Spring Statement 2025
Chancellor Rachel Reeves’ Spring Statement on March 26, 2025, introduced several measures poised to impact small and medium-sized enterprises (SMEs) and taxpayers across the UK.
National Living Wage Increase
Effective April 1, the National Living Wage will rise by 6.7% to £12.21 per hour, equating to an annual increase of approximately £1,400 for three million workers. While this enhances employee earnings, SMEs may face increased payroll expenses, necessitating budget adjustments to accommodate higher wages.
Tax Threshold Freezes and Fiscal Drag
The government will maintain the freeze on personal allowance and income tax thresholds until 2028. As wages grow, more individuals may be pushed into higher tax brackets—a phenomenon known as “fiscal drag.” This could lead to increased tax liabilities for both employees and employers, affecting disposable incomes and potentially dampening consumer spending.
VAT Registration Threshold Adjustment
The VAT registration threshold will increase from £85,000 to £90,000 starting April 2024. This change allows more small businesses to remain exempt from VAT, reducing administrative burdens and compliance costs, thereby supporting business growth and profitability.
National Insurance Contributions Reduction
Employee National Insurance contributions will be cut by a further 2 percentage points, reducing the main rate from 10% to 8% in April. For the self-employed, Class 4 National Insurance contributions will decrease from 8% to 6%. These cuts aim to alleviate the tax burden on workers and entrepreneurs, potentially increasing disposable income and encouraging business investment.
Tax Evasion Crackdown
The government announced measures to combat tax evasion and avoidance, including increased penalties for late payments and the recruitment of 1,100 new compliance staff. While these initiatives aim to ensure fair tax practices, SMEs must remain vigilant in their tax compliance to avoid penalties. Financial Times
Full Expensing for Leased Assets
The Spring Budget introduced ‘full expensing’ for leased assets, allowing companies to deduct 100% of the cost of qualifying investments from taxable profits in the year the expense occurs. This measure encourages SMEs to invest in essential equipment and technology, fostering growth and competitiveness.
Fuel Duty Freeze
The government has extended the fuel duty freeze, maintaining the 5p cut until March 2025. This decision benefits SMEs reliant on transportation by mitigating fuel costs, thereby supporting operational efficiency and cost management.
Conclusion
The Spring Statement 2025 introduces a mix of opportunities and challenges for UK SMEs and taxpayers. While measures like the VAT threshold increase, National Insurance cuts, and full expensing offer financial relief and growth incentives, businesses must prepare for increased wage bills and ensure strict tax compliance. Proactive planning and strategic adjustments will be essential for SMEs to navigate these changes effectively.
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