Last week, John Healey announced his first budget which, while not as punishing as many feared, set a clear direction of travel for Burnham’s government. In what many are seeing as a “pre-election” budget, designed not to rock the boat too much, but to test concepts before larger changes down the line. Pundits predict a likely General Election in May-27, but even with larger changes likely to be at least a year off, there was plenty to worry many of us in both last weeks’ announcements, and the full “red book” which accompanied it.

In a nutshell

• Despite “promising” that there were no plans for MTD for self assessment to lead to a move to quarterly payment of tax, there is to be a push towards monthly payment for self-assessed tax, although there is no detail as to when this will come into force, or how it will work. Realistically it is likely that there will be some roll back on this and we will end up with quarterly payments in line with MTD quarters from (perhaps) the 2029/30 tax year.
• For those with a physical premises, more businesses will qualify for Small Buisiness Rates relief.
• There will be a one-off £100 per household (for council tax bands A-D) in the new year, adjusted via council tax direct debits.
• National Minimum Wage increased by 3.9% to £12.71 per hour from April 2027.
• A U-turn on the proposal to reduce the Cash ISA allowance, which will now remain at £20k.
• Major changes to where (rather than how much) Business Rates are managed. Over a period, these will go entirely to devolved areas (likely via elected Mayors), meaning the rates we pay will get spent in our area, rather than pooled nationally.
• Some “tweaking” to Cpaital Allowances – for most everything (except vehicles) will qualify for 100% year 1 annual investment allowance (as now), what’s changing is the “main rate” band, where that annual claim is reduced from 14% to 12% of asset value, but the first year allowance is increased from 40% to 50%, effectively front loading the Capital Allowances reclaim.

In Detail

Benefits and expenses

Approved Mileage Allowance Payments (AMAPs) and Simplified Mileage Rates
From 6 April 2027, the mileage rate above 10,000 business miles will rise from 25 pence to 35 pence per mile for cars and vans under AMAPs and self-employed simplified mileage rates. The 55 pence rate for the first 10,000 miles, introduced from 6 April 2026, remains and is beign made permanent.

Reform of Benchmark Scale Rates (BSR) and Overseas Scale Rates (OSR)
From April 2028, the government intends to reform BSR and OSR, which employers can use to reimburse qualifying travel and subsistence expenses without needing to check receipts. Further guidance will be published in due course.

Reforming how taxpayers claim for employment expenses
From 6 April 2028, the government will remove the £2,500 threshold that requires taxpayers to file a Self Assessment return to claim tax relief on employment expenses. Taxpayers with claims above £2,500 will be able to claim through PAYE using form P87 or the PAYE Expenses service, with supporting evidence.

Business Tax

Small business rate relief
The valuation threshold for small business rate relief for retail, hospitality and leisure (RHL) properties is being increased from £12,000 to £18,000 for 100% relief, and from £15,000 to £21,000 for tapered relief from 1 April 2027.

Business rates bills frozen
For the retail, hospitality and leisure businesses in England that don’t qualify for Small Business Rates Relief, business rates bills will be frozen from April 2027 to April 2029. Vape shops and adult game shops will be excluded from this freeze.

Greater share of business rates retained by local government
The Chancellor committed to increasing the share of business rates to be retained by local governments as opposed to central government, with a goal of 100% of business rates being retained locally by 2030, starting with 20% retention as early as practicable. This move is likely to come in tandem with the expactions of elected Mayors, a programme currently expected to complete by 2028.

Close company reporting requirements not going ahead for now
The Chancellor confirmed that the government will not introduce the proposed reporting requirements for close companies for now. This rather nasty proposal from the previous budget would have seena requirement for close companies (those under the control of five or fewer participators (such as shareholders), or any number of participators who are also directors) having to report all transactions with participators. In practice our view is that this is an implausible intrusion into individual fiannce and banking arrangements. While this has been kicked into the long grass for now, it is possible that there may still be some format of clampdown or reporting on the regularly used process of drawing funds against future dividends, but nothing has been proposed as yet, so any sich proposals are likely to be further down the line.

Increase in rate of the Bank Corporation Tax surcharge for a temporary period
The government will temporarily increase the surcharge rate to 6% for 15 months, from 1 January 2027 to 31 March 2028, returning to 3% from 1 April 2028.

