Chancellor Rachel Reeves delivered her highly anticipated Spring Budget yesterday, outlining the government’s fiscal plans against a challenging economic backdrop. While the speech contained few direct mentions of small businesses, the budget document details reveal several measures that will impact the UK’s entrepreneurial community.
Economic Reality Check
The economic forecast paints a mixed picture for small business planning. The Office for Budget Responsibility (OBR) has downgraded its growth prediction for 2025 to just 1%, reflecting ongoing challenges in the global economy. However, the outlook improves in subsequent years, offering some optimism for long-term planning.
Small business owners should note these key economic forecasts:
| Year | GDP Growth | Inflation Rate |
|---|---|---|
| 2025 | 1.0% | 3.2% |
| 2026 | 1.9% | 2.1% |
| 2027 | 1.8% | 2.0% |
| 2028 | 1.7% | 2.0% |
| 2029 | 1.8% | 2.0% |
Inflation remaining above target for 2025 means continued pressure on business costs, though the expected decline in 2026 suggests relief may be on the horizon. This could influence decisions about pricing strategies and long-term investments.
On a positive note, real household disposable income per person is expected to grow by approximately 0.5 percentage points annually from 2025-26 to 2029-30, with households projected to be on average £500 better off per year under current policies.
Digital Tax Changes: Clearer Timelines and Higher Penalties
The budget has established definitive timelines for Making Tax Digital (MTD) for Income Tax Self Assessment:
- April 2026: Self-employed individuals and landlords with qualifying income over £50,000
- April 2027: Those with incomes over £30,000
- April 2028: Those with incomes over £20,000
Several groups will be exempt from MTD requirements, including those with Power of Attorney arrangements, non-UK resident foreign entertainers and sportspeople with no other qualifying income, and taxpayers for whom HMRC cannot provide a digital service.
A significant change is that MTD users will now be required to submit their Final Declaration through MTD-compatible accounting software, replacing the previous plan that would have allowed final tax returns through HMRC’s online filing service.
For those running side hustles alongside regular employment, the government plans to explore how to bring the benefits of digitalisation to the approximately four million taxpayers with income below the £20,000 threshold.
From April 2025, penalties for late MTD payments will increase significantly:
- For payments 15-29 days late: 3% of outstanding amount (up from 2%)
- For payments 30+ days late: 3% at day 15 plus 3% at day 30 (up from 2% each)
- An additional 10% penalty per annum on outstanding amounts
These penalties will apply to both MTD for VAT and MTD for Income Tax submissions.
The government has also launched consultations on:
- Improving HMRC’s use of third-party data
- Strengthening action against tax advisers who facilitate non-compliance
- Tackling promoters of marketed tax avoidance
- Simplifying and strengthening HMRC’s penalty regime
The emphasis on increased penalties and enforcement feels misaligned with the entrepreneurial spirit that drives our economy. Most self-starters aren’t looking to evade taxes – they’re simply trying to build successful businesses while navigating increasingly complex compliance requirements.
National Insurance and Employment Changes
The Chancellor confirmed that previously announced National Insurance changes will proceed as planned. From April 6th:
- Employers will pay NI on workers’ earnings over £5,000
- The employers’ NI rate will rise from 13.8% to 15%
- The Employment Allowance will increase to £10,500
- The £100,000 upper eligibility threshold for Employment Allowance will be removed
These changes will impact small business employers’ calculations for staff costs and payroll planning.
HMRC Enforcement and Tax Compliance
The government is significantly expanding tax enforcement with:
- 500 new HMRC compliance staff and 600 debt management staff
- £87 million investment in partnerships with private debt collection agencies
- A new reward scheme for tax evasion informants, modeled after US and Canadian systems
- Joint action between HMRC, Companies House, and the Insolvency Service to tackle “phoenix companies” that use insolvency to evade tax obligations
High Income Child Benefit Charge Simplification
From summer 2025, employees earning over the £60,000 threshold who receive Child Benefit will be able to report and pay the High Income Child Benefit Charge through PAYE, eliminating the need to register for Self Assessment solely for this purpose. This will simplify administration for affected small business owners and employees.
