Following a three-month run-up, filled with speculation about the size of the deficit and rumours running rife as to which levers the Chancellor would pull to fill it, the biggest shock of Budget day turned out to be the OBR’s leak of its analysis 45 minutes before she stood up. As a result, most of her key announcements had been reported before Prime Minister’s Question Time ended.

Autumn Budget 2025 - an exercise in can kicking

The Autumn Budget also gave no extra incentive for the Bank of England to cut interest rates further or faster than previously assumed. The lack of any growth-boosting reforms and the reliance on hikes in smaller, distortionary taxes with uncertain yields, also raise the odds we face another ‘tough’ budget within a couple of years.

Markets give the Autumn Budget a cautious thumbs-up

Despite the high degree of backloading, which elevated the risk 2025’s Autumn Budget wouldn’t be seen as credible, the gilt market’s mildly positive reaction means Rachel Reeves’s second Budget seems to have passed the financial markets’ ‘sniff test’.

Gilt yields have already dropped from their recent 4.6% peak a week ago to 4.42% by Wednesday evening. The risk now is that initial positive market reactions wane over the next few days and weeks as more details from this complex Budget become clearer.

OBR growth downgrade unwelcome, but overdue

One thing helping the Chancellor on Wednesday were the growth forecast downgrades not being nearly as bad as expected.

As widely trailed, the OBR cut its productivity forecast by 0.3ppts to 1% per year over the forecast period. This was long overdue given the OBR’s history of over-optimism on productivity growth.

It brings the OBR’s forecast for GDP growth down to 1.5% per year – in-line with our view of the UK’s trend rate of growth – and would have cost the Chancellor around £16bn in headroom.

The Chancellor will be feeling relieved that stronger – and tax-receipt-boosting – pay growth relative to the OBR’s March forecast will offset most of this deterioration. The OBR in its latest forecast also now expects growth to be more 'tax-rich' because labour income is taxed more heavily than corporate profits. All told, it means the public finances deteriorated by around £6bn instead of the rumoured £20bn.

The smaller-than-anticipated downgrade to the fiscal outlook gave the Chancellor space to more than double her headroom and avoid a significant fiscal tightening in the near-term. In fact, the Budget will actually boost demand by 0.1% next year.

MPC less likely to cut rates

Stronger growth in the near-term means economic pain will be delayed. However, it also reduces the chances the Monetary Policy Committee (MPC) cuts interest rates next year further than we had expected.

Admittedly, the OBR expects inflation to average 2.5% in 2026 and government policies are set to reduce inflation by around 0.3ppts. While last year’s regulated price hikes will persist into Q1, initially keeping the inflation rate higher at the start of 2026, inflation will fall below 2.5% for the rest of the year.

The MPC will most likely look through such one-off downward impacts and focus instead on underlying inflation, which will likely be stickier. As a result, we maintain our call for interest rates to end next year at 3.5%.

UK public finances remain on an unstable footing

Looking at the public finances in detail, we think the Autumn Budget looks far less credible than the headlines would suggest. There are a few reasons why.

First, focusing on a smorgasbord of smaller taxes, which are likely to be distortionary and some of which have highly uncertain behavioural impacts and revenue yields, raises the chances that tax revenue disappoints. Indeed, the OBR judges around £4bn of policy measures to have highly uncertain yields. Measures such as levying NICs on salary sacrifice pensions lose a significant portion of revenue to behavioural effects in the long term.

Second, there was little in the Budget to put the public finances on a more sustainable footing in the long run. Spending is projected to be higher as a percentage of GDP than it was back in March, largely due to more generous welfare spending.

Third, there were also no new measures announced in the Budget geared towards boosting the UK’s long-term growth rate, despite the Government’s rhetoric. This sentence from the OBR document is telling: “We have assessed that none of the policy measures in this Budget have a sufficiently material impact to justify adjusting our post-measures potential output forecast."

What’s more, the Government still needs to find a way to raise defence spending further. Indeed, with little willingness to curb spending and no signs that the underlying causes of slow growth will be addressed any time soon, we’re likely facing another big tax-raising Budget before long.

