“However welcome this new funding is, the Budget has still failed to deliver for employers”.

On 26 November, Rachel Reeves unveiled her second Budget against a difficult economic and fiscal backdrop and pressure from backbenchers.

She positioned it as delivering the ‘fair and necessary’ measures required to address the UK’s economic challenges and put the economy on a stronger path towards economic growth. This includes a sweeping set of tax rises totalling £26 billion by 2029–30.

The fiscal outlook is mixed. GDP is now expected to grow by 1.5% in 2025, above the OBR’s previous 1% expectation. Overall, however, UK economic growth forecast has been downgraded in 2026, 2027, 2028 and 2029. Meanwhile inflation is coming down faster than expected, predicted to fall to 2.5% in 2026 and returning to the 2% target in 2027. 

AAT’s view

The Budget delivered some positive steps, particularly on apprenticeships, and included some of AAT’s recommendations, such as the government increasing the headroom against its fiscal targets.

However, it fell short of providing a clear long-term tax strategy that the UK needs, with simplification and growth at the centre.

We’re committed to continuing work with officials to improve the tax regime and skills landscape. We’re looking forward to engaging further in the new year, particularly on raising standards in the tax advice market.

“Apprenticeships add enormous value to our economy – so it’s great to see the Budget recognise that. The announcement of new funding for under 25s seeking an apprenticeship in small businesses, as part of the Growth and Skills Levy £725m package, is really welcome…

“However welcome this new funding is, the Budget has still failed to deliver for employers. With national insurance hikes from the last budget and now minimum wage increases, we risk creating a lost generation unable to get their first step on the job ladder…

“What the country needs is a long-term strategy that tackles both youth unemployment and supports employers to give young people the opportunities they need.” – Sarah Beale, CEO AAT

You can read Sarah’s full response on LinkedIn.

Budget overview

A boost for apprenticeships

The commitment to fully fund SME apprenticeships for eligible people under 25 is one of the most significant announcements for AAT.

The precise amount of funding is still to be clarified, as this forms part of a £1.5 billion investment in skills, including £725 million allocated to the Growth and Skills Levy package. Further detail expected to be announced shortly.

The government also confirmed reforms to simplify the apprenticeship system and make it more efficient, 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.

Alongside apprenticeship funding, the government announced the ‘Youth Guarantee: Jobs Guarantee scheme’ which will provide six-month paid work placements for eligible 18–21-year-olds on Universal Credit.

A new Local Growth Fund was announced, for the Mayoral Strategic Authorities of:

• Greater Manchester,
• North East,
• West Midlands,
• South Yorkshire,
• West Yorkshire,
• Liverpool City Region,
• Greater Lincolnshire,
• Tees Valley,
• Hull & East Yorkshire,
• York & North Yorkshire and
• East Midlands.

These strategic authorities will each receive a share of the £902 million over four years to invest in growth-driving interventions, including employment support and skills programmes.

Key tax changes

The Budget included many tax changes relevant to accountants and their clients, including:

Income Tax & National Insurance –current thresholds extended by three years from April 2028 to April 2031. 

Dividends, property and savings taxes –the basic and higher rate of tax on these will be increased by 2%.

Pensions –a new £2,000 cap on salary sacrifice schemes coming into effect in 2029. 

‘Mansion tax’ –a new annual charge of £2,500 for properties worth more than £2 million, and £7,500 for properties worth more than £5 million.  

Business rates – from 2026/27 onwards,retail, hospitality and leisure sectors will benefit from permanently lower business rate multipliers:

• 38.2p for small properties and
• 43p for others under £500,000
• funded by a 2.8p higher multiplier (50.8p) on properties over £500,000.

Gambling –Remote Gaming Duty is being raised from 21% to 40%, while the duty on online betting is increasing from 15% to 25%. No changes are made to rates on in-person gambling and horse-racing, while bingo duty is entirely abolished from April 2026.  

Alcohol – Alcohol duty will be uprated with the RPI on 1 February 2026 to maintain its current real-terms value. 

Milkshake tax – the soft drinks industry levy will be extending to milk-based drinks and milk substitutes from 1 January 2028. 

Corporation tax – reducing the writing down allowance main rate to 14% and introducing a new 40% first year allowance for expenditure incurred on or after 1 January 2026.

Vehicles – new mileage charge for electric (3p per mile) and plug-in hybrid cars (1.5p), payable each year alongside vehicle excise duty. 

