Find out how you can navigate the uncertainty better

When Chancellor Rachel Reeves stands to address parliament on Wednesday 26th March, it will be to a very different backdrop from when she delivered her historic first Budget only five months’ previously. 

Even if you don’t agree with the direction or delivery of her policy objectives, as a small business owner or director, you will share an appreciation for how making the key strategic and financial decisions she’ll announce will bring significant and direct consequences for the planning, operations and profitability of every business in the country. 

What was once anticipated to be a routine fiscal update, the confluence of domestic and global factors mean this statement will be more impactful than first thought. 

We’ll look into the potential implications, announcements and changes to Budget decisions to help you plan and prepare for what comes next. 

A mixed economic backdrop

While the UK avoided a technical recession in the final quarter of 2024 thanks to GDP growth of 0.1%, GDP per capita has been in decline for the past two years which will probably reflect the lived experience of many businesses. 

Inflation remains elevated and higher than the Bank of England’s 2% target, driven by factors such as rising transport costs and one-off effects such as VAT being introduced on private school fees. 

Businesses in labour-heavy sectors such as retail and hospitality might also be seeing pre-emptive price rises ahead of increased National Insurance Contributions (NICs) coming into effect in April.

The labour market itself, while showing a relatively low unemployment rate of 4.4% (for the three months up to the end of November 2024) exhibits signs of loosening. Vacancies and the number of paid employees have been declining and the BDO Business Trends tracker employment index has entered contractionary territory for the first time since 2012.

Despite robust earnings growth partly due to the removal of base effects and a rising National Living Wage rate, there are real concerns that this could contribute to increasing unemployment in the short term as firms grapple with higher labour costs. 

Many business surveys indicate that more companies are cutting headcounts at the fastest pace since the global financial crisis (excluding the pandemic period) with the upcoming NICs rise adding to their concerns. 

Global uncertainty with an erratic American leadership and economy coupled with ongoing Eurozone stagnation and potential tariffs also present challenges. 

Finally, the Bank of England’s stance on interest rates, which are now expected to remain higher for longer than previously anticipated, further complicates the existing assumptions and calculations.

The sword of fiscal rules

When times are good, the benefits of adhering to self-imposed fiscal rules is self-evident. 

When the financial weather turns darker however and the anticipated headroom shrinks then, as Anton Chighur noted in No Country For Old Men “If the rule you followed brought you to this, of what use was the rule?”

To recap, the Chancellor has committed to having day-to-day government spending fully funded by tax revenues by 2029/30 (the “stability” rule”) alongside another rule requiring net financial debt to fall as a share of the economy. 

When she delivered the Autumn Budget in 2024, she had a narrow headroom of £9.9 billion against the promise to run a current budget surplus in 2029/30.  As a historically low buffer, this left little room for manoeuvre and recent economic news and developments including potentially weaker than forecast tax revenues and unavoidable upward revisions to borrowing may erode this further to the point where the Institute for Fiscal Studies (IFS) openly suggest that the Chancellor is at risk of failing to meet these self-imposed fiscal targets.

If the Office for Budget Responsibility (OBR) agrees in their updated forecast, released alongside the Spring Statement, then she will face some difficult choices. 

Potential Consequences for your business: Tax Changes

The Chancellor previously stated that there would be no more tax rises on the scale of the Autumn Budget but the Prime Minister later clarified this leaving the door open for further fiscal adjustments. 

Given the fiscal situation, directors and small business owners should be attentive to any tax-related announcements.