Income tax

Despite much speculation, in the end, none of the big personal tax changes which received so much airtime before the Budget materialised, but there were still some surprises along the way. The main personal tax impacts of the Budget are concentrated around income tax on investors and inheritance tax, with the latter mostly having a positive impact. Landlords and cash investors in particular have some thinking to do.

While the Chancellor did not increase the main income tax rates, the freezing of the personal allowance and income tax thresholds until 2030/31 will raise around £7.5bn by 2030 by dragging many more people into income tax and at higher rates. Investors who prefer to hold their wealth in cash, face the double whammy of the reduction in the cash ISA subscription limit from £20k to £12k a year (for the under 65s), combined with the 2% increase in the rate of income tax on non-ISA savings to 22%/42% and 47% for the basic, higher and additional rates respectively.

The basic and higher dividend tax rates are also rising by 2% to 10.75% and 35.75%. The additional rate remains at 39.35%. Shareholders with their own companies may want to review their mix of remuneration as a result while unchanged. Some may even wish to consider restructuring their structure to a partnership, for example, subject to other considerations.

Landlords resident in England and Northern Ireland will be see a 2% increase in income tax rates on property income at all levels to 22%, 42% and 47%. Mortgage interest relief will increase to 22%. Landlords in Scotland and Wales will need to wait for further details as to whether they will face similar tax increases.

Individuals making investments that qualify for income tax relief for venture capital trusts (VCTs) will only qualify for relief at a rate of 20% rather than the current 30% from 6 April 2026.

Overall, the changes individually could appear to be relatively minor, but when combined they will increase the complexity and the tax burden for affected individuals.

Taxes on ‘wealth’

One of the highly trailed announcements from the Budget was the introduction of a ‘mansion tax’. This will be introduced under the less catchy name of high value council tax surcharge (HVCTS) and will apply to properties valued above £2m, based on 2026 values. Charges will apply from 1 April 2028 and start at £2.5k per year for properties worth £2m–£2.5m, rising to £7.5k per year for properties valued above £5m. The charge will be levied on property owners rather than occupiers. There will be consultation on the details and implementation of the new tax including a support scheme for those who are unable to pay the charge.

The inheritance tax (IHT) nil-rate bands, already frozen until 5 April 2030, will remain fixed at these levels for at least a further year until 5 April 2031, with the nil rate band remaining at £325k and the residence nil rate band remaining at £175k. There was much pre-Budget speculation around further changes to IHT, particularly around gifting, but there were no other major announcements in this area.

Despite hopes that changes to IHT business property relief (BPR) and agricultural property relief (APR) announced at Autumn Budget 2024 might be softened, there appears to have been only one concession. As previously announced, with effect from 6 April 2026, the BPR and APR 100% allowance will only apply to the first £1m of value. However, the Chancellor has announced that any unused proportion of this allowance will be transferable between spouses and civil partners. The allowance will also be fixed at £1m for a further year until 5 April 2031.

There will be a very limited relieving provision for non-UK resident trusts settled by non-UK domiciled individuals which are brought within the scope of UK IHT by virtue of the settlor becoming ‘long term UK resident’. Broadly, the provision limits the tax charge in respect of ten-year anniversary and exit charges to £5m where certain conditions are met. Given that the tax charge on these occasions is set at a maximum of 6% of the value of the property in trust, this is likely to impact only a very limited number of trusts.

There are also some minor technical changes around inheritance tax for internationally mobile individuals.

Changes to the residence-based tax regime

HMRC has published legislation amending the new rules for formerly domiciled individuals announced at Budget 2024. These amendments will apply retrospectively and may impact payments of benefits out of offshore trusts both in 2024/25 and for the current tax year. Individuals who have received a benefit from an offshore trust or trustees considering making such a payment should seek further advice.

Amendments to the temporary repatriation facility may impact the amounts which can be remitted without an additional tax charge. Other amendments may create a tax charge on dividends or other non-UK resident company payments received while temporarily non-resident.

