With weeks of speculation on what taxes would be affected, the Chancellor delivered her second budget to a heckling opposition. Rachel Reeves was not off to the best start, with her Budget 2025 proposals being leaked early by the OBR 40 minutes prior to the Chancellor delivering to the House of Commons.
Almost a year on, the hospitality sector has been hit again! The latest measures are only going to further damage the sector. Previous increases in employers’ National Insurance have already had a major impact. The latest increases in minimum wage and alcohol duty, in line with the retail price index from 1 February 2026, are only going to hit the sector harder. Pubs are closing on a daily basis, and the government has done little to help this.
Although inflation dropped in October, the cost of everyday items such as food only seems to be increasing. minimum wage is rising in April by 4.1% from £12.21 to £12.71 for over 21-year-olds. As a result of the frozen personal allowance and the freezing of tax thresholds, more people will be pushed into higher tax bands. Labour has always said that it supports the working class; however, this change will impact individuals up and down the country.
As a saver, the reduction in the ISA allowance from £20,000 to £12,000 and the increase of 2% meaning as a basic rate taxpayer, 22% tax is payable and 42% for higher rate taxpayers. This comes into effect from April 2027. This is a further hit to savers looking to put by for the future.
I have considered an electric car in the past and the new tax from April 2028 that comes into effect of 3p every mile. The government previously made electric cars a tax incentive in order to reduce carbon emissions. It is believed the new tax will be like self-assessment when the road tax is renewed. When the road tax is renewed, you will be required to declare expected mileage in the forthcoming year and pay up front. On the next renewal of road fund license, you will then be required to declare your actual mileage and either pay or be credited with the under/over mileage. This is also expected to be monitored when the annual MOT is carried out. How will this work with new cars which don’t have an MOT in the first 2 years? With range anxiety still a concern for many, is a hybrid model a better alternative? Plug-in hybrids will be charged at 1.5p per mile.
Before the budget, there was much speculation regarding dividend rates and thresholds. The increasing dividend rates by 2% from 8.75% to 10.75% for basic rate taxpayers and from 33.75% to 35.75% for higher rate taxpayers means that a limited company does not have as many benefits as previously. Those sole traders or partnerships that were thinking of incorporating may think again. Consideration will need to be made to ensure that a Limited company is the most tax-efficient way of extracting funds. There were minimal changes to Corporation tax.
With Making Tax Digital just around the corner, I am interested to see how the proposed £59m investment in new technology to provide taxpayers with real-time prompts for taxes, including VAT, will work.
If you need any guidance on how Budget 2025 will affect you, please do not hesitate to contact us.
Disclaimer
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.