Company Share Option Plan (CSOP) limit
Budget 2026 will increase the CSOP option limit from £60,000 to £120,000 and the maximum exercise period from 10 to 15 years. CSOP options will not count towards an individual’s Enterprise Management Incentive (EMI) limit. The changes will apply from 6 April 2027 and be introduced through Finance Bill 2026 to 2027.

Advance Tax Certainty Service
The government is legislating to widen access to HMRC’s Advance Tax Certainty Service. The service gives businesses certainty on how UK tax rules will apply to major investment projects before they invest. From 4 November 2026, the entry threshold for qualifying projects will fall from £1 billion to £300 million.

Research and Development (R&D) Tax reliefs
From 1 April 2027, companies will no longer need to submit a claim notification form for R&D reliefs. HMRC will introduce a simplified and rationalised Additional Information Form for companies making claims in autumn 2027. Further details will be published before its introduction to give stakeholders time to prepare.

Employers National Insurance

Despite the unpopularity of the hike in Employers NI announced in the 2024 budget and coming into force in April 2025, these have been fixed again, with all thre3sholds and allowances held as well.

Personal Tax & Sole Traders

MTD for Income Tax

The next wave of MTD for Income Tax is set to go ahead as previously confirmed, bringing landlords and sole traders who earned over £30,000 worth of qualifying income in 2025/26 into scope from 6th April, 2027. Those who join MTD for Income Tax in April 2027 will not receive late filing penalties if they file any of their 2027/28 quarterly updates late, however those who joined MTD for Income Tax in 2026/27 will receive penalties in 2027/28.

Smaller, more regular contributions for Self Assessment bills
The government announced plans to change how Payments on Account will work for Income Tax. From April 2029, taxpayers who are within Self Assessment (which includes MTD for Income Tax) will have to make smaller, more regular contributions towards their tax bill throughout the year. This will replace the current system whereby taxpayers make two large lump-sum payments on 31st January and 31st July. The chancellor’s argument was that this “will help taxpayers budget and plan for their tax obligations, reducing the risk of large, unexpected tax bills and making it less likely that they fall behind on tax due and build up debt”. HMRC will consult with stakeholders and affected taxpayers before implementing the new payment schedule. Rumours are that this will be pushed towards monthly payment, but our expectation is that it will settle to quarterly, in line with the MTD submissions. It is also possible that a push to monthly payments could lead to a push for monthly reporting.

Income tax from property and savings income to rise
Income tax from property and savings income will be increased by a further 2% from April 2027, on top of the 2% already announced, making a total rise of 4% from existing rates. Income Tax rates for property rental income for taxpayers (excluding Scottish taxpayers) will go up to 24%, 44% and 49% respectively for the basic, higher and additional rates. Income Tax rates for savings income for all UK taxpayers will be 24%, 44% and 49%.

Trading allowance tripled from £1k to £3k
In a boost to freelancers and side-hustlers, the trading allowance will be tripled from £1,000 to £3,000, starting from 6th April 2027. This means you will not need to register with HMRC or pay tax on those earnings if you earn less than £3,000 per year from your sole trade (or side hustle). If you earn over £3,000 per year, you will still need to register with HMRC but can use either the new increased trading allowance of £3,000, or your actual business expenses and capital allowances, in order to work out your profit. For clarity, you can’t use both the trading allowance and your actual costs against their income – it’s one or the other.

Indirect Tax

Fuel duty
The government is extending the temporary 5 pence per litre (ppl) cut in the main rates of fuel duty from 1 January 2027 until 30 June 2027. In addition, the legislation will extend the further 3.7ppl cut to the rebated rates for gas oil (red diesel), biodiesel, bioblend, and kerosene for excepted machines other than for heating, until 30 June 2027.

Reverse charge for B2B supply of services from overseas
The government has announced a change in VAT law to restrict the VAT reverse charge for supplies of services from overseas, so that it only applies if the receiving UK business is VAT-registered. This change will take effect from April 2027.

Capital Allowances

First-year allowance to increase to 50%
The Chancellor announced that the first-year allowance will rise from 40% to 50% for qualifying expenditure incurred on or after 1st January 2027.

Writing down allowance to reduce to 12%
The Chancellor also announced that the main pool writing down allowance will fall from 14% to 12%, taking effect from 1st April 2027 for Corporation Tax and 6th April 2027 for Income Tax.

