Budget 2025: the verdict is in: How did our predictions stack up against reality?

Last week we shared six areas we were watching closely ahead of the Budget. While we got a few predictions on the money, and a few others close to it, it’s now time to take stock and see what the reality of the Budget is and what impact it will have on SMEs.

1. Threshold freezes - the biggest stealth tax.  Income tax and National Insurance thresholds are now frozen until 2031 (an extension of three years). This fiscal drag will create an estimated 920,000 more higher-rate taxpayers by 2029-30. For SME owners drawing salaries, this means gradually paying more tax on the same ‘real’ income as inflation pushes earnings upward.

2. Dividend tax hike hits directors hard.  Tax rates will rise, with basic rate going from 8.75% to 10.75% and the higher rate from 33.75% to 35.75% from April 2026. For limited company directors taking dividends (a common tax-efficient strategy), this means hundreds or even thousands more in personal tax annually. Combined with frozen allowances, this is a significant hit to take-home income.

3. Business rates relief - good news for retail, hospitality & leisure. 

Permanently lower rates for more than 750,000 retail, hospitality and leisure premises is a good boost for the sector, despite buildings worth more than £500k facing higher rates. The small business rates relief grace period extends from one to three years when expanding to a second property, which is a genuinely helpful measure for growing firms.

4. National Insurance - no headline changes, but... 

Employer and employee thresholds are frozen until 2031 and the rumoured switch from employer to employee burden didn't materialize as we predicted, although there's now a charge on salary-sacrificed pension contributions, which is expected to raise up to £4.7bn for the Treasury.

5. Property & savings income targeted. 

New separate tax rates for landlords (22% basic, 42% higher, 47% additional) from April 2027 will be a significant hit. Additionally, savings income will incur a further 2% tax across all bands from April 2027. The government's explicit aim of this is to equalise taxation between employment income and "income from assets."

6. Compliance and digitisation accelerating. 

E-invoicing becomes mandatory for all VAT invoices from April 2029. Digital prompts for VAT and Corporation Tax are also coming between 2027-28. Late payment penalties will increase from April 2027 as HMRC becomes increasingly data-driven with new enforcement tools targeting what they call a "£10bn tax gap" from small businesses.

The bigger picture for SMEs:

This Budget delivers the largest medium-term tax rise in recent years - £26bn by 2030/31, hot on the heels of last year's £40bn increase, and the UK tax take will hit an all-time high of 38% of GDP by the end of the decade.

The Chancellor's strategy is clear: equalising tax treatment across different income types (employment, dividends, property, savings) while using threshold freezes as the primary revenue-raising mechanism. It's a "stealth tax" approach that avoids headline rate increases but steadily increases the tax burden.

For SME directors and owners:

• Taking dividends becomes less tax-efficient from April 2026

• Frozen thresholds mean gradual real-terms income reduction

• Increased compliance burden with digitisation requirements

• Some targeted relief if you're in retail, hospitality or leisure or are scaling up

For landlords:

• Significantly higher tax from April 2027

• Combined with existing Section 24 restrictions, many will be pushed into higher tax brackets

For property and savings investors:

• 2% increases across the board from April 2027

• Clear government intent to equalise with employment income taxation

What action should you take?

1. Review your salary/dividend strategy:

With dividend tax rising and thresholds frozen, it's time to model different scenarios for 2026/27 onwards.

2. Plan for compliance changes:

E-invoicing becomes mandatory in 2029. Start considering your accounting software needs now.

3. Explore available reliefs:

Check eligibility for business rates relief if you're in the retail, hospitality or leisure sectors, or the extended grace period if planning to expand premises.

4. Consider timing:

For any significant income extraction or asset disposals, understand the timing implications of April 2026 and April 2027 changes.

5. Reassess finance planning strategies:

What worked in 2024/25 may be significantly less efficient from 2026/27 onwards.

For SMEs, the message is clear: financial strategies will need reviewing, the burden of compliance is increasing, and the steady erosion of thresholds means that real-terms income will decline unless business profits grow to compensate.

Need help navigating these changes? The next few months are crucial for finance planning. We're offering discounted strategy sessions to help SMEs model the impact and adjust their approach for 2026/27.