  • Employer’s National Insurance Contributions (NICs): The rise in employer NICs scheduled to take effect from April 6th is a concern for businesses and has already been well covered. While it seems late for a reversal of the policy there may be some relief offered regarding this increase potentially in the form of an increased Employment Allowance or a higher threshold before employer NICs become payable. There have also been calls for NIC relief for the charity sector which is facing a significant funding challenge due to this rise. 
  • Inheritance Tax (IHT) Reforms: When the 2024 Budget outlined proposed reforms to agricultural and business relief from April 2026 including a £1 million limit on business property and agricultural property relief, and the effective abolition of the IHT exemption for pensions from April 2027, it caused something of a stir. Again, it’s unlikely that any changes will be announced in the Spring Statement but any indications of movement such as a review or adjustments would have potentially significant implications for family businesses and agricultural enterprises. 
  • Capital Gains Tax (CGT): We’ve written extensively about the big changes coming in for CGT and those attempting to claim Business Asset Disposal Relief (BADR). Again, no changes are anticipated but this doesn’t mean it’s impossible.
  • Fiscal Drag (Frozen Tax Thresholds): Another policy area unlikely to change but it has a direct impact on many small business owners and their employees is “fiscal drag”. This is the continued freezing of income tax thresholds that drags more people into higher tax brackets as their wages rise, even if only in line with inflation. This isn’t a direct tax on businesses but does affect employee net pay, disposable income and future wage demands. Extending the cash-terms freezes to tax thresholds, currently set to expire in April 2028 by a further two years (to 2029/30) could be a potential revenue-raising option for the Chancellor, estimated by the IFS to raise a substantial £10.1 billion in 2029/30.
  • Corporate Tax Consultations: The government’s “Corporate Tax Roadmap” introduced in the Budget, promised several consultations on several issues in 2025. These include areas like “advance tax certainty” for major projects and an advance clearance process for research & development (R&D) reliefs. Additional consultations on international tax rules including transfer pricing, permanent establishments and Diverted Profits Tax are also expected in Spring 2025. While these might happen too late to be included in the Spring Statement, they signal potential future directions in corporate taxation that businesses should monitor.
  • Making Tax Digital (MTD): The rollout of MTD for income tax is scheduled to go ahead in April 2026. There will be further guidance and updates throughout 2025 as we prepare for what is a significant administrative change. 
  • Indirect Taxes: This could be a more eventful year for indirect taxes with potential changes and updates to legislation and policy shifts. Consultations on reforms to remote gambling and moves toward mandatory e-invoicing in the UK (open until May 7th) were announced in the Budget. 
  • Umbrella Companies: The government is prioritising tackling tax non-compliance and is aiming squarely at businesses and individuals operating under so-called “umbrella” companies. Legislation is planned for April 2026 to make agencies responsible for accounting for PAYE on payments to workers supplied via umbrella companies or the end client if no agency is involved. Proactive engagement with stakeholders on these proposals is expected some time this year.

Potential Consequences for your business: Spending plans and the wider economy

Any changes to government spending plans, while not directly taxing businesses, could have indirect but still significant consequences. 

If the Chancellor sticks to her fiscal rules then spending cuts that impact public services will have knock on effects, especially if your firm has contacts with central or local government or relies on these services to operate. 

There is a Spending Review due to conclude in June when departments will find out what changes they have to navigate around. The Spring Statement won’t outline any specific allocations but will indicate an overall direction of travel on spending which could signal future challenges or even opportunities.

Navigating the uncertainty

While there is little directors or business owners can do personally to influence government policy, they still have some agency regarding the outcomes and how they respond to them:

  • Stay informed: Keeping abreast of the news and analysis of any decisions will be a prudent measure – which you can do by reading our regular weekly news round ups or other specific blogs in our Advice Centre.
  • Engage with experts: Your accountants will be fully up-to-date with any impending tax changes and any other financial changes that will impact your business and your bottom line. They will also be able to discuss any implications to your profitability and cash flow as well as looking at scenarios planning to play out how well insulated the business is to ride any sudden storms or deal with any other unforeseen shocks that may come along.
  • Act while you still have time: If you have already decided the next steps for your business, including closing a solvent firm down through a members’ voluntary liquidation (MVL), then you can use this time to act by arranging a free consultation with us. Depending on your ambitions and options, for instance if you’re pursuing an MVL, then it could even be completed and your assets realised before Rachel Reeves delivers her Spring Statement!

While the world may be entering a more volatile and unpredictable period, one thing we’ll consistently do is be available for any business owner or director who wants to know what else they can realistically do for their company during the rest of 2025. 

Get in touch whenever’s most convenient for you and we’ll be able to talk and guide you through your next steps – whether it’s to protect and strengthen your business or if you want to move on to your next venture, close with a minimum of fuss and stress.