Encouraging entrepreneurial investment

As part of its growth strategy, the Government recognises the importance of entrepreneurs to the economy. It has set out actions being taken in areas such as research and development (R&D), public investment and tax in a report published into ‘Entrepreneurship in the UK’, published alongside the Budget. The Government has also published a call for evidence on tax support for entrepreneurs, seeking the views of founders, investors, and other stakeholders on what works and what doesn't. The focus is on reliefs such as business asset disposal relief and the enterprise investment scheme (EIS) and venture capital trust scheme (VCT), as well tax-advantaged share schemes, but also asks what else the government could do to encourage entrepreneurial behaviour.

Stability and predictability

This was a relatively quiet Budget for business tax measures, reflecting the Government’s commitments to provide businesses certainty and predictability on tax, along with stability on inflation to support long-term planning and investment decisions. Many businesses will wish that the Government’s commitment to stability in corporate taxes could be matched in employment tax. Changes to salary sacrifice pension contributions rules could significantly increase costs of employment and add further administration, on top of changes to employers’ national insurance contributions (NIC) at Autumn Budget 2024.

The Budget builds on progress since the launch of the UK’s industrial strategy in June 2025, which sets out a 10-year plan to increase business investment and grow industries of the future in the UK, which include: advanced manufacturing, clean energy, creative, defence, digital and technology, financial services, life sciences, and professional and business services.

However, new tax measures do not appear to be a significant part of the strategy for achieving the targets that have been set. Instead, the Government hopes the commitments set out in the Corporate Tax Roadmap, published in October 2024, will provide the stability and certainty needed to boost investment. It has stayed true to these commitments, making only targeted changes to the capital allowances rules.

This means that the UK corporate tax rate remains fixed at 25% maintaining the lowest headline corporation tax rate in the G7. The Government has also pledged to retain valuable reliefs such as full expensing for most plant and machinery investments by companies, research and development (R&D) tax relief, and the patent box.

Changes to capital allowances

The Government will introduce a new 40% first year allowance effective from 1 January 2026, for main rate expenditure on new and unused assets other than cars. This will be relevant for expenditure on assets for leasing and expenditure by unincorporated businesses, which do not qualify for full expensing. From 1 April 2026 for corporation tax and 6 April for income tax, the main rate of writing-down allowances will reduce from 18% to 14%. This will be particularly relevant in relation to second hand assets and cars, and for those with significant carried forward capital allowances pools.

Targeted support

One of the Government’s stated aims is to make it easier for entrepreneurs to start, scale and stay in the UK and the Budget aims to incentivise this. For start-ups, the limits applicable to the enterprise investment scheme (EIS) and venture capital trust (VCT) regimes are being expanded, which should help more companies seeking new investment to raise money through the tax benefits those regimes offer. Meanwhile, a call for evidence has been announced considering tax support for entrepreneurship in the UK, which will consider further changes to the EIS and VCT rules, as well as tax advantaged employee share schemes and business asset disposal relief.

One key measure affecting companies at the other end of their growth journey is a new three-year stamp duty reserve tax exemption for newly UK listed firms.

The high street will also benefit from permanently lower business rates for retail, hospitality and leisure. This will be funded by higher rates for the most expensive properties such as warehouses used by large online retailers.

Tax administration and technical changes

The Government provided additional information on a number of measures which aim to provide certainty, simplify administration.

An advance tax certainty regime will be launched in July 2026 for major investment projects. This will only be available where the relevant project is expected to cost more than £1bn. For smaller businesses, a pilot for an expanded advance assurance scheme in respect of R&D claims was also confirmed.

Following consultation in early 2025, the Government will legislate to simplify the taxation of related party transactions, non-resident companies with branches in the UK, and profits diverted from the UK, with changes generally taking effect for chargeable periods beginning on or after 1 January 2026. There will, however, be a new administrative requirement requiring in-scope businesses to complete and file a schedule of cross-border related party transactions to HMRC for accounting periods beginning on or after 1 January 2027. The Government is not proceeding with a proposal to remove the exemption from transfer pricing rules from medium-sized companies.

The Government will also legislate to simplify administration in relation to reporting companies under the UK corporate interest restriction rules. Most of the changes take effect for periods ending on or after 31 March 2026.

One further point that the keen eyed might have spotted is that the proposed increase in the basic rate of income tax that applies to savings income, from 20% to 22%, will impact the rate of withholding tax that businesses are required to apply when making certain interest payments. This will take effect in April 2027.

