For businesses, it could have been worse. ICAEW had told Chancellor of the Exchequer Rachel Reeves that any more business tax increases in the Budget would be devastating for growth. In that sense, businesses dodged a bullet when it comes to the measures outlined in the Budget.

However, conditions aren’t likely to ease for businesses in the near future. With further National Minimum Wage increases, changes to the national insurance treatment of salary sacrifice pension schemes, and higher than forecasted inflation, the cost of doing business remains high.

Overall, it was a Budget with very few surprises, with nothing left unleaked ahead of time. While it fulfilled the task of improving the fiscal headroom the Chancellor needed, it relies on optimistic productivity projections and doesn’t take into account any unforeseen events or economic risk, such as global conflict.

With little in the Budget to address UK productivity or encourage investment, ICAEW CEO Alan Vallance expressed his disappointment. “It’s a chilling time for business confidence – many still scarred from last year’s Budget – but while today’s measures have not been a hit to business, the opportunity to back much-needed investment has been missed. In particular, reduced business investment can only mean lower growth in the future.”

Growth forecasts down

With the OBR report published early in an unprecedented turn of events, the OBR’s projections had been thoroughly scrutinised before the Chancellor got up to deliver her speech. While growth in 2025 was higher than expected – 1.5%, rather than the 1% predicted – growth projections for subsequent years have been rounded down:

• in 2026, expected growth is 1.4%, down from 1.9% in the OBR’s March report;
• GDP is estimated to expand by 1.6% in 2027 instead of 1.8% projected previously;
• 2028 is a 1.5% increase in GDP, versus 1.7% in March; and
• in 2029, the OBR expects 1.5% growth, down from 1.8%.

It paints a downbeat picture of the UK’s economic prospects, highlighting the impact of its historically poor productivity. “Any boost to consumer spending – a key driver of economic growth – from the rising minimum wage and lower energy bills is likely to be limited by extending the freeze on thresholds hauling more people into higher tax bands.” Suren Thiru, ICAEW Economics Director, said.

“While the Chancellor is right on the need to boost productivity, with few new measures to address the supply side constraints limiting our economic potential, the UK remains somewhat exposed to future shocks, despite the greater fiscal headroom.”

The LLP NIC changes did not go ahead

Among the measures trailed for the Budget was a proposal to extend national insurance contributions (NIC) to members of limited liability partnerships, the favoured model of the vast majority of accounting and audit firms. ICAEW and other professional bodies representing the services sector pushed back on this , and the Chancellor appears to have listened.

“This is a sensible outcome that recognises the vital role LLPs play in supporting growth, innovation, and employment across the economy,” said Vallance.

“Introducing NICs for LLP members would have risked shrinking, not growing, the UK’s tax base - discouraging investment, undermining the competitiveness of professional and entrepreneurialpartnerships, and adding unnecessary complexity to the tax system.

“It is positive that the government has listened to the concerns raised by ICAEW and the wider business community, and has chosen to maintain a stable and proportionate tax environment for LLPs.”

National Living Wage and Minimum Wage increases

From April 2026, the National Living Wage will increase by 4.1%, and the National Minimum Wage will go up by 8.5% for 18-20-year-olds and 6% for 16 and 17-year-olds. The hourly rate for each will be:

• National Living Wage: £12.71
• National Minimum Wage for 18-20-year-olds: £10.85
• National Minimum Wage for 16 and 17-year-olds: £8.00

The accommodation offset will also increase by 4.1%, to £11.10 per day. This will be unwelcome news for businesses already concerned about the cost of employment.

The OBR’s report suggests that, while it expects more firms to absorb the higher costs and reduce profit margins, it “remains too early to draw firm conclusions about our original assumptions”.

Apprenticeships funding

As part of a pledge of an additional £1.5bn for employment and skills support, the Budget includes £725m for the Growth and Skills Levy to support apprenticeships. The Chancellor announced that this would enable the government to fully-fund apprenticeship training in small and medium-sized firms for those under 25-years-old – currently this is offered for apprentices up to 22-years old, with employers contributing 5% of the cost of training apprentices aged 22-25.

The Budget documents also reveal plans to simplify the apprenticeship system and make it “more efficient” as short courses are introduced from April 2026. Reforms suggested include removing the additional uplift to levy accounts and streamlining apprenticeship standards. 

Salary sacrifice pension schemes

The Chancellor’s announcement on salary sacrifice pension schemes is one of the more impactful measures on employers contained in the Budget. NICs relief on salary-sacrifice pension schemes will be limited to the first £2,000 of contributions.

Adelle Greenwood, ICAEW Technical Manager – Employment Taxes and NIC, said that the announcement would disappoint employers, particularly after the employers’ NIC rate increase earlier this year.

“Not only will it add to employers’ NIC bills, it will also make the tax system more complicated for employers to administer and for employees to understand,” she said. “This will add to employer’s NIC bills and also make it more complex for employers to offer a simple and flexible solution for retirement savings.”

Some employees use salary sacrificed pension contributions to manage exposure to the high-income child benefit charge or retain their personal allowance. In those cases, they will need to consider how the changes impact their wider tax and NIC position. Lower paid employees may also question the fairness of the measure, as they face a NIC charge at 8%, compared to 2% for higher-paid employees.

“The changes to salary sacrifice may require changes to employment contracts and benefits packages, using up time and resources that could be better spent contributing to growing the UK’s economy,” said Greenwood. “At a time when there is a pensions commission considering the adequacy of pension saving, this demonstrates a lack of joined-up thinking from the government.”

