Budget 2025 - how will things change

The Chancellor opened her statement with a sharp rebuke for the Office for Budget Responsibility (OBR), after it mistakenly released its analysis at 11:30am – well before her speech in the Commons.

The Office said the economy is is expected to grow by 1.5% on average over the next five years, though underlying productivity growth has weakened. However, it stressed that the Budget leans heavily on tax increases and that longterm debt challenges are far from resolved.

Those tax measures are expected to raise around £26bn, with the headline freeze on income tax thresholds alone projected to deliver £8.3bn. The Chancellor argued this approach is necessary to ensure her fiscal rules are met by 2030, with a wider margin of safety.

Conservative leader Kemi Badenoch branded the package a “smorgasbord of misery,” accusing the Government of hiking taxes to fund welfare. Liberal Democrat leader Sir Ed Davey warned that the Chancellor “can’t tax her way to growth.”

Markets, however, appeared reassured: sterling strengthened and government borrowing costs fell.

For the key Budget measures affecting businesses, read on…

Business tax

Corporation Tax (CT) rates remain the same. Late filing penalties for CT will double from 1 April 2026.
Dividend tax will increase by 2% on the Basic and Higher rates, increasing them to 10.75% and 35.75% respectively (no change to the Additional Rate).
Digital prompts for VAT and Corporation Tax – £59 million will be invested in new technology over the next five years to provide real-time digital prompts for VAT filing software from April 2027, and Corporation Tax filing software from April 2028.
Employee and employer NICs will be charged in the usual way on the amount of salary sacrificed pensions above £2,000, from 2029.

Business rates

Permanent lower business rates for 750,000 retail, hospitality and leisure properties from April 2026.
A £4.3 billion business rates support package will cap business rates bill increases for sectors hit hardest by revaluations from April 2026.

Mandatory wage rates

From April 2026, the NMW for 18-20 year olds will increase from £10 to £10.85 and NLW will increase from £12.21 to £12.71 (4.1%)

Training

Apprenticeships for eligible young people under the age of 25 will be fully funded for SMEs.
New reforms to simplify the apprenticeship system and make it more efficient as short courses are introduced from April 2026, including removing the additional uplift to levy accounts; changing the expiry window to 12 months; changing the government’s co-investment rate to 75% for levy-paying employers once they have exhausted all their funds; and working with employers to streamline the suite of apprenticeship standards available.

Business investment

Full expensing for investments will continue.
A 40% First Year Allowance for main rate expenditure will be introduced, including most expenditure on assets for leasing from 1 January 2026. Second-hand assets will not be eligible though, nor will cars or assets for leasing overseas.
The £1 million Annual Investment Allowance will continue.
Main rate writing down allowances will reduce from 18% to 14%. Freeze on tax thresholds for Income Tax and NI will be extended for three years, now to 2031.

Income tax and employee NICs

Freeze on tax thresholds for Income Tax and NI will be extended for three years, now to 2031.

Transport

Petrol/diesel vehicles

The 5p fuel duty cut will be extended for a further five months until the end of August 2026.

Electric vehicles

An EV mileage charge will apply from 2028, set at 3p per mile for EVs and 1.5p per mile for plug-in hybrids. The charge will rise annually with inflation. Vans, buses, motorcycles, coaches and HGVs will not be included.
The Electric Car Grant will be extended to 202930.
The threshold for the VED Expensive Car Supplement will be increased from £40,000 to £50,000 from April 2026.
Changes to benefit-in-kind rules for Employee Car Ownership Schemes will be delayed until April 2030.
An additional £100 million will be invested in the EV charging infrastructure, building on the £400 million of funding announced at Spending Review 2025.
£100 million of resource funding will be allocated for local authorities and public bodies to support the training and deployment of specialist staff to accelerate the rollout of public chargepoints.
There will be a review of the cost of public EV charging, starting in Q1 2026 and reporting by Q3 2026.

Rail

Regulated rail fares for journeys in England will be frozen next year.

Buses

Extend the £3 bus cap (which covers 5000 routes) to March 2027

Trade

Customs duty relief for low value imports – goods valued at £135 or less – will be removed from March 2029 at the latest.

Research and Development

A targeted advance assurance service will be piloted from spring 2026, enabling small and medium-sized enterprises to gain clarity on key aspects of their R&D tax relief claims before submitting to HMRC.

Taxes on packaged goods

Plastic Packaging Tax again increases by the rate of inflation (CPI) in 2026. The government will legislate in the next Finance Bill to allow for a mass balance approach to be used to attribute chemically recycled plastic for the purposes of the Plastic Packaging Tax from 1 April 2027. The legislation will also remove pre-consumer waste as a source of recycled content from the same date. There will be a consultation in early 2026 on the introduction of mandatory certification for mechanically recycled plastic packaging for businesses to claim an exemption from Plastic Packaging Tax.
The Soft Drinks Levy currently applied to high-sugar fizzy drinks will be extended to pre-packaged milkshakes and coffees. The threshold will also be lowered from 5g of sugar per 100ml to 4.5gper 100ml.
Alcohol duty will be uprated with the Retail Price Index (RPI) on 1 February 2026.
Duty rates on all tobacco products will increase by RPI inflation plus two percentage points from 1 February 2026. The Small Producer Relief discounts will also be uprated so eligible small producers receive relative duty reductions as now.
Administration of the Deposit Return Scheme will be made simpler by removing the requirement for individual producers to account for VAT on unreturned deposits. Instead, this will be done by the Deposit Management Organisation. Salary sacrifice pension contributions above £2000 will be taxed from 2029.

Other key announcements

Pensions

Basic and new state pension payments will increase by 4.7% from April 2026.

Property tax

From 2028, a High Value Council Tax Surcharge will be applied to properties (England only). It will be £2,500 for properties worth more than £2m and £7,500 for properties worth more than £5m.

Child benefits

Two child benefit cap to be scrapped from April.

ISA changes

The amount under-65s can save in a Cash ISA will be reduced to £12,000. The total limit will remain at £20,000, meaning that up to £8000 will need to be invested in a Stocks & Shares ISA. The Cash ISA limit for those over 65 will remain at £20,000. Investment firms, including Vanguard, will launch online hubs to help people invest.

More information

You can watch the speech here, read it here and access the full set of Budget documents from HM Treasury here. This year, there’s also a Factsheet for businesses.

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