Closing the tax gap

There is further focus in this Budget on closing the tax gap by pursuing those who are non-compliant and accelerating the collection of corporate taxes.

There have been several measures to tackle non-compliance, meaning more care is needed by business to document and support the positions taken. Key announcements include:

• A range of new powers to tackle fraud.
• Consultations on new reporting requirements for transactions between close companies and their shareholders, and changes to the uncertain tax treatment notification requirement.
• The Government will also double the penalties for taxpayers submitting a corporation tax return late from 1 April 2026.

Capping national insurance contributions (NICs) relief on pension salary sacrifice arrangements

From April 2029, NIC relief on pension contributions under salary sacrifice arrangements will be limited to contributions of £2k per tax year. Contributions over this cap will be subject to both employer and employee NICs at the standard rates. Tax relief for pension contributions remains unchanged.

For the estimated 50% or more of UK employers who offer pension salary sacrifice arrangements, this will result in both additional cost and complex payroll operation considerations.

By way of practical and contrasting examples:

• Employee A earns £40k and sacrifices 5% into pension, in line with the auto-enrolment minimums. This equates to a £2k sacrifice, meaning the employer and employee have no NICs to pay.
• Employee B earns £60k and sacrifices 5% (£3k). The employer has to pay 15% of £1k (£150) and the employee 2% (£20) in NICs.
• Employee C earns £35k but wants to save more for retirement, so sacrifices 20% (£7k) into pension. The employer has to pay 15% of £5k (£750), and the employee will pay 8% (£400).

In the run up to April 2029, employees may wish to increase the amount they sacrifice to take advantage of the unrestricted NIC relief currently available generating savings for both employees and employers. However, the Chancellor missed an opportunity to help employees paid close to or at the national minimum wage (NMW), who still cannot benefit from the pension salary sacrifice.

Employee benefits

Add-on rate to electric vehicle excise duty (eVED) for electric vehicles (EV)/plug-in hybrid vehicles (PHEVs)

From April 2028, an eVED charge will be levied on EVs and PHEVs, to be based on their mileage.  It is understood that mileage will need to be estimated and reconciled each year, with a pence-per-mile payment of 3p due in respect of EVs and 1.5p for PHEVs.  For employees in a company car, this will be an additional cost to the employer, who will need to know the employees’ mileage each year, estimated and actual, but we do not expect the eVED to give rise to any additional benefit in kind charges as it should be treated in the same way as the standard VED, as part of the company car benefit.

Employees in their own cars travelling on business will likely look to their employers for reimbursement of the eVED and will therefore need to maintain adequate records for the purpose. It is likely that HMRC will need to agree that employers can reimburse these costs and the process to do so, without an earnings charge arising. Alternatively, employees may claim mileage relief as they do for fuel/electric costs. We would hope that HMRC increase the mileage rates accordingly to include the charge.

PHEV benefit in kind easement

New PHEV emissions standards were introduced on 1 January 2025. Measures are to be introduced to ensure that an employee provided with an eligible PHEV before 5 April 2028 will not be impacted by increases in benefit in kind charges as a result of these emissions standards.

Reimbursed costs for qualifying expenses such as eye tests

In a welcome move it has been confirmed that from 6 April 2026 the exemptions for qualifying employee eye tests, home working equipment and flu vaccinations will apply to reimbursed expenses, as well as situations where the employer contracts directly with the provider.

Homeworking allowance

From 6 April 2026, employees will no longer be able to claim tax relief on additional household costs under general expense rules where they are required to work from home, and their employer does not reimburse such costs. The Government have cited high levels of non-compliance as the reason behind this move.

Importantly, the separate exemption under which employers can reimburse the actual additional cost of eligible homeworking expenses or, more commonly, pay a tax and NIC free homeworker allowance of £6 per week/£26 per month where an employee works from home under homeworking arrangements, is unaffected by this announcement.

Car ownership schemes (ECOS) – changes delayed

Autumn Budget 2024 announced that cars offered through ECOS would be subject to company car benefit rules from April (then October) 2024. After much consternation in the automotive sector, these rule changes have now been delayed until April 2030.

