Understanding the Government’s Latest Budget: Key Changes for Businesses

The Government’s latest budget introduced several significant changes that will impact businesses across the UK. The last time a Labour Government presented a budget (as far back as 24^th March 2010), the political and economic landscape was vastly different, with many measures announced then as part of a broad strategy to support economic recovery on the back of the 2008 financial crisis. This year, the anticipation surrounding the budget was palpable, with many eager to see how the new administration’s policies would address current challenges and opportunities after some very difficult years marked by a pandemic, supply chain issues, Brexit red tape, cost of living crisis and increased interest rates.

Since the announcement, reactions have been mixed, especially, and understandably, from businesses. Most of the changes brought forward are certain to place a meaningfully higher tax and cost burden on virtually every business across the country, with considerable increases to National Insurance Contributions and minimum wage creating cause for concern for most.

To help our clients understand what the latest changes could mean for them, we detail key highlights that we believe could have the most impact for businesses in 2025.

National Insurance Contributions

The Government has announced an increase in National Insurance Contributions (NICs) for employers by 1.2 percentage points, with a drastic reduction in the threshold at which businesses start paying NIC from £9,100 to £5,000, which will have a significant impact on tax bills. The reduced threshold is scheduled to last until April 2028, at which point it is set to be increased by the consumer price index. As could be expected, the move has not been particularly well received because of the high costs it creates for businesses. Already, more than 200 leaders in the hospitality industry have warned that businesses and jobs could be at risk because of it, indicating that both the NICs and national living wage increases combined will result in a new £3.5bn cost per annum to the industry. There have also been calls to review the threshold decision with suggestions such as a new 5% rate for workers earning between £5,000 and £9,100 or an exemption for lower-band taxpayers who work less than 20 hours a week.

In the meantime, however, the first thing businesses should consider is reviewing payroll budgets for 2025, especially those operating on a high labour model. Making the most of the Employment Allowance, which was announced to rise to £10,500 in addition to no longer being only reserved for those with NIC bills of £100,000 or less, will also be vital to offsetting the higher costs of employment. Other ways to minimise the impact will be to implement and explore salary sacrifice schemes and tax-efficient benefits as alternative rewards for employees where salary increases could significantly hinder cashflow.

Capital gains tax

The main rates of capital gains tax that apply to assets will also increase as part of the Budget, with the exception of residential property and carried interest. The lower rate will increase by 2% to 18%, whilst the higher rate will increase by 4% to 24% for any disposal made since 30^th October 2024.

To help mitigate the impact of the increase, businesses should ensure they make the most of the Business Asset Disposal Relief which remains in place with a tax rate sticking at 10% until April 2025, at which point it will increase to 14%. It has already been announced that it will increase again in April 2026 to 18%. Investors’ Relief is also still available to provide additional support, although its lifetime limit has been reduced from £10m to just £1m from April 2025.

Inheritance tax

Particularly impactful for businesses operating in the agricultural sector but also family-owned businesses, the government announced it will reform the Business Property Relief and Agricultural Property Relief: as of April 2025, the existing 100% rates will only apply to the £1m of combined agricultural and business property, with a decreased rate to 50% thereafter. Historically, there has been no inheritance tax on passing such assets down generations, and since the announcement there have been reports of a surge in farmers looking for legal and financial counsel, and thousands took part in a protest outside Westminster on 19^th November.   Some other options remain available, such as the ability to gift assets or structuring them to maximise reliefs to help mitigate this new challenge, and so owners should seek out legacy planning advice and ensure ownership structures have been reviewed, with concrete plans in place ahead of the new tax year in order to manage potential tax liabilities efficiently.

Stamp duty increase

Purchasing properties will become more expensive for investors and landlords in England and Northern Ireland under the new Budget, with stamp duty on additional residential properties for individuals and purchases of residential properties by businesses increasing from 3% to 5%. A silver lining, the planned 1% increase to the surcharge imposed on non-resident buyers of residential property that was part of the Government’s manifesto was abandoned, and so this remains at 2% for now.

In Scotland, the devolved Government is due to reveal its plans for 2025-2026 on 4^th December, and it is yet unclear whether it will include an increase to the stamp duty equivalent, the Land and Buildings Transaction Tax, which currently starts at 2% for first property purchases over £145,001 but below £250,000 and reaches 12% for purchases over £750,000. Most second home purchases also incur an additional 6% surcharge under the Additional Dwelling Supplement.

Business Rates Relief

The budget extends the business rates relief for retail, hospitality, and leisure sectors for another year. Eligible businesses will receive a 40% discount on their business rates bill, up to a maximum of £110,000 per business. However, this has been seen as a step backwards by some, especially the hospitality sector, because the current discount to business rates which is due to expire in April 2025 is set at 75%, almost double the one announced.

To help minimise the impact of the decreased discount, it is important that businesses in the affected sectors review their financial planning to account for potential cashflow gaps as a result of the change. They should also look at all other available business rates relief they may be eligible for, such as small business rate relief and look to leverage any additional government support measures or grant they can have access to.

Keeping business moving

In conclusion, this year’s budget marks a major reset for fiscal policy and will create new challenges for businesses, especially those still recovering from the difficult trading conditions of the last few years. With insolvencies on the rise last year and at the highest annual number since 1993, the announcement did little to reassure SMEs about the years to come, despite some enhancements to existing relief schemes, a welcome freeze of fuel duty and a cut on draught alcohol rates by 1.7%, measures which will obviously benefit some sectors a lot more than others. That said, SMEs have shown unending resilience, and there was positive news within a week of the announcement, with the Bank of England deciding to bring interest rates below 5% to 4.75%. Since then, inflation has started to rise higher than expected, with the latest report on 20^th November showing it at 2.3%, up from 1.7% in September, and mostly attributed to rising energy costs, and recent development such as Donald Trump pledging a 20% on all tariffs and businesses warning prices will need to rise to cover the new taxes as of April 2025 are raising concerns about further increases to the cost of living.

Ultimate Finance remains as committed to supporting more businesses than ever with flexible and tailored funding solutions that directly meet their needs and unlock cashflow and has just announced an enhancement to their Working Capital proposition with a cashflow loan of up to £500k which sits alongside an Invoice Finance or Structured Finance facility, can be taken over a 3-year term and used for key business events such as acquisitions, mergers and succession planning as well as for other growth opportunities.