Despite the potential negative impacts of this, there is time to prepare, as the changes don’t come in until April 2029.

• Read more

Income tax thresholds frozen until 2031

Most of the tax measures announced in the Budget were aimed at individuals, rather than businesses.

The first of which is the further freezing of tax thresholds, with the personal allowance set at £12,570 and the higher rate threshold at £50,270 for a further three years, until April 2031. It effectively means that by April 2027, the full state pension will be £23 below the personal allowance threshold.

With fiscal drag pulling people into the tax system and the higher rate of tax, there is a risk that HMRC will be put under considerable strain, according to Katherine Ford, ICAEW Technical Manager – Personal Tax. “We look forward to seeing the details of the government’s proposal to keep those with only small amounts of tax due on their state pensions out of Simple Assessment in future years. It is important that HMRC has the resources it needs to give taxpayers the help they deserve. We will continue to work with HMRC to ensure that all taxpayers are able to meet their tax obligations in a timely and efficient manner.” 

• Read more on the implications of freezing the personal allowance

Employee ownership trusts and capital gains

Currently, disposals to employee ownership trusts are subject to a 100% capital gains tax (CGT) relief. From today, this relief has been cut to 50%.

Dividend and savings tax rates increase

Tax rates on dividend income will increase by two percentage points at the ordinary and upper rate from 6 April 2026. Savings income will also increase by two percentage points at the basic, higher and additional rates from the same date. The starting rate of savings limit will remain at £5,000 from April 2026 to April 2031.

The “mansion tax”

A new high-value council tax surcharge will come into force from April 2028, on residential properties worth £2m or more, based on updated valuations and in addition to council tax.

Owners of properties worth between £2m and £5m will pay £2,500 a year, with the charge increasing to £7,500 a year for properties valued above £5m.

• Read more on taxes on property, savings and dividends

Government listens on inheritance tax

The government listened to concerns raised by ICAEW, alongside other organisations, on the £1m 100% agricultural property relief and business property relief transferable between spouses.

Individuals whose spouses passed away before 6 April 2026 will also be entitled to an additional £1m allowance. Vallance described this as “a welcome measure that rightly mirrors the existing rules for the nil rate band and residence nil rate band”.

Business rates reformed

In other welcome news, the Chancellor went ahead with some reforms for business rates, something that ICAEW has been calling for several years. The Chancellor announced changes, including:

• A three-year Transitional Relief scheme, partially funded by a 1p Transitional Relief Supplement in 2026/27, and Supporting Small Business schemes from 1 April 2026.
• Two new lower multipliers for eligible retail, hospitality and leisure properties funded by a new high-value multiplier – on large properties such as warehouses – from 1 April 2026.
• Extensions to Greater London Authority enhanced business rates retention arrangements, with pilot Business Rate Retentions running for three years from April 2026 for:
  ○ the West England Combined Authority,
  ○ Cornwall, and
  ○ The Liverpool City Region,.

While it is not exactly what ICAEW asked for, it is a step in the right direction and an area that ICAEW will continue to engage with the government on.

EV vehicle duty plugs fuel duty revenue gap

The introduction of an electric vehicle excise duty (eVED) is a start in replacing declining fuel duty revenues with a new approach to road pricing. It’s not perfect, however – the complex payment method and disparity with fossil fuel taxation could cause the growth in electric vehicle (EV) use to stall.

From April 2028, eVED will be payable at the rate of: 

• 3p per mile by drivers of 100% electric cars; and
• 1.5p per mile by drivers of plug-in hybrid cars.  

Conversely, reversing the 5p fuel duty cut will only add around 0.6p per mile to petrol costs for the average car. 

EV drivers will be required to estimate their annual mileage upfront to calculate monthly payments, with a reconciliation process required at the end of the year to settle under or overpayments. The OBR estimates 440,000 fewer electric car purchases over the forecast period because of the new levy.

“The introduction of the eVED addresses the inevitable decline in fuel duty revenue and is a step in the right direction towards necessary road pricing,” said Ed Saltmarsh, ICAEW Technical Manager, VAT and Customs.

“However, the failure to introduce a corresponding rise in fuel duty shifts incentives away from electric vehicles. To truly drive the green transition, the tax system should be maintaining, if not widening, the gap between electric and petrol running costs.”

• Read more about levies and duties announcements

VAT relief on donated goods

The output VAT charge will be removed on goods donated to registered charities for onward distribution or delivering services. It applies to goods valued up to £100 per item. Essential electrical items, such as laptops and white goods, have a higher threshold of £200. It is limited to donations to registered charities.

“We welcome the move to introduce this VAT relief,” said Saltmarsh. “The existing VAT treatment creates a perverse incentive: businesses face no VAT liability when disposing of goods to landfill but may incur one when donating those same goods to charity. The change being introduced strikes a sensible balance between simplicity and countering fraud.”

• Read more about announced changes to VAT rules

Very little for business

With this Budget, the Chancellor chose to avoid any major reforms, instead choosing to tinker around the edges. Businesses were largely ignored, for better and worse, with no major tax increases on businesses, but little to encourage investment, productivity or growth.

“While the costs of this Budget will be borne by more people paying more tax, in a recent poll our members told us that unless this Budget signalled a clear change of course from the government, it will not be able to deliver the conditions for growth the UK needs,” said Vallance. “This is a necessity for UK plc – we continue to urge the government to realise its growth ambition and support British businesses.”