Transitional arrangements will apply for employees with an ECOS vehicle prior to April 2030 until the earlier of the end of April 2031 or the end of their arrangement. In practice, most cars provided under ECOS remain with the employee for no more than 12 months.

This is a welcome relief particularly for manufacturers and retailers, as well as other employers who offer ECOS to staff, and gives employers time to consider alternative arrangements for providing cars to employees. It also enables the popular nearly new car market, which trade bodies had feared would be adversely impacted had the changes gone ahead when planned, to continue unaffected, at least in the short term.

Share schemes

Enterprise management incentive (EMI)

For qualifying companies, the EMI scheme has been amongst the most tax efficient means of incentivising staff for over 20 years. EMI schemes have been targeted at small and medium sized growth businesses.

The scheme allows companies to provide their employees and executives with tax advantaged share options. If the business value grows, the employee can exercise their share options, acquire shares and sell them. The gains they make are subject to capital gains tax, not income tax. This can mean tax at just 18% at 2026/27 rates, comparing very favourably with income tax rates. This highly attractive tax rate is intended to enable smaller growth companies to attract and retain high performing employees to boost growth. The scheme has historically had strict rules on the size of business which can qualify and the maximum awards that can be made.

Alongside relaxing the very similar rules on investment reliefs (in the form of EIS) for these companies, Autumn Budget 2025 has introduced a welcome increase to the EMI qualifying limits, permitting qualifying trading companies with up to 500 employees (up from 250) and up to £120m of gross assets (up from £30m) to use these schemes. These changes will significantly increase the number of companies and employees that can benefit.

Businesses  with higher employee numbers, such as those in the hospitality sector, and more capital-intensive businesses, such as manufacturers, are more likely to be able use an EMI scheme to incentivise their people. Tech businesses may now be able to use EMI schemes to better compete for talent on the global stage. As a result of these changes a significant number of listed companies may also now qualify.

Employee ownership

Employee ownership is a potentially tax efficient method of selling a company to the employees of the business via a trust; well-known examples include John Lewis, Richer Sounds, and The Entertainer. This is an increasingly popular succession route for business owners of all sizes, which has been encouraged by a generous tax relief.

The capital gains tax relief on the qualifying sale of a company to an employee ownership trust (EOT) has been reduced in the Budget from 100% to 50%, effective from the 26 November 2025. This change is likely to make EOTs less attractive for many business owners, particularly in transactions where only limited cash would be received upfront. Despite this, EOTs remain a very attractive form of succession planning for business owners, in effect reducing the tax rate from 24% to just 12%, which remains one of the lowest tax rates in the UK tax system.

Selling to an EOT as part of succession planning also offers other tax and non-tax related benefits, such as the tax-free bonuses available to employees though an EOT of up to £3.6k per year. EOTs are often attractive for formerly family-owned businesses and other companies where legacy and workforce engagement are important factors to the seller. For many business owners, succession can often be a multi-year project, and a further advantage of an EOT remains that it can provide owners with much more flexibility over when they step back from the business than alternative exit routes. However, as a result of this restriction, and combined with the inheritance tax changes announced last year, there is no doubt that the landscape is now increasingly complex for business owners considering succession.

Miscellaneous measures

Construction industry scheme (CIS)

The Government has announced regulations, subject to consultation, on simplifying and improving the administration of the CIS scheme which will take effect from 6 April 2026. It has also been announced that Government will strengthen HMRC powers to tackle fraud within the CIS.

Tackling non-compliance in the umbrella company market

As previously announced, new legislation will be introduced from 6 April 2026 to tackle non-compliance in the umbrella company market. Under the proposals, UK recruitment agencies sourcing workers via umbrella companies will be joint and severally liable for the PAYE/NIC on payments to workers. Where there is no agency involved and a business contract directly with an umbrella company, that business will itself be joint and severally liable for the PAYE/NIC due. Businesses should therefore ensure that they undertake appropriate due diligence on their labour supply chains to identify where there may be increased risk from 6 April 2026.

Small and medium-sized enterprises (SMEs )

The Government has announced that as part of its investment in employment and skills support, £725m will be allocated to the growth and skills levy to help support apprenticeships for young people, including a commitment to fully fund SME apprenticeships for eligible people under 25.