Capital Gains Tax – the Employee Ownership Trust Capital Gains Tax relief will be reduced from 100% to 50%. 

Fuel duty – the 5p fuel duty cut will be extended until the end of August 2026 with rates then gradually returning to March 2022 levels by March 2027. 

Other key changes affecting accountants

The government has decided not to regulate tax advisers beyond measures already announced – such as mandatory agent registration in April 2026 – following consultation. Instead, it will work in partnership with the sector to raise standards in the tax advice market.

The Budget confirmed several other measures that will impact accountants and their clients:

E-invoicing – the government will require all VAT invoices to be issued in a specified electronic format from April 2029.

Minimum wage – the minimum wage for over-21s (also known as the ‘National Living Wage’) will rise by 4.1% and by 8.5% for 18- to 20-year-olds.

Maxing Tax Digital – customers joining in April 2026 will not receive penalty points for late submission of their first four quarterly updates. The government has also announced a one-year deferral for several small groups of taxpayers.

Pensions – the government confirmed those whose only income comes from the state pension will not have to pay any income tax. More detail will follow in 2026.

Cash ISA – the tax-free allowance will be reduced to £12,000 for those under 65 from 2027/28.

We asked accountants for their reactions to the Budget, after weeks of speculation.

Much of the content was telegraphed in the lead-up to the 2025 Autumn Statement. With Chancellor Rachel Reeves making what the government described as a “scene-setter speech” on 4 November, as well as weeks of speculation culminating in an embarrassing leak of the budget content by the Office of Budget Responsibility just before the Autumn Statement was due to be delivered, there were few surprises.

However, the Chancellor was able to deliver a budget to a noisy House of Commons. It contained a mixture of expected hits on employers and a few positive notes, particularly in regard to encouraging investment and promised reforms on incentives for SMEs. We asked accountants to share their initial reactions to the Autumn Statement.

AAT: “We risk creating a lost generation”

Chancellor Rachel Reeves announced a significant boost for apprenticeship funding. New funding was announced for under-25s seeking apprenticeships in small businesses, as part of the £725m Growth and Skills Levy package.

Responding to the Budget, AAT CEO Sarah Beale welcomed this investment, whilst also highlighting that support for employers looking to bring new talent into their businesses remains limited, commenting that “with national insurance hikes from the last budget and now minimum wage increases, we risk creating a lost generation unable to get their first step on the job ladder”.

Read Sarah’s LinkedIn post for her full response.

The Budget also contains a variety of measures AAT members will need to absorb, including:

• changes to pensions contributions made through salary sacrifice: from April 2029 pension contributions made through salary sacrifice above £2,000 a year will no longer be exempt from National Insurance
• e-invoicing: the government will require all VAT invoices to be issued in a specified electronic format from April 2029
• changes to rates of tax on dividends, property and savings taxes: the basic and higher rate of tax on these will be increased by 2%.

The AAT team will be analysing the wider implications of Budget 2025 as further detail on measures are released by government. AAT is also hosting a webinar for members to outline the key areas of the Budget affecting finance professions. This will take place at 12:00-13:00 on Thursday 4 December.

Pressure is on SMEs and accountants will have to step up support

Craig Dyer, Managing Director and Lead Accountant, C A Dyer Accounts

Salary-sacrifice pension contribution changes, the minimum wage increase, the income tax freeze and the 2% rise in dividend tax are the four most impactful aspects of the budget, according to Dyer.

The end of National Insurance exemptions on salary-sacrifice pension contributions above £2,000 a year will increase costs for employers and employees and reduce take-home pay, which is “not ideal for people struggling with income and trying to save for the future.” Adding the minimum wage rise to mix will be “great for employees, but an additional cost for employers”, Dyer adds.

“The income tax freeze will gradually impact more people as incomes increase and thresholds are crossed, [while] dividend tax increase by 2% will impact a significant proportion of small business owners who are investing their own money in the economy and taking risks,” he says.

“In summary, it seems like a tough budget for small business owners who are the backbone of the economy, especially when you link it with other recent budgets,” says Dyer, while adding that it is up to AAT members to support their SME clients with advice and solutions so “they remain knowledgeable and profitable.”

It’s not as bad as feared, but SMEs need more support

Romesh Jeyaseelanayagam, Founder, The FD Consultant

“Budget announcements are not as scary for SMEs as anticipated, with corporation tax and national insurance rates held – and the market’s neutral reaction reflects this,” says Jeyaseelanayagam.

