administration: The government’s push to tighten compliance and close loopholes may mean higher scrutiny for individuals and businesses, particularly around imports, VAT, and offshore arrangements.

Spring Statement 2025: Key Tax Measures and Modernisation Initiatives

Chancellor Rachel Reeves’ Spring Statement 2025, delivered on 26 March, arrived at a critical point for the UK economy. With the Office for Budget Responsibility downgrading growth forecasts to just over 1% for the year and borrowing costs climbing, the tone of the statement was more pragmatic than bold. The Chancellor focused on reforming the tax system, encouraging economic resilience, and driving public sector efficiency.

What she did not deliver is an easing of the Employers’ NIC and other business tax increases timed to commence April 2025.

Several key announcements were of direct interest to taxpayers, business owners, and advisers – especially those connected to tax compliance, digitalisation, and HMRC powers. Below is a summary and commentary on the most relevant developments.

Making Tax Digital: A cautious but firm step forward

The most significant administrative update was the proposed, phased extension of Making Tax Digital for Income Tax (MTD for IT). The new timeline will see sole-traders and landlords with income over £20,000 required to join from April 2028. Those earning less than £20,000 remain outside of the scope for now, though the door remains open for further inclusion after evaluation.

Key points:

• Quarterly digital updates will be required
• Use of MTD-compatible software is mandatory
• HMRC is promising better support, including for digitally excluded taxpayers

This longer runway reflects lessons from the somewhat bumpy rollout for VAT. Reeves has chosen to pair technology adoption with a broader simplification agenda, aiming to reduce burdens on small businesses. However, concerns remain that HMRC's own systems are not yet robust enough to support a seamless experience.

Comment: While the delay gives agents and taxpayers more time to prepare, the widening of the scope will demand strong communication and software readiness. The risk is that smaller landlords and sole traders will be hit by costs and confusion unless HMRC delivers better outreach and support tools than previously managed.

Closing in on promoters of tax avoidance

The government has published a consultation titled “Closing in on Promoters of Marketed Tax Avoidance,” targeting schemes that promise to artificially reduce tax liabilities. This builds on previous reforms but includes:

• New penalty models for scheme promoters
• The introduction of strict liability criminal offences for serial promoters
• Enhanced HMRC powers to publish names of enablers earlier in the process
• Measures to disrupt schemes at the planning stage, not just after the fact

This is part of a broader policy trend that shows HMRC is shifting focus from reactive enforcement to proactive disruption. The goal is to make the UK an increasingly hostile environment for tax avoidance outfits operating on the margins of legality.

Comment: There's a strong political consensus behind these moves. But care will need to be taken to avoid unintended effects on legitimate tax planning and professional advisory services. Many practitioners will welcome stronger action against cowboys but will be watching closely to ensure that standard commercial tax advice isn’t caught up in the dragnet.

Behavioural penalties reform

HMRC has launched a consultation on overhauling its behavioural penalties regime, which applies to errors in tax returns or failures to notify chargeability. The key aims are to:

• Simplify the rules, which are widely considered complex and hard to apply consistently
• Introduce clearer thresholds for when penalties apply
• Make penalties more proportionate and responsive to actual behaviour, such as whether a taxpayer took reasonable care

This is long overdue. The current system penalises errors and failures inconsistently, especially where reasonable care or human error can be demonstrated.

Comment: Most tax advisers will support efforts to make penalty regimes clearer and fairer. A shift towards a more education-first model could help reduce errors without overly penalising honest mistakes. The final shape of these reforms will depend heavily on the responses gathered during consultation.

Research and Development tax relief: Advance clearance proposals

The R&D tax relief regime continues to be a hot topic. While the merger of SME and RDEC schemes has already taken place, a new consultation explores the option of introducing advance clearances for R&D tax claims.

This could allow businesses to:

• Secure upfront agreement from HMRC on whether their projects meet R&D criteria
• Reduce the need for post-claim reviews and enquiries
• Improve certainty and reduce fraud and error, which have dogged the scheme

There’s no firm policy yet, but HMRC is clearly seeking a route to streamline processes and prevent abuse – especially after high-profile clampdowns on rogue advisers in the R&D claims space.

Comment: For legitimate claimants, this could be an excellent development. Knowing in advance whether work qualifies would save time, money, and stress. However, the devil will be in the detail: any advance clearance process must be accessible and efficient, or it risks becoming a bottleneck in its own right.

Better use of new and improved third-party data

Another forward-looking move is HMRC’s proposal to improve how it collects and uses third-party data under its bulk data-gathering powers. The aim is to:

• Expand sources of data that HMRC can draw upon
• Improve data quality and accuracy
• Use data more effectively to pre-fill returns, prompt compliance, and detect anomalies

Examples might include:

• Gig economy platforms providing earnings information
• Banks and payment processors offering transaction-level insights
• Real-time property income data from letting platforms

This is similar to pre-filling tax returns in some Scandinavian countries and could drastically improve tax administration if handled correctly.

Comment: As always, balance is key. The idea of reducing error through better data is sound, but privacy and data security must be front and centre. If HMRC starts collecting more data, it must also improve how it explains what it holds, and how it uses it.

Enhancing HMRC’s powers over non-compliant tax advisers

Alongside its focus on avoidance schemes, HMRC is consulting on tougher measures against tax advisers who facilitate non-compliance. This includes:

• New civil and criminal sanctions
• Expanding information powers to uncover hidden adviser-client relationships
• Public naming of advisers with track records of enabling tax avoidance

This aligns with a broader international trend towards holding professional enablers accountable, especially in high-value tax fraud cases.

Comment: While the vast majority of tax professionals are diligent and compliant, there’s an appetite within HMRC to weed out persistent offenders who enable grey-market schemes. The challenge is setting clear definitions so that robust, legal tax planning is not conflated with abusive avoidance.

Broader fiscal context and spending commitments

Outside of tax, the Spring Statement confirmed the government’s commitment to:

• A defence spending increase to 2.5% of GDP by 2027
• £3.25 billion for a new public sector transformation fund focusing on AI and tech
• Further work on the childcare and work incentives agenda to encourage people into employment

The welfare reform package – including changes to Personal Independence Payments and Universal Credit – has drawn criticism from some quarters, particularly disability rights groups. However, the Treasury is standing firm on needing to reduce what it calls "unsustainable welfare spending."

Final thoughts

Spring Statement 2025 didn’t deliver any dramatic tax rate changes or giveaways, but that was never likely. Instead, it focused on long-term system modernisation, stricter enforcement, and targeted reforms that could reshape how HMRC interacts with taxpayers and advisers.

For tax professionals and small business owners, the key takeaways are:

• The expansion of MTD for IT is real, though delayed
• Compliance standards are being tightened, with emphasis on behaviour and third-party data
• HMRC wants to be more proactive, both in stopping avoidance and in supporting legitimate claims, like R&D
• The next few years will require investment in systems, understanding of HMRC’s new powers, and ongoing engagement with consultations

None of these changes will happen overnight, but the direction of travel is clear: more digital, more data-driven, and more interventionist.