UK Budget 2025: Simple Guide for Business Owners and Tax Payers

The UK Budget was today and as expected, there were positive and negative takeaways for UK tax payers and businesses. In this article, we are breaking down what we feel are the key tax and business announcements from today’s UK Budget.

Before we get into it, it’s important to say that a lot of these changes don’t take effect straight away. Many of them start in 2026, 27, 28, and even in 2029, so this is very much a Budget that gives you time to plan.

I want to explain exactly who will be affected, what the impact looks like in real money, and how you can protect yourself and your business.

UK Cash ISA’s

Let’s start with ISA changes, because this one affects a lot of medium to higher-earning business owners. Right now, your annual cash ISA limit is £20,000. Under the new rules, that limit is being reduced to £12,000. With the remaining £8,000 only available if you invest into a stocks and shares. So that means if you prefer to keep everything in a cash ISA, your maximum annual allowance will fall.

So, who does this affect? It’s Mainly people who save large amounts each year, such as company directors who take dividends and use ISAs as a tax-free wrapper and the impact is simple, if your allowance goes down, more of your savings could become taxable, which means more of your interest and investment returns could be exposed to tax.

One way to help yourself here is to review your savings mix. Even allocating a small portion of your allowance to a stocks and shares ISA will preserve the higher allowance. We’d recommend speaking with an FIA, such as Hills Financial Planning, for specific advice.

Income Tax and NIC

Another major change that affects almost everyone: income tax and National Insurance thresholds remain frozen until 2028.

The personal allowance stays at £12,570 and the higher-rate threshold stays at £50,270. This doesn’t sound like a change, but it actually means you’ll pay more tax every year as your income rises with inflation. This is what’s called ‘fiscal drag’. So even though the rates aren’t changing, more of your income will be taxed at higher levels.

You can protect yourself by planning carefully, for example by increasing pension contributions, using salary–dividend combinations if you’re a director, and making full use of allowances.

Dividend & Property Tax 

Now let’s talk about a big change for business owners: the increase to dividend tax, property income tax and savings tax, that we are assuming is starting from April 2026 but it wasn’t clear in the announcement.

The basic rate for these types of income is going up by 2 percentage points.
For dividends, that means:

• Basic rate goes from 8.75% up to 10.75%
• Higher rate goes from 33.75% up to 35.75%

And for additional-rate taxpayers, property and savings income will also rise by an extra 2%.

So, who does this hit? Well, It affects almost every company director who pays themselves through dividends, and every landlord with property income.
The impact is that your personal tax bill will increase, even if your income stays exactly the same.

To help yourself, start planning ahead, consider pension contributions, changing how you extract profits, or using ISAs where possible.

Its unclear at this point if the increase in property tax will apply to companies with property income.

From our perspective, this change feels like a significant additional burden on small business owners and property investors, particularly at a time when many are already facing economic pressures. While the government may view it as a way to raise revenue, I feel that it risks discouraging reinvestment into businesses and the property market. Which contradicts their small business growth plans which were announced.

Allowances for new businesses

Next, a positive change, the new 40% first-year allowance for new businesses.
Currently, many businesses rely on the Annual Investment Allowance or full expensing, but those rules vary depending on how established you are and what you purchase. Under the new rule, new businesses will be able to deduct 40% of the cost of qualifying assets straight away in their first year.

This is particularly helpful if you’re a start-up investing early in equipment, tools, computers or machinery.

The impact is easy to understand, a lower corporation tax bill in year one, and better cash flow. If you’re starting up soon or planning early investment, make sure those assets qualify and consider bringing purchases forward to maximise this relief.

Pensions

This is unfortunately something we saw coming but hoped we were wrong because it’s a big long term change. And its pension salary sacrifice. Right now, salary sacrifice is one of the most tax-efficient ways to save into a pension because it saves both tax and National Insurance.

However, under the new rules, starting in April 2029, only the first £2,000 of salary-sacrifice contributions will be exempt from National Insurance. Anything above that will now attract NI just like normal pension contributions.

This affects directors, higher earners, and employers who offer enhanced schemes.
The impact is that the tax advantage of salary sacrifice will reduce. The solution is to plan ahead, review your pension saving strategy and consider alternative benefits if you currently rely heavily on sacrifice.

Corporation Tax 

Now let’s move to corporation tax. This one is simple: nothing changes. The main rate stays at 25%, and the small profits rate stays at 19%. So if you were expecting a rise or hoping for a reduction, neither is happening. However, stability is valuable, at least you can plan your tax position without sudden surprises.

VAT 

VAT thresholds were also rumoured to be changing. Everyone thought the registration limit was going to decrease to £30,000. Thankfully the threshold has been frozen and will remain at the current rate of £90,000.

There are pros and cons to this in my opinion, because even though the threshold hasn’t been reduced, it has still stayed the same.  So, with many small businesses’ turnover rising because of inflation, more businesses will be pushed over the threshold and required to register for VAT earlier than expected.

What we would have loved to see is an effort to introduce reduced vat rates into retail and hospitality businesses. It would have been a massive boost to sectors who primarily deal with the general public, where VAT isn’t recoverable. If you’re approaching the threshold, it’s important to start planning your pricing and cash flow now so you’re not caught off guard.

Tax avoidance

Next, the government has announced tougher action on tax avoidance schemes and increased powers for HMRC.

This won’t affect normal business owners who operate fairly, but it will affect people who have been tempted into so-called ‘tax reduction products,’ especially schemes promising things like ‘90% take-home pay,’ or offshore loan arrangements.
The new rules give HMRC more authority to issue penalties, demand repayment and intervene early.

The message is simple: if a scheme sounds too good to be true, it probably is. Stick to regulated advisers only.

Apprenticeships

Let’s talk about apprenticeships, because there’s some good news here for small employers.

SMEs will now receive fully funded apprenticeships for anyone under the age of 25. That means if you take on a young apprentice, the government covers the training cost, which previously could have been several thousand pounds.

This is a great opportunity if you need to grow your team, reduce wage costs or bring in new skills. Apprentices can be an extremely cost-effective way to expand your workforce.

Non-UK residents + Pensions

Next, there are changes for people living abroad who pay voluntary Class 2 National Insurance to qualify for the UK State Pension.

Right now, many overseas workers can secure a full UK State Pension by paying 10 qualifying years of contributions. Under the new rules, the number of years required will increase, meaning you’ll need more contributions to qualify for the full pension.

If you’re a business owner planning to retire abroad or you spend long periods overseas, this matters because failing to make enough years’ contributions means your pension will be reduced. The best thing you can do is check your National Insurance record now and top up while the current rates still apply.

Student Loan

Student loan repayment thresholds are also staying the same. This affects employees and younger business owners. Because the threshold isn’t rising, more people will begin repaying earlier, so monthly deductions may increase.

Property Tax

There were also adjustments to property taxes in England, aimed at increasing tax collected from certain property types. If you own investment property or commercial property through your business, you may see higher bills. This is the time to review your portfolio and check whether certain properties are still performing well after tax.

Electric Vehicles

There were also changes to vehicle taxation, including new taxes for electric vehicles.
Previously, EVs benefitted from very low road tax and lower company-car tax rates. Under the new rules, electric vehicles will begin paying forms of road tax that didn’t previously apply.

If you run a fleet, or if you’re a director using an EV as a company car, factor these costs in going forward.

Final Thoughts

So that’s a full breakdown of everything tax related announced in today’s Budget, what the changes are, who they affect, what the impact is, and how you can protect yourself financially.

If you’d like personalised advice, or if you want us to help you plan around these changes, get in touch with us or drop us a question below.

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