On March 26, 2025, Chancellor Rachel Reeves delivered the Spring Statement, reinforcing key fiscal policies without introducing new tax increases. The statement emphasised HMRC’s crackdown on tax evasion, additional funding for compliance enforcement, and critical changes impacting business owners, contractors working through umbrella companies, and those outside IR35. Here’s what you need to know.

Impact on Business Owners

No New Business Taxes but Heightened Compliance Checks

While no new business taxes were introduced, HMRC has been allocated an additional £1 billion to strengthen tax compliance. Business owners should expect:

• Increased scrutiny on VAT, PAYE, and Corporation Tax compliance.
• Stricter penalties for late or incorrect submissions.
• Enhanced digital record-keeping requirements.

For businesses still relying on manual processes, now is the time to modernise systems and consider Tax Investigation Insurance to mitigate the risks of HMRC enquiries.

Employer National Insurance Increase

• Employer National Insurance rates will rise from 13.8% to 15% from April 2025.
• The earnings threshold will be reduced from £9,100 to £5,000.
• The Employment Allowance will increase to £10,500, benefiting small businesses.

This change will result in higher payroll costs, particularly for growing SMEs.

Capital Gains Tax (CGT) and Business Asset Disposal Relief

• The basic CGT rate has increased to 18%, with higher and additional rates at 24%.
• Business Asset Disposal Relief will see CGT rise to 14% from April 2025 and 18% from 2026.
• The Investors’ Relief lifetime cap has been reduced from £10 million to £1 million.

For those planning to sell a business or shares, careful timing is essential to minimise tax liabilities. You may also wish to look at Shareholder Protection to ensure a smooth hand over of the shares should the unthinkable happen.

Making Tax Digital (MTD) Continues on Schedule

The timeline for Making Tax Digital remains unchanged:

• April 2026: Applies to landlords and self-employed earning over £50,000.
• April 2027: Threshold lowers to £30,000.
• April 2028: Further reduction to £20,000.

Quarterly digital tax submissions will become mandatory, making it crucial to transition away from manual or spreadsheet-based tax tracking.

VAT, Corporation Tax, and Capital Allowances

• VAT threshold remains at £90,000.
• Corporation Tax stays at 25% for profits over £250,000.
• Full expensing and the £1 million Annual Investment Allowance continue for qualifying investments.

These measures ensure continuity for businesses planning investments in growth and expansion.

Inheritance Tax and Property Changes

• Business and Agricultural Property Relief capped at £1 million from April 2026.
• Relief for amounts above this threshold will be reduced to 50%.
• From April 2027, unused pension pots may be subject to inheritance tax.
• Stamp Duty Land Tax surcharge on additional properties increased from 3% to 5% in late 2024.
• Furnished Holiday Lettings tax advantages end in April 2025, treating these properties as standard rentals.

Read our Guide to IHT Planning.

Impact on Contractors (Umbrella Workers and Those Outside IR35)

PAYE Reform for Umbrella Workers

From April 2026, agencies and end-clients will be responsible for PAYE compliance for umbrella workers. This measure aims to tighten enforcement across labour supply chains. Contractors should begin reviewing their engagement terms to ensure compliance.

No Further IR35 Reforms but Stricter Tax Compliance

• No changes to IR35 were announced, providing stability for contractors operating through limited companies.
• HMRC is increasing its focus on tax avoidance schemes and company insolvency abuse.
• A new initiative between HMRC, Companies House, and the Insolvency Service will target phoenixism, where directors dissolve companies to avoid tax liabilities.
• Directors found misusing company insolvency may face personal tax liability.

Limited company contractors should ensure full compliance to avoid potential penalties.

Making Tax Digital Expansion

• From April 2028, MTD for Income Tax Self Assessment (ITSA) will apply to sole traders and landlords earning over £20,000.
• Digital tax reporting will become mandatory, requiring contractors to adopt compatible accounting solutions.
• Those earning below £20,000 are unaffected for now, but future reforms are possible.

Industry Growth and Opportunities for Contractors

• Economic growth for 2025 is projected at 1%, with an increase to 1.9% in 2026.
• Private sector investment incentives are expected to create more contract opportunities in IT, engineering, and professional services.
• Infrastructure investments in transport, renewable energy, and digital transformation will drive demand for construction specialists, engineers, and tech consultants.
• Defence spending increases (£2.2 billion) will generate roles in cybersecurity, IT, and engineering.
• Public sector spending cuts may reduce some government contract roles, but private sector demand remains strong.

Key Takeaways for Contractors and Business Owners

• Review compliance processes to avoid penalties from HMRC’s increased enforcement.
• Prepare for increased payroll costs due to employer National Insurance hikes.
• Plan business asset sales carefully to minimise CGT impact.
• Ensure MTD readiness by transitioning to digital tax reporting systems.
• Monitor industry trends and invest in upskilling to stay competitive in high-growth sectors.

The Spring Statement 2025 provides stability for contractors while tightening compliance regulations. Proactive planning is essential to navigate these changes effectively. If you need tailored support, speak to a financial expert or tax advisor to ensure compliance and optimise your tax position.

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