Chancellor Rachel Reeves delivered her Spring Statement 2025 on Wednesday 26th March, against a backdrop of subdued economic growth and persistent inflationary pressure. As predicted, no major tax rises were announced, with the statement instead focusing on further reforms to Making Tax Digital (MTD), tackling tax debt, defence expenditure and reforms to R&D relief.
The Office for Budget Responsibility (OBR) revised its GDP growth forecast prior to the Chancellors’ statement, forecasting a reduction from 2% to 1.8%. Despite this, inflation is projected to moderate to 2.5% by the fourth quarter of 2025, potentially easing some household cost pressures and supporting a forecasted £9 billion ‘headroom’ in government expenditure.
This article provides a comprehensive breakdown of the key announcements in the Spring Statement 2025, highlighting areas requiring forward planning. Whether you are a business owner or an individual taxpayer, understanding these changes is crucial for navigating the evolving tax landscape.
Table of Contents
Spring Statement 2025: Impact on Business
Making Tax Digital (MTD)
The government has reaffirmed its commitment to Making Tax Digital (MTD) from its Autumn Budget 2024 announcement, with further penalties and an expanding scope. From April 2026, individuals who use MTD for self-employment and property income will face increased late payment penalties for unpaid tax:
- 2% to 3% for tax unpaid after 15 days.
- 4% to 6% for tax unpaid after 30 days.
- An additional 10% per annum charge for amounts outstanding beyond 31 days.
These changes will apply to businesses and landlords with income over £50,000, with the threshold dropping to £30,000 from April 2027. Notably, MTD for Income Tax will extend to sole traders and landlords earning over £20,000 from April 2028, a delay from earlier proposals.
A pivotal shift is the requirement for third-party software to submit tax returns under MTD, replacing HMRC’s provided service. This move aims to improve accuracy and efficiency but may increase costs for smaller businesses. For guidance on preparing for MTD, read our article on Making Tax Digital for Income Tax.
Tackling Tax Debt
With unpaid tax liabilities exceeding £44 billion, the government is investing £87 million over five years in private debt collection agencies to work alongside HMRC. In addition, an additional 500 HMRC staff will be recruited to directly target debt recovery from overdue VAT, National insurance, and Self-Assessment payments.
With an overlap between higher VAT late payment penalties and rising employers’ National Insurance contributions, businesses should be wary of cash flow issues. Proactive tax and cash flow planning is essential. Please speak to one of our DS Burge & Co’s expert team for advice on managing your tax liabilities.
R&D Tax Relief Advance Clearance
Claims for R&D tax relief can be highly beneficial for businesses. HMRC offers ‘advance assurance’ measures to give businesses more certainty over their claims. However, uptake of the existing advance assurances has been limited due to the complexity of the process and a lack of certainty in the scheme.
The chancellor has announced a new consultation of the scheme, open until 26th May 2025, making a series of proposals to improve uptake. These proposals include:
- Voluntary and Mandatory assurances for claims.
- A potential de-minimis threshold to reduce administrative burdens for smaller claims.
It is hoped that these measures will curb fraud while providing certainty for genuine innovators. Any businesses engaged in R&D are encouraged to review the consultation and consider submitting feedback. Find out more about R&D tax relief for your business.
EIS Roundtables
The Spring Statement 2025 stated that HM Treasury will hold a series of roundtables with “key stakeholders” during April 2025. The aim is to explore the role of the Enterprise Investment Schemes (EIS) in supporting startups and SMEs and to foster a supportive environment for entrepreneurs to scale up.
The Treasury stated, “The government is determined to ensure that the UK is the best place in the world to start and grow a business”. While discussions will be ongoing, it is believed that potential reforms could include extending tax reliefs or simplifying eligibility criteria for businesses and investors.
Military Spending
Chancellor Rachel Reeves declared, “The world has changed, we can see it unfolding before our eyes” as she unveiled a £2.2 billion increase in the Ministry of Defence budget for 2025/26. This strategic investment reflects the growing global instability, including escalating conflicts and uncertainty over long-term military support from key allies such as the United States.
This initial investment will be focused on innovation procurement, utilising the UK Defence Innovation Scheme, which will launch in July 2025 and prioritise contracts for SMEs and technology startups. It is hoped that by breaking down defence contracts into smaller, specialised categories, the investment will maximise growth for the UK economy while providing agility in lead times.
This latest defence funding increase builds on commitments made in February 2025, when the Labour government pledged to increase defence spending to 2.5% of GDP by 2027.
