What’s our take on this?

The budget is a trade-off. It strongly incentivises capital investment via the 40% First Year Allowance and helps the high street with permanent business rates relief. However, these are largely offset by significant increases in operational costs from the rising National Living Wage and higher Employer NICs, alongside increased taxes for company owners.

The Positives and Incentives

The Budget focused on targeted relief for specific sectors and encouraging investment in productive assets.

1. Investment and Capital Allowances

• Extended EV Capital Allowances: The 100% First-Year Allowance for zero-emission cars and chargepoint infrastructure has been extended for one year until April 2027, making EV adoption more tax-efficient in the short term.
• New 40% First Year Allowance (FYA): A permanent 40% FYA has been introduced for main rate assets (plant and machinery) bought by unincorporated businesses (like sole traders and partnerships).
• Annual Investment Allowance (AIA) Maintained: The £1m million limit for the AIA is retained, allowing 100% immediate tax relief on up £1m of qualifying capital expenditure.

2. Business Rates & Growth

• Permanent Business Rates Relief: Permanently lower business rates are confirmed for over 750,000 retail, hospitality, and leisure properties from April 2026.
• SME Apprenticeship Funding: Funding confirmed to make apprenticeship training effectively free for SMEs, supporting investment in training staff under the age of 25.
• Support for Scale-Ups: Eligibility for enterprise tax incentives is being doubled to help fast-growing firms attract more investment and talent.

The Challenges and Cost Pressures

The main negative impacts stem from rising payroll costs and higher personal tax for company owners.

1. Increased Labour Costs

• National Living Wage (NLW) Rise: The NLW for workers aged 21 and over is set to rise significantly to £12.71 per hour from April 2026, creating a substantial and immediate increase in payroll costs.
• Employer NICs (National Insurance Contributions): The previously announced increase in the Employer NICs rate to 15% (due from April 2025) is confirmed, further increasing the ongoing cost of employment.

2. Tax on Owner-Managers

• Dividend Tax Rise: The basic and higher rates of Dividend Tax will increase by 2% from April 2026, making profit extraction less tax-efficient for directors of limited companies.
• Salary Sacrifice Pension Cap: From April 2029, a cap of £2,000 will be placed on the amount an employee can contribute to a pension via salary sacrifice while still receiving a National Insurance exemption.

3. Overall Tax and Investment Environment

• New EV Pay-Per-Mile Charge: A new Electric Vehicle Excise Duty (eVED) based on miles driven is being introduced from April 2028. This new tax will add an ongoing cost to running EV and hybrid business fleets.
• Frozen Income Tax Thresholds: Income Tax and National Insurance thresholds are frozen for a further three years until 2031, acting as a “stealth tax” by pulling more people into higher tax brackets.
• Reduced Capital Allowances: The main rate of Writing Down Allowances (WDA) will be cut from 14%  from April 2026, slightly slowing the rate at which tax relief is claimed on some assets.
• Increased Compliance Burden: New rules, such as mandatory use of e-invoicing for VAT from April 2029, will require small businesses to update their systems and may increase administrative costs.

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You can read the official government documentation here: https://www.gov.uk/government/collections/budget-2025