This is a summary of the key tax and accounting-related announcements from the UK Budget 2025 (delivered on November 26, 2025).
The overall theme of the Budget is a significant increase in the UK’s tax burden, primarily through a combination of threshold freezes and targeted tax rises, designed to address the public finance shortfall and increase fiscal headroom.
Tax Implications
The major tax measures largely focus on personal tax, pensions, property, and capital allowances for businesses.
1. Personal Tax & Individuals
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Income Tax Threshold Freeze Extension (Fiscal Drag):
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The most significant revenue-raising measure is the extension of the freeze on Income Tax thresholds (Personal Allowance, Basic Rate limit, Higher Rate limit) for a further three years until 2030-31.
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Impact: As wages rise, more individuals will be dragged into paying tax for the first time, and more basic rate taxpayers will be pulled into the higher rate bracket (a phenomenon known as “fiscal drag”).
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Dividends Tax:
- The basic and higher rates of Dividends Tax are set to increase by 2% from April 2026.
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High-Value Property Surcharge (Council Tax):
- A new Council Tax surcharge will be introduced for residential properties valued at £2 million or more from April 2028. The tax will be banded, with higher value properties facing a higher charge.
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Electric Vehicle Tax:
- A pay-per-mile tax on electric vehicles (EVs) will be introduced from tax year 2028/29 to address the reduction in fuel duty receipts as more drivers switch to EVs.
2. Pensions & Savings
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Salary Sacrifice Pension Contributions:
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From April 2029, salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from National Insurance Contributions (NICs).
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Impact: This reduces the NI savings for both employers and employees on higher salary sacrifice amounts, potentially making the arrangement less attractive for higher earners.
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Cash ISA Limit Cut:
- The annual subscription limit for Cash Individual Savings Accounts (ISAs) is expected to be cut from £20,000 to £12,000. The overall ISA limit remains £20,000, encouraging a shift towards investment (Stocks & Shares) ISAs.
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Inheritance Tax (IHT):
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Payments from inherited blood compensation will be free from IHT.
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There are also technical amendments and anti-avoidance measures relating to non-long-term UK residents and trusts.
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3. Business Tax
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Capital Allowances (Writing Down Allowance):
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The main rate for the Writing Down Allowance (WDA) on capital expenditure for Corporation Tax purposes is being reduced.
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Impact: This will slow down the rate at which businesses can claim tax relief for depreciation on plant and machinery, increasing the tax burden in the short to medium term.
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Business Rates:
- There is a permanent measure to lower business rates for hospitality premises, funded by increased rates for warehouses used by online companies.
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Capital Gains Tax (CGT):
- Reduced CGT relief on disposals to Employee Ownership Trusts (EOTs).
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Creative Industries and R&D Tax Reliefs:
- Administrative changes and further amendments to the Multinational Top-up Tax and Domestic Top-up Tax.
Accounts Implications
The Budget’s impact on financial statements (accounts) is primarily indirect, driven by changes in taxation and economic policy.
1. Deferred Tax
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Changes to capital allowances (the reduced WDA rate) and corporate tax rates (if any were announced, though the Corporation Tax rate remains at 25%) affect the calculation of Deferred Tax balances under IAS 12 / FRS 102.
- A reduction in the WDA rate means the temporary difference between the tax base and the carrying value of assets will unwind more slowly, impacting the deferred tax movement.
2. Estimates and Judgements
- Companies will need to review all new tax legislation (e.g., changes to creative or R&D reliefs) to assess the impact on their current and deferred tax positions. This will require new estimates and professional judgements in calculating tax provisions and disclosures for the current and future reporting periods.
3. Business Confidence and Going Concern
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The economic outlook provided by the Office for Budget Responsibility (OBR) is a key factor. The OBR downgraded its productivity forecasts and highlighted the risk that the record-high tax take could distort economic activity.
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For companies, particularly those affected by the increased tax burden (e.g., those reliant on reduced capital allowances), this may require an assessment of the impact on forecast profits, cash flow, and the Going Concern assumption.
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The reduction in Cash ISA limits could impact the funding available to banks and building societies, potentially affecting their lending rates and, indirectly, the carrying value of financial assets and liabilities.
4. Employee Benefit Costs
- The changes to the NIC exemption for salary sacrifice schemes (from April 2029) will affect the cost of employment for businesses currently running such schemes. This is a future liability that will need to be factored into long-term financial planning and potentially disclosed in forward-looking statements.