Positives from the budget include encouraging investment with enhanced enterprise investment schemes, R&D tax credit scheme adjustments, and expanded investment zones.

“The Chancellor has underlined a message to entrepreneurs – ‘Build here, Britain will back you’ –  and gave an unspecified commitment to look at how the tax system can better support entrepreneurs,” Jeyaseelanayagam continues. “Some positive steps were taken with business rates support for smaller businesses and the extension of the full expensing scheme, again to encourage investment.”

Challenges include national living wage changes that will increase employment costs, the 2% increase in dividend rates will hit SME business owners, and the cap on pension salary sacrifice.

“I would like to see more support for SME businesses and owners, with a recognition of the risks that they take,” says Jeyaseelanayagam. “This could have taken the form of weighting the taxation burden towards bigger businesses. The dividend and pension rule changes once again penalise SME business owners.”

In the next budget, Jeyaseelanayagam would like to see more support for SMEs, such as a reduced tax burden, but overall “the budget is not as bad as feared.”

“Government out of touch with how tight margins are in micro-businesses”

Nick Robinson, Owner, Yorkshire Accountancy

“This year’s budget arrives with a lot of optimistic messaging about ‘improving growth’ and ‘turning a corner’, but most small businesses won’t feel any difference,” says Robinson. “A slight uplift in the economic forecast is irrelevant when customers are still watching every penny and energy bills remain high.”

The increase in the National Living Wage will create higher staff costs for small businesses “with no matching support”: “We’re already seeing reduced hours, hiring pauses and owners taking on more of the workload themselves.”

“The government seems out of touch with how tight the margins are in micro-businesses,” he continues. “And with income tax thresholds frozen, many workers will end up paying more tax on their higher wages anyway, so the supposed benefit quickly evaporates.”

On the positive side, capital allowances remain generous, which will benefit businesses that can afford investment, while some wider measures “may help certain households.” However, most consumers will still feel their disposable income is under pressure.

“This isn’t a budget that changes the landscape for small firms. It’s another year of rising costs, squeezed consumers and very little targeted relief,” says Robinson. “Resilient as they are, small businesses were hoping for more.”

Accountant workloads will rise, but clients won’t want to pay extra

Eamon Shahir, Founder, Taxd

The good news for accountants is that the government is planning to crack down on the tax gap: “These changes are important and good news for accountants who are trying to do the right thing.”

This planned crackdown should lead to “more analysis for accountants and tax advisors to make with clients”, such as landlords, who he says should be reviewing the new tax rates to see if it’s worth incorporating a limited company.

However, the budget provides challenges for accountants. Clients will likely become more price-sensitive to accounting fees if their “disposable income has been squeezed by 2% rate hikes across dividends, property and savings.”

“For hard-working accountants, this compounds the pressure of the changes coming with Making Tax Digital,” says Shahir. “Accountants will have a greater workload and landlords will have higher accounting fees, which they will not want to pay.”

The tax changes may “unintentionally swallow” growth

Graeme Privett, Partner, HaysMac

“At last year’s Budget, the Chancellor implied that the tax hikes were a ‘necessary evil’ to set the UK back on track for growth, but after today, it is clear that progress has been glacial at best, and more needs to be done to plug the UK’s fiscal black hole,” says Privett.

“The burden on taxpayers across the board is almost at breaking point and there is no sign of this easing for the foreseeable, though taxpayers will at least have the chance to prepare given the delay before most of the announced increases come into force.”

It is “welcome that the income tax rate itself will not be increased in real terms across the board”, but the reality is that income taxes will keep rising owing to frozen tax thresholds.

“Even before today’s announcements, the existing threshold freeze represented the largest single tax-raising measure since Geoffrey Howe nearly doubled VAT in 1979,” Privett explains. “And while frozen thresholds are a politically helpful tool to indirectly increase income tax revenues without changing headline rates, repeated use inevitably raises the question of whether the thresholds will ever rise again.”

The newly increased rates for investment income are “targeted to avoid taxpayers who are what the government describes as ‘working’.” Continued pressure on taxpayers as “ultimately counterintuitive to the government’s growth ambitions.”

“There reaches a point where people will make behavioural changes to avoid the various cliff edges of tax that they face – and as the number of tax traps grow, these behavioural changes may manifest in even more people and investors moving overseas,” says Privett. “Through raising taxes to plug its black hole, the government’s growth ambitions could be unintentionally swallowed up in the process.”

