Rachel Reeves’ 2025 Budget Changes: Impact on Business Accounting and Tax Planning

What Has Already Been Implemented: Autumn Budget 2024

Chancellor Rachel Reeves has delivered multiple fiscal statements since taking office, with significant implications for business accounting and tax planning. Here’s what has happened and what’s expected for the remainder of 2025.

National Insurance Changes (Effective April 2025)

• Employer NICs increased from 13.8% to 15% – one of the largest hikes in recent memory
• Threshold reduced from £9,100 to £5,000 annually where employer NICs become payable
• Employment Allowance expanded to £10,500 (from £5,000) to support smaller businesses
• Impact on accounting: Significant increase in employment costs requiring cash flow planning and potential price adjustments.

Business Tax Changes Already in Effect

Corporation tax rates maintained at 25% for companies with profits over £50,000, with smaller companies (under £50,000 profits) retaining the 19% rate

Business Asset Disposal Relief (BADR):

• Lifetime limit maintained at £1 million
• Rate increases from 10% to 14% in April 2025, then to 18% from April 2026
• Accounting impact: Businesses should review disposal strategies and timing

Capital Gains Tax:

• Higher rate increased from 20% to 24%, lower rate from 10% to 18%
• Residential property CGT rates remain at 18%-24%

Other Business-Relevant Changes

• National Living Wage: Increased to £12.21 per hour from April 2025
• Inheritance tax: Business and agricultural property relief restricted from April 2026
• Energy Profits Levy: Increased to 38%

Chancellor Rachel Reeves has delivered her second budget, and the message for business owners is clear:

Your costs are going up, and there’s less tax relief to soften the blow.

Here’s everything you need to know about the changes that will affect your business, when they take effect, and what you should do now to prepare.

Employment Costs: Your Wage Bill is About to Jump

From April 2026, you’ll be paying more for staff as minimum wage rates increase:

• Workers aged 21+: £12.21 to £12.71 per hour (50p increase)
• Workers aged 18-20: Up 8.5% to £10.85 per hour
• Under 18s and apprentices: £7.55 to £8.00 per hour

This is part of the government’s commitment to establish a single adult rate for minimum wage.

Important: Employment tax thresholds (National Insurance and Income Tax) remain frozen until 2031. As wages naturally rise, more of your employees’ money gets taxed at higher rates. They’ll feel the pinch, which often leads to pressure for pay rises beyond the legal minimum.

Dividend and Property Income Tax: 2% Increases Coming

Property Income (from 6th April 2027)

A new system of separate tax rates is being created for property income:

• Basic property rate: 22%
• Higher property rate: 42%
• Additional property rate: 47%

Dividend Tax (from 6th April 2026)

• Ordinary rate: Increasing to 10.75%
• Upper rate: Increasing to 35.75%

Remember: This is money you can take out of the business after you’ve already paid corporation tax. The effective rate on business profits withdrawn as dividends is now even higher.

Salary Sacrifice Pension Schemes: Tax Saving Disappearing

If you offer salary sacrifice pension schemes (where employees swap salary for pension contributions to save tax), that tax saving is disappearing.

Currently, neither you nor your employee pays National Insurance Contributions on salary sacrificed into extra pension contributions.

From April 2029: You and your employees will pay National Insurance on pension contributions over £2,000 a year.

Good News for Shops and Restaurants

Business rates are being reshuffled to help high street businesses:

• If you run a retail, hospitality or leisure business with premises worth under £500,000, you’ll pay lower business rates from April 2026. This is a permanent rather than temporary reduction.
• The trade-off? Big warehouses and distribution centres (think Amazon-style operations) will pay significantly more to fund your relief.
• There’s also a three-year grace period if you expand your retail or hospitality business to a second property, so you won’t immediately lose your small business rates relief.
  

  Less Tax Relief on Equipment and Business Sales

  Three changes that’ll hit your wallet:

  Equipment Tax Relief Cut (April 2026)

  Tax relief on equipment is being cut from 18% to 14%. You’ll get less tax back when you buy vans, machinery, or other business kit.

  Employee Ownership Trust Relief Halved (November 2025)

  Selling your business to your employees? The tax break for Employee Ownership Trusts has been halved. You’ll now pay tax on 50% of the gain instead of getting full relief. That’s still better than a standard trade sale, but it’s a significant reduction.

  Business Asset Disposal Relief (April 2026)

  The BADR rate is rising from 14% to 18%. Combined with the earlier increase from 10% to 14% in April 2025, this represents a significant increase in the tax you’ll pay when selling your business.

Key Dates: New Costs and Admin Coming Your Way

Keep these dates in your diary:

• April 2026: Homeworking expense relief disappears (if you’ve been claiming tax back for employees working from home)
• April 2028: Electric company cars will start paying a mileage tax (3p per mile for EVs, 1.5p for hybrids). Administration details still to be confirmed.
• March 2029: Duty-free relief on importing cheap goods under £135 is being scrapped. This stops the Temus and Sheins having an advantage over UK high street businesses.
• April 2029: All your VAT invoices must be sent electronically in a specific format. If you’re still invoicing on paper, it’s time to move to a digital accounting system.

HMRC Targeting Small Businesses

The government is investing heavily in tax enforcement, hoping to raise £2.3 billion by specifically targeting small businesses. They’re setting up dedicated teams to tackle fraud and evasion.

Translation: Make sure your books are spotless and you’re not cutting corners on tax. We can help you ensure your record keeping is up to date and would pass an HMRC investigation.

Now is the time to consider tax investigation insurance.

Regional Tourist Taxes

If you run hotels or holiday lets, local mayors can now add a “visitor levy” – basically charging your guests extra per night. This won’t be everywhere, but it could make your area less competitive if neighbouring regions don’t introduce it.

What Should You Do Now?

1. Review your wage budgets for April 2026 and factor in the minimum wage increases
2. Assess your remuneration strategy: With dividend tax rising, look at whether you have the right balance of PAYE and dividends
3. Review your pension scheme: Work out what the 2029 changes to salary sacrifice will cost you
4. Check business rates eligibility: See if you qualify for the new lower rates for retail, hospitality and leisure
5. Get your records watertight: HMRC is watching small businesses more closely than ever
6. Consider bringing forward asset disposals: Before BADR rates rise further in April 2026
7. Start preparing for digital VAT invoicing: The 2029 deadline will come faster than you think

The Bottom Line

Your costs are rising, your tax breaks are shrinking, and compliance is getting stricter. Budget accordingly.

The theme across both the 2024 and 2025 budgets is clear: the government is looking to raise more revenue from businesses through a combination of increased taxes, reduced reliefs, and tighter enforcement.

Need help navigating these changes?

Every business situation is different. We can help you understand exactly how these changes affect YOUR business and develop strategies to minimise their impact. We also have written a MTD ITSA Guide to help Sole Traders understand the changes that took place earlier this year.

Contact JML today and let us steer you through these tricky decisions.