In its Transforming Business Rates: Interim Report (11 September), the Government confirmed that further announcements on Business Rates reform will be made at the upcoming Budget. These are expected to focus on removing barriers to investment, including:
- A potential marginal tax rate system, where successive bands are taxed at increasing rates .
- Enhancements to small business rates relief and improvement relief
Together, these changes could signal a rebalancing of the business rates burden and support the Government’s broader objective of supporting the high street through a fairer system.
E-invoicing and corporate tax certainty
Businesses are also awaiting updates on the Government’s e-invoicing proposals, following its consultation earlier this year. This initiative could mark a major step forward in modernising business processes and tax reporting across the UK. Organisations should ensure this is firmly on their transformation and change agendas, as it will likely require significant adjustments to processes within tax and finance departments.
Corporate tax has been a central focus for this Government in its efforts to provide businesses with greater certainty. In the Autumn Budget 2024, it published a Corporate Tax Roadmap outlining key commitments, including:
- Capping the headline rate at 25% for the duration of this Parliament
- Maintaining full expensing and R&D reliefs
Further measures to provide additional certainty currently under consultation may be addressed in the upcoming Budget, focused on targeting major investment projects and R&D tax relief. An update is also expected on changes to the transfer pricing regime, including the proposal the Government has recently consulted on to remove the exemption from transfer pricing for medium-sized groups.
This question has dominated the run-up to Budget 2025, and heading into November, the Chancellor’s narrative indicated that she was laying the groundwork for breaking a manifesto pledge and increasing one or more of the three big revenue-raising taxes, given the scale of fiscal consolidation required.
If the Chancellor were to break a pledge, a broad-based income tax rise is seen as the top candidate. A straightforward rise in employee National Insurance (NI) rates is less likely as it would disproportionately affect those that Labour is understood to define as “working people” however, there is increasing speculation that we could see reform to the National Insurance Contributions (NIC) base and associated rates. Increasing VAT rates would be inflationary, making it the least likely option under current economic conditions.
However, in a surprise U-turn on 14 November, The Financial Times reported that plans to break the manifesto pledges via increasing income tax rates (potentially coupled with a reduction in employee NI) had been dropped.
Income Tax
While for now income tax rate rises appear to have been taken off the table, a further freeze in income tax thresholds is an option that has appealed to previous Chancellors and is looking like a likely option this time round too. Its impact builds gradually over time as incomes rise—making it less immediately visible to the public. Importantly, the Government’s manifesto pledge applies only to income tax rates, not thresholds, which gives the Chancellor some flexibility. However, it should be noted in the Autumn Budget 2024, the Chancellor committed to resuming inflation-linked increases to thresholds from 2028–29, so reversing that promise is not without political compromise.
Extending the freeze for two additional years beyond 2028—bearing in mind that thresholds are devolved in Scotland—could raise £7.5 billion, according to the Resolution Foundation. If NI thresholds were also frozen, the IFS estimates that combined this could bring in £10.4 billion annually. However, freezing NI thresholds beyond 2028 may be more politically sensitive: unlike the income tax pledge, the manifesto commitment on NICs was broader and not limited to rates, making such a move more likely to be seen as a breach.
There is also speculation emerging that the Chancellor may opt to go further and lower the income tax thresholds to raise additional revenue.
National Insurance
With businesses still feeling the impact of the employer NI rise announced in last year’s Autumn Budget, a further increase in the employer rate seems unlikely. A direct rise in employee NI rates also appears politically difficult, as it would disproportionately affect “working people” – so could we still see some changes to NI?
NICs and Pension Salary Sacrifice
Speculation has resurfaced around the potential introduction of NICs on pension contributions—a measure previously floated ahead of the Autumn Budget 2024 but ultimately not pursued. Currently, neither employee nor employer NI is charged on income contributed to pensions via salary sacrifice schemes. According to reporting by The Times, the Chancellor is now considering capping the NI-exempt amount at £2,000 per annum.
This proposal aligns with the most positively received scenario in HMRC-commissioned research (January 2024) exploring employer attitudes toward salary sacrifice. Though notably, this research was very narrow in scope and other scenarios tested did not include a threshold, meaning the impact of the others would have been more broadly felt. It is therefore unsurprising that this option emerged as the preferred one among the three tested. Nonetheless, it would be premature to interpret this as broad employer support for the policy.
Such a change is likely to hit those earning under £50k but who chose to make pension contributions above £2,000 particularly hard, since they’d have to pay NICs at 8% on their sacrificed contributions over £2,000, rather than higher earners who would only have to pay 2%. However the bigger hit would fall on employers, who would have to pay 15% Employer’s NICs on the sacrificed contributions over £2,000. Many employers currently choose to pass on these savings to employees in the form of enhanced pension contributions and so this would end, harming pension saving. Some employers may choose to withdraw salary sacrifice arrangements entirely due to the additional complexity and risk, which would also undermine efforts to address the low level of retirement saving in the UK, and reduce the take-home pay of employees.
NICs and Partnerships
Beyond rate changes, the Chancellor could look to broaden the NICs base to increase revenue. One option could be extending NICs to landlords, who currently do not pay NICs on rental income. More recently, there has been speculation that the Chancellor is exploring the idea of applying employer NICs to Limited Liability Partnerships, although on 14 November, The Times reported that this proposal has been dropped. The proposal, reportedly based on work by the Centre for the Analysis of Taxation, would introduce a new “Partnership NICs” regime aimed at aligning the rate of NICs on partnership income with that of employment income.
Since the Budget announcement in early September, there has been a noticeable shift in the Government’s tone. This was reflected in the Chancellor’s November speech, which emphasised that “we will all have to contribute to that effort”—a reference to strengthening public finances. It had appeared the Chancellor was signalling a likely breach of the manifesto; however, in a surprise U-turn on 14 November, The Financial Times has reported that any plans to breach a manifesto pledge have been dropped. Freezing income tax thresholds or potentially going further and lowering them are, however, understood to still be options on the table.
While these options would be a broad-based tax rise and could raise large sums, they are unlikely to fill the fiscal gap alone. Speaking during her IMF visit in Washington, the Chancellor noted that taxing the wealthy would be “part of that story” and reiterated that the Budget would reflect the Government’s “values of fairness”.
A broad-based wealth tax is unlikely—given the Chancellor’s vocal opposition, describing it as a “mistake” and “unproven”—though this does not preclude more focused tax rises on wealth. Potential options include further reform of Inheritance Tax, such as tightening rules on lifetime gifts, introducing an "exit tax" that levies a charge on assets when individuals leave the UK, capital gains tax reform or increases to dividend tax rates.
It’s also expected that the Chancellor will tap into property wealth to raise additional funds. Calls for reforming Stamp Duty Land Tax (SDLT) have been a recurring theme across think tank reports and panel discussions, with critics arguing that SDLT acts as a drag on economic growth. However, while there may be a strong policy case for reform, the revenue implications are highly dependent on the design, and given the scale of the fiscal challenge, it’s uncertain whether the Chancellor has the capacity to pursue such a significant overhaul.
