The 2025 Budget reaffirms the Government's commitment to supporting businesses, particularly SMEs, which are essential to the UK’s economic resilience. Several measures have been introduced to foster growth, innovation, and sustainability, including financial reliefs, investment in digital infrastructure, and new incentives for high-potential industries.
Among the most significant announcements is the continued support for business rates. The three-year Transitional Relief scheme, worth £3.2bn, will provide more generous support to businesses facing significant increases in their business rates bills, particularly in sectors like hospitality and retail. These changes aim to ease the financial pressure on businesses that have been hardest hit by the recent economic downturn.
Supporting innovation and growth in key sectors
The Government is maintaining the previously announced £20.4bn public-sector R&D funding for 2025/26, which supports industries such as pharmaceuticals, high-tech manufacturing and clean energy. This continued commitment provides businesses and research organisations with a stable foundation for long-term innovation, which remains central to the UK’s industrial and growth strategy.
Simplifying taxation for SMEs
For smaller businesses seeking to increase their capital investments, the Government has extended the £1m annual investment allowance. It has also maintained the 100% first-year allowances for zero-emission vehicles and electric vehicle charge points. These allowances provide immediate tax relief, improving cash flow and enabling businesses to make necessary investments in sustainable technologies.
Digital transformation and efficiency gains
In a bid to further ease the administrative burden, the Government is advancing its plans to modernise HMRC's services and improve digital compliance processes. These updates will help reduce the amount of time businesses need to spend on reporting and tax filing. The digital transformation is expected to benefit SMEs by reducing operational costs and enhancing overall efficiency, making compliance easier and less costly.
Mileage-based tax on electric vehicles
As part of the Government’s long-term strategy to address road usage and carbon emissions, a mileage-based tax on electric vehicles (EVs) and plug-in hybrid vehicles will be introduced from 2028. The tax will be set at 3p per mile for electric vehicles and 1.5p per mile for plug-in hybrid vehicles. This new charge is designed to ensure that EV owners contribute to the maintenance of public infrastructure, much like traditional fuel taxes do.
For businesses with electric vehicle fleets or individuals who use EVs as their primary mode of transport, this change could affect their overall tax liability. For example, companies providing EVs as part of employee benefit schemes will need to account for these new taxes when assessing the total cost of providing these vehicles. Additionally, individuals who rely on EVs for personal travel may need to reassess the cost-benefit analysis of owning an electric vehicle versus a traditional combustion engine vehicle.
Other business measures
● Low value imports: From March 2029, at the latest , the duty exemption for overseas parcels worth £135 or less will be scrapped. This helps domestic shops compete against foreign online sellers who've had a tax advantage.
● Gambling duty: Online casino duty nearly doubles, rising from 21% to 40% from April 2026. Online betting duty increases to 25% from April 2027, though in-person gambling and horse racing stay at 15%. Bingo Duty will be abolished.
● Private hire vehicles: Some ride-hailing apps have been paying less VAT by using a loophole meant for tour operators. That closes on 2 January 2026.
● Automotive industry: The automotive industry receives more backing, with the DRIVE35 programme extended and now allocated £4bn to 2035.
● Electric car investment: Businesses can continue to claim the full cost of electric vehicles and chargepoints against tax until March 2027. Eligible chargepoints and EV-only forecourts also now qualify for 10-year 100% business rates relief.
● UK listing relief: Companies floating on UK stock markets get a three-year exemption from stamp duty on share transfers, encouraging more businesses to go public here rather than abroad.
● E-invoicing: From April 2029, businesses must send VAT invoices to other businesses electronically rather than on paper. More details will follow in 2026.
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