Business Rates Reform Takes Shape
Retail, hospitality, and leisure businesses face a significant change, with business rates relief reducing from 75% to 40% after March 31 for the 2025/26 tax year, subject to a £110,000 cap per business.
Looking ahead, the government has promised an “interim report” this summer outlining “a clear direction of travel for the business rates system,” with more detailed policy announcements expected in the Autumn Budget.
The longer-term outlook is more positive, with plans for “permanently lower” business rates for retail, hospitality, and leisure properties from 2026/27. This change will be funded by introducing a higher multiplier for the most valuable properties, including distribution warehouses used by major online retailers.
Growth Initiatives: Infrastructure and AI
The Chancellor’s focus on economic growth includes several initiatives that could benefit forward-thinking small businesses:
A £3.25 billion Whitehall “transformation fund” will drive efficiency across government departments and invest in AI to improve productivity. This signals continued government commitment to digital transformation, potentially creating opportunities for tech-focused SMEs.
Infrastructure investment remains a priority, with an additional £2 billion allocated for social and affordable housing. The government’s planning reforms are expected to boost the economy by £6.8 billion over five years and support the construction of more than 1.3 million new homes.
This construction push is backed by a substantial skills package:
- £100 million to support 35,000 construction-focused skills bootcamp places
- £40 million for up to 10,000 additional places on new construction foundation apprenticeships
- £100 million to establish 10 new technical excellence colleges specialising in construction across every region in England
For small construction firms, the Construction Industry Training Board (CITB) is doubling its New Entrants Support Team program to help employers recruit and retain apprentices.
Defence Procurement: New Opportunities
One of the brightest spots for small business suppliers is the increased defence budget. The Chancellor announced a £2.2 billion increase for 2025-26, with specific measures to cut procurement bureaucracy and help small businesses win contracts.
The budget document acknowledges past challenges: “For too long innovative companies and start-ups have struggled to engage with and see a pathway to scale through a slow and confusing MOD innovation landscape, which in turn makes it hard for these companies to secure the necessary investment to grow.”
To address this, UK Defence Innovation (UKDI) will launch in July 2025 with a £400 million budget to “enable innovative technology to rapidly progress from idea to the front line.” Additionally, UK Export Finance direct lending capacity for defence exports will increase by £2 billion, bringing overall lending capacity to £10 billion.
Tax Relief and R&D Consultations
The government plans to hold roundtables with venture capital firms, entrepreneurs, and other stakeholders in April to discuss the role of tax reliefs in supporting business growth. This includes reviewing key schemes such as:
- Enterprise Management Incentives (EMI)
- Enterprise Investment Scheme (EIS)
- Venture Capital Trust Scheme
For innovative businesses, a new consultation on “widening the use of advance clearances in R&D tax credits” aims to reduce error and fraud, provide certainty to businesses, and improve the customer experience.
The government has also temporarily exempted numerous goods from tariff duty “to avoid unnecessary costs for UK businesses,” including plywood and various foodstuffs, with these exemptions lasting until June 2027.
What’s Missing?
As an accountant reviewing this budget, I note a gap in direct entrepreneurial support measures. While the Statement introduces important tax administration changes, it provides few specific growth incentives for small businesses. Given entrepreneurs generate approximately 60 percent of UK employment, a more balanced approach pairing compliance requirements with growth support would have been beneficial. My clients will need to focus on sector-specific opportunities while preparing for the enhanced tax enforcement regime.
The focus on getting people back into work was seen as positive, but questions remain about where these jobs will come from if small businesses aren’t supported to grow and create opportunities.
Looking Ahead
Small business owners should mark their calendars for the Autumn Budget later this year, when more detailed policy announcements are expected, particularly regarding business rates reform.
In the meantime, preparation is key – especially for the upcoming tax changes and potential opportunities in defence procurement and construction. While not a small business-focused budget, forward-thinking entrepreneurs can find opportunities amidst the broader economic plans.
As the government pursues its ambition for the UK to achieve “the highest sustained growth in the G7,” small businesses remain essential to realising this vision – even if this Spring Budget didn’t place them centre stage.