Capital Gains Tax and entrepreneurial support
From 6th April 2027, the government will introduce changes to capital gains tax reliefs for business owners and founders.

• Founders’ Relief: A new Capital Gains Tax Founders’ Relief will provide a reduced 10% CGT rate on up to £10 million in lifetime gains for qualifying founders of high-growth, innovative companies. The detailed eligibility criteria remain subject to technical consultation.
• Business Asset Disposal Relief (BADR): The lifetime limit on gains eligible for BADR will be reduced from £1 million to £500,000.

Closing the tax gap

VAT Online Marketplace Liability (OMPL) extension
From October 2027, VAT OMPL rules will be extended to UK businesses. Online marketplaces will be responsible for collecting VAT on sales by UK VAT-registered businesses and any other UK business with a minimum annual sales threshold per platform of £90,000. The rules will not apply to non-business or personal sales, second-hand goods, or business-to-business transactions.

Clamping down on till fraud
The government will introduce mandatory software standards for Electronic Point of Sale and Mobile Point of Sale systems to tackle electronic sales suppression. HMRC will engage with stakeholders and publish a technical consultation in summer 2027, setting out detailed implementation proposals.

Image rights payments
The government will legislate in Finance Bill 2026 to 2027 to clarify that employment-related image rights payments are taxable employment income, subject to Income Tax and National Insurance contributions. At Budget 2026, the government confirmed that implementation will be deferred until 6 April 2028, giving employers and individuals more time to prepare.

Transformation and modernisation

E-invoicing roadmap published
The government is setting out an implementation roadmap for requiring VAT e-invoicing from April 2029, reducing administrative burdens and improving efficiency. Alongside this, a Call for Evidence on modernising Corporation Tax administration will explore how technology can simplify the system and reduce burdens on business.

Requiring Payment for PAYE and VAT by Direct Debit
From April 2029, the government will require employers to have a Direct Debit instruction in place with HMRC for their PAYE and VAT return liabilities, while retaining flexibility to pay by other methods. Direct Debit will make it easier for customers to pay what they owe on time, and help reduce debt caused by late payments and errors.

Investment in HMRC to ensure tax compliance
HMRC will get an additional 670 compliance officers by 2029/30, strengthening HMRC’s ability to tackle non-compliance and recover unpaid tax. This is in addition to previous commitments to recruit 5,500 more compliance officers by 2029/30. Expect more things to be looked into, making having someone deal with HMRC on your behalf even more valuable.

Our Opinions

Unlike Rachel Reeves’ first budger in 2204, when rumours abounded and there was a hug amount to unpack, John Healey’s first budget was nowhere near as spectacular or headline grabbing. That said, there is still a fair amount to digest, and while the direction of travel is not entirely great for many businesses, there were a few things that might benefit some.

The increases in NLW (successive) and Employers NI which have served to drive staff costs up for all but the smallest businesses, are likely responsible for around a 5% increase on costs, what it is also leading to (necessarily) is wage stagnation – attrtacting tallent has got more expensive, and people are more likely to move on in a few years than ever before. Combined with the rise of AI & technology, it’s not a bad time to look at automation and streamlining where you can, rather than increasing headcount.

In sharp contrast to Reeves’ 2024 budget, where there was some attack on dividend tax benefits, and most of the negatives were for small companies rather than sole traders, Healey’s budget confirms pushing virtually all sole traders into MTD by April 2028, by which time we would expect to see at least a move to quarterly payments, probably with a raodmap to monthly payments, and possibly even monthly returns. With such an increase in the burden on sole traders, especially the cash flow impact of having to pay tax earlier than ever before, we think April 2027 is a good time to look at incorporating. If you are currently under MTD (IE turnover >£50k) as a sole trader, in our view it’s definitely worth it. If you are going to be caught by MTD next year (IE turnover >£30k), it’s a little more 50:50, but the cash flow benefit and annual account preparation may well outweight the slightly higher cost.

The budget while less momentous than may have been expected, did a fair amount of giving with one hand and taking with the other. Most businesses will be worse off from it, but the outlook is not entirely bleak. Now everyone has had a chance to start reading the fine print, opportunities remain, and that makes this a good time to book a meeting with your accountant, and have a more detailed discussion about what the changes will mean for you and your business. If your accountant is not looking at this for you, and you’d like a second opinion, or if you’d just like a bit of reassurance, why not book a discovery call or get in touch?