Accountants need to revise their clients’ pension planning

Affinia accountants

Rob Thomson, Co-head of Tax at Affinia, says the measures represent a balance for businesses, with some benefits, some tax hikes and some restrictions on reliefs.

“For corporate entities, the budget remains consistent with the commitments set out in the Corporate Tax Roadmap, most notably through maintaining the current rate of corporation tax at 25%,” he says.

“Non-corporate businesses will welcome the introduction of a new 40% first-year allowance for main-rate assets, such as plant and machinery, providing a clear incentive for continued investment in business infrastructure, although the annual main rate is reducing from 18% to 14% per annum.”

However, employers and employees will be affected by the proposed £2,000 cap on pension salary sacrifice arrangements from 2029: “Historically, employers have been able to retain the national insurance savings to reinvest in the business or share the benefit with employees, [but] the forthcoming limit will increase costs for businesses where employees have made substantial salary sacrifice contributions.”

“A significant development for business owners is the reduction of capital gains tax relief on disposals to Employee Ownership Trusts (EOTs), falling from 100% to 50%,” Thomson says. “This change makes EOTs a considerably less attractive exit route for entrepreneurs considering succession planning.”

Clare Eve, Private Client Director at Affinia, reflects on the impact of the budget on individuals, saying it affects people in work, retirees and business owners alike.

“Freezing of income tax and NIC thresholds for a further three years beyond what was announced previously will mean everyone will pay more tax through fiscal drag,” she explains.

Additionally, accountants may have to revise their pension advice for many clients: “Inheritance tax changes to pension funds in April 2027, and now reducing the tax relief on pension salary sacrifice, may well change the way in which people save for retirement and their thoughts over spending and generating income through retirement tax efficiently.”

For business owners, Eve says that with dividend rates increasing, “profit extraction for business owners now needs careful consideration from April next year.”

Budget Day 2025 “historic for all the wrong reasons”

Crowe partners

Accountants from across the Crowe firm shared their thoughts on the budget. Laurence Field, Partner, Corporate Tax at Crowe, says that minimum wage rises are “also hidden tax-raising measures.”

“Employers pay increased National Insurance and tax is deducted on higher salaries through the PAYE scheme, therefore tax and National Insurance receipts go up immediately,” Field explains. “The increased taxes come mainly from employees and employers in the private sector.”

Regarding incentives, such as the Enterprise Management Incentive (EMI) and Venture Capital Trusts (VCTs), Field adds that one of the challenges here is their complexity: “Hopefully, the Chancellor’s promise to reform them will include making them more accessible. If they are made simpler and more wide-ranging, they could help raise new capital and retain talent.”

Phil Smithyes, Partner, Head of Financial Planning at Crowe, says that the reduction in the annual subscription allowance to cash ISAs has been reduced from £20,000 to £15,000, which is “far lower than the much-vaunted cut to £4,000”. “The impact on savers is likely to be negligible, although it further restricts options for lower-risk savers who tend to be pensioners.”

Robert Marchant, Partner, National Head of Tax at Crowe, describes Budget Day 2025 as “historic for all the wrong reasons.”

“The UK Budget delivers a buffet of bite-sized changes; it was also a shame that the buffet was served so early it went cold,” says Marchant. “Today was a Budget that was ‘all sides and no main course’ – with those sides being delivered before the diners had even entered the restaurant.”

Budget includes “quasi-wealth tax in all but name”

Yogesh Patel, Managing Director, Telic Advisory

“This year’s Budget feels less severe than last year’s, thanks to improved growth forecasts and a smaller-than-expected deficit,” says Telic. Despite the chaos leading up to the Autumn statement, he says the Chancellor’s final speech “suggested a more measured approach.”

“Shareholders in family businesses were thrown the bone of passing unused BPR between spouses on death, which offers some softening of the inheritance tax blows they were dealt in last year’s budget, and we welcome the benefits for SMEs from changes to EMI and EIS rules, supporting investment and growth,” Telic continues.

However, he is concerned that fiscal drag will remain “a silent tax rise, pulling more earners into losing their personal allowance and creating effective 60% rates.”

“Rising taxes on rental, interest and dividend income will hit those building portfolios. The mansion taxes and potential inheritance tax exposure on trust assets faced by high-net-worth individuals represent a quasi-wealth tax in all but name,” Telic concludes.