The Budget was a reasonably low-key affair for VAT. There were no wholesale changes to the VAT base (no new zero rate for domestic fuel) and no dramatic changes to the VAT registration threshold.

Electronic invoicing

The Government has confirmed that all VAT invoices must be issued in a specified electronic format from April 2029. This marks a significant step towards modernising the tax system and improving compliance. An implementation roadmap will be published in next year’s budget, following a period of detailed collaboration with stakeholders that will start in January.

This announcement aligns with continued movement toward e-invoicing in other countries. For a change as substantial as this, April 2029 is closer than it may seem and, in our experience, it is best to consider the associated challenges as soon as possible.

The Government expects e-invoicing to deliver substantial benefits to both businesses and HMRC, including greater efficiency, reduced administrative burdens, and improved tax compliance. International experience shows that e-invoicing has significantly impacted on closing the tax gap and improving revenue collection. For businesses, the technology promises enhanced productivity and cash flow, while supporting HMRC’s goals of better compliance and reduced errors.

Research indicates that e-invoicing use can reduce late payments by 20% and efficiency savings could deliver a return to small firms of more than double their investment in e-invoicing within two years.

The Government that mandating e-invoicing for all VAT invoices will ensure the adoption of compatible systems and encourage widespread uptake, maximising the benefits to all users.

From January 2026, HMRC and the Department of Business and Trade will work with stakeholders including businesses and software providers, to develop the policy and approach. RSM will be participating in this process.

Uber and Bolt – changes to the tour operators margin scheme

From January 2026, private hire vehicle operators (PHVOs) who are required by their licence to operate as principals (such as many of the popular platform ride hailing operators) will have to charge VAT on their services.

Prices are likely to increase for consumers, although it means that businesses whose staff are using such providers for business trips may be able to reclaim VAT on expenses.

There are cases currently going through the courts about whether ride hailing platforms should apply the tour operators’ margin scheme to their services. However, given the amounts at stake (estimated at £0.7bn annually across the sector), the government has decided to legislate without waiting for these cases to conclude. The measure does not represent a policy change but reflects how HMRC have always viewed the treatment of such services. PHVO's that operate as an agent of the driver or traditional tour operators who provide taxi journeys as part of a travel package should not be affected.

Other announcements included:

• Skandia – a return to the UK’s old approach to whole entity VAT grouping, representing a departure from EU orthodoxy.
• Motability – reform will limit VAT relief on more expensive vehicles.
• Gifts to charity – introduction of a new VAT relief for businesses that donate goods to charities.

Other indirect tax measures

By contrast, there were significant changes to other indirect taxes.

Gambling duty changes

The Budget announces several changes to gambling duties. Remote gaming duty will be increased from 21% to 40% from April 2026 (when bingo duty will be abolished), and a 25% general betting duty for remote betting will be introduced from April 2027.

Gambling companies will have to assess how much of the increases will be passed on to customers in the form of reduced payouts.

Electric vehicle excise duty (eVED)

The ever-increasing popularity of electric vehicles means ever-decreasing fuel duty receipts for HMRC (expected to halve by the 2030s). Autumn Budget 2025 addressed this by announcing an eVED of 3p per mile (1.5ppm for hybrids) from 2028, which is expected to cost motorists around half the amount paid by people using petrol or diesel vehicles.

eVED will be paid by reference to estimated mileage and adjusted when it is checked each year (where possible, as part of the MOT). The Government will consult on the details of this charge, which it says will only apply to cars, with other vehicles such as vans, HGVs and motorcycles not in scope ‘upon its introduction in April 2028’ – leaving the door open for changes to this policy in the future.

Fuel duty

The temporary 5p fuel duty cut, in place since 2022 and due to expire in March 2026, will be extended to September 2026 and reversed over a 7-month period.

The freeze in fuel duty, in place since 2011/12, will begin to rise in line with the retail price index once again from April 2027.

‘Milkshake tax’

In comparison with the above, some other measures which capture the attention are relatively low value. The ‘milkshake tax’ and associated changes to the soft drinks industry levy is predicted to raise only £40m annually, reinforcing the view that the Government intends this levy to safeguard public health rather than raise revenue as a type of sin tax.