Spring Statement 2025: Impact on Individuals
High-Income Child Benefit Charge (HICBC)
From August 2025, employed parents liable for the High-Income Child Benefit charge can opt to pay the charge through PAYE. This change will help to simplify the process following criticism of the current system that requires individuals to carry out yearly self-assessments. You can learn more about Child Benefit through HMRC guidance.
Income Tax, National Insurance Rates, VAT & Personal Allowance
The Chancellor announced ‘no further tax increases’ in the Spring Statement 2025, following a record £40 billion in tax increases during her Autumn Budget 2024. However, freezes on personal allowances and income tax thresholds until 2028 will continue to push more taxpayers into higher tax brackets as inflationary wage rises tax effect, known as fiscal drag. This stealth tax is projected to affect an additional 1.6 million UK taxpayers by 2028, according to the Institute of Fiscal Studies.
Pensions and Inheritance Tax
The Spring Statement contained no further updates on pensions or inheritance tax reforms. Changes announced in the Autumn Budget 2024, notably including pension pots in inheritance tax calculations from April 2027, remained unchanged. The nil rate band of £325,000 and residence nil rate band of £175,000 will also stay frozen until at least 2028. It is critical to take estate planning steps to minimise the impact these ongoing IHT calculations might have on your estate. Contact one of DS Burge & Co’s expert team for further guidance.
Individual Savings Accounts (ISAs)
While not openly stating any changes to ISAs, the Treasury’s Spring Statement stated it will work with the Financial Conduct Authority to “give people the confidence to invest.”
Documentation further signalled the intentions for reforms to ISAs, encouraging investment in equities over cash holdings. Potential changes could include:
- Adjustments to the annual allowance (Currently set at £20,000)
- Incentivising stock market investments
OBR Growth Forecast and Economic Implications
The Office for Budget Responsibility (OBR) revised its growth forecast for 2025/26 downward from 2% to 1.8%, citing global economic headwinds and domestic productivity challenges. This is the third consecutive downward revision since Autumn 2024. Weaker global demand, particularly in key markets such as the EU and China, coupled with stubbornly low UK productivity growth, 0.5% behind pre-pandemic trends, has provided a less-than-optimistic outlook.
On a positive note, the OBR expects inflation to moderate to 2.5% by the fourth quarter of 2025, potentially easing some household cost pressures and reducing the impact of public sector net debt interest payments. It should be noted that this comes with significant caveats:
- Service sector inflation is projected to remain elevated at 3.1%
- The 2.5% target remains above the Bank of England target rate of 2%
- Food pricing remains volatile due to global impacts
The OBR’s forecast paints a constrained fiscal picture, with real-term public spending growth capped at just 1% annually. This presents an effective cut when accounting for population growth and wage inflation. The economic fiscal situation leaves minimal room for manoeuvre, with the Chancellor self-imposing rules for unfunded borrowing. She has ruled out significant tax cuts or spending increases before the next election without corresponding revenue measures.
One key economic implication not calculated in the OBR growth forecasts is the potential impact of US tariffs. The United States is the UK’s largest trading partner, representing 21.3% of total exports. Recent tariffs imposed on European car makers will have a marginal impact on UK total growth due to the significance of the industry in the UK. However, future tariffs could significantly impact the UK economy, most notably any tariffs placed on services, representing 54% of the UK export market. It is hoped that the UK might be able to avoid being included in tariffs imposed on EU markets, with negotiations ongoing.
Conclusion
The Spring Statement 2025 prioritised incremental reforms over sweeping changes, focusing on tax compliance, innovation incentives, and fiscal stability. For businesses, pending R&D reforms and investments in segmented defence procurement might benefit those in selective industries. Unfortunately, the OBR economic forecast and uncertain global challenges do not provide a positive outlook for most businesses. This is made worse with the increase in National Insurance Contributions and secondary thresholds starting from April 2025, which will present a significant expense for business in the forthcoming period.
For individuals, the Spring Statement 2025 earmarked potential increases to ISA allowances and provided simplicity for partners paying HICBC, using PAYE for charges. However, following the Autumn Budget 2024, the Spring Statement provides little relief, with freezes in personal allowances and income tax threshold remaining until 2028.
For self-employed individuals or those who receive income from property, stricter MTD penalties and forthcoming reductions in MTD thresholds will require stringent accounting processes. If you are self-employed or earn an income from a property, speak to one of DS Burge & Co’s accounting team to ensure that your accounts are correctly prepared for the 2025/26 period.