The 2025 UK Budget: A Practical Guide for Small and Medium Businesses

Everyone’s heard the news by now: the 2025 Budget brings broad changes, and yes, it could feel like a storm brewing for small and medium-sized businesses. But rather than focusing on the thunderclouds, let’s look at what can be done to navigate these changes smoothly.

With the right strategies, you can confidently handle the new financial landscape.

Before we look into possible solutions, let’s do a quick summary of the changes.

TL;DR – Key Budget Changes

1. Employer’s National Insurance Contributions (NICs) increase – From April 2025, employer NICs will rise from 13.8% to 15%, with a lower threshold of £5,000 (down from £9,100).
2. Minimum wage increase — The hourly rate for workers aged 21 and over will rise to £12.21, those aged 18-20 will earn £10 per hour, and apprentices will see their rate increase to £7.55 per hour.
3. Capital Gains Tax (CGT) increase – The lower CGT rate jumps from 10% to 18%, and the higher rate goes from 20% to 24%, impacting profits from selling business assets.
4. Business rates relief reduction – For retail, hospitality, and leisure businesses, rates relief drops from 75% to 40%, with a cap of £110,000.
5. Abolition of the non-domicile tax regime – Non-domiciled residents in the UK will now pay standard UK taxes, impacting payroll for affected employees.
6. Employment allowance increase – The allowance rises from £5,000 to £10,500, removing the £100,000 cap and allowing more businesses to benefit from reduced NICs.
7. Stamp duty surcharge increase on additional properties – The stamp duty surcharge for additional properties rises from 3% to 5%, increasing costs for property investors and landlords.

1. Payroll Increases: NIC and Minimum Wage Adjustments

Small and medium-sized businesses will face a dual increase in payroll costs. For a hypothetical full-time employee aged 21 or over, working 40 hours per week, the total employment costs would increase as follows after the 2025 changes:

• Current annual employment cost (before the changes): £25,823.14

• New annual employment cost (after the wage increase and NIC changes): £28,456.32

• Additional annual employment cost: £2,633.18

Besides the impact on your current budget, these changes make new hires feel more costly, requiring careful planning to grow your team while managing payroll expenses.

What You Need to Do Right Away

Update payroll records to reflect both the new NIC rate and the revised minimum wage requirements. A recalibration of monthly and yearly budgets, factoring in both increases, will give a clearer picture of your projected payroll costs and reveal how much extra these adjustments may add.

Short-Term Solution

Consider outsourcing non-core functions. External teams can efficiently manage tasks like marketing, bookkeeping, IT, and logistics, allowing you to scale up or down as needed without adding to your NIC or minimum wage obligations. Outsourcing these roles can also provide specialised skills without the long-term payroll commitment.

Long-Term Solution:

Consider investing in automation to manage routine tasks, such as payroll processing, HR functions, and project management. Automation can reduce the need for additional staff and help streamline processes, allowing your existing team to handle more responsibilities efficiently.

Additionally, increase productivity with training and development opportunities. This way, you build a resilient, skilled team to offset rising payroll costs.

2. Capital Gains Tax (CGT) Increase

Selling assets will become costlier because a larger share of profits will go toward taxes. Let’s say your business must sell land and gain £10,000. You could pay about £2,000 more in tax than last year under the new rates.

What You Need to Do Right Away

Review your asset portfolio with your bookkeeper, identifying which assets are essential and which could potentially be sold. This inventory will provide a clear view of your options, allowing you to calculate the potential impact of the new CGT rates.

Short-Term Solution

If you have non-essential assets you’ve been thinking about selling, consider doing so sooner to avoid the full brunt of the CGT increase. Working with a tax advisor to explore possible reliefs—such as entrepreneur’s or rollover relief—can also help reduce your tax liability on these sales.

Long-Term Solution

In the future, consider leasing assets instead of purchasing them outright to minimise CGT exposure. If asset ownership is necessary, ask your tax advisor to develop a strategy around sales timing to help optimise the tax impact.

3. Business Rates Relief Reduction

The reduction in business rate relief, from 75% to 40% with a cap of £110,000, means higher property tax costs for retail, hospitality, and leisure businesses. What does this change look like in real life? A shop paying £250 a month after a 75% discount on business rates would now pay £600 a month with the new 40% discount. For many SMEs, especially shops, cafes, and other small businesses, this means an increase in operational costs just to keep the doors open.

What You Need to Do Right Away

Ask your bookkeeper to update your expense projections to reflect the new business rates and review your cash flow forecasts to identify any financial pinch points. This way, all property-related expenses are accurately recorded, helping you better plan for these added costs.

Short-Term Solution

Conduct a thorough expense audit to identify potential savings in operations. Consider renegotiating supplier contracts, implementing energy-saving measures, and reviewing subscription services to find ways to cut costs. A bookkeeper can assist in managing cash flow and organising expenses, helping you maintain financial stability as these changes take effect.

Long-Term Solution

Make energy-efficient upgrades to reduce utility bills and free up funds to cover increased rates. Alternatively, if your property needs are flexible, consider downsizing to a more cost-effective location or subletting unused space.

4. Abolition of the Non-Domicile Tax Regime

With the end of the non-dom tax regime, some of your employees may see lower net pay and request salary adjustments, which could pressure your payroll budget.

What You Need to Do Right Away

Review compensation packages for any non-domiciled employees to ensure they remain competitive. Provide these employees with resources, such as recommendations for tax advisors, to help them navigate the new tax landscape and manage their finances.

Short-Term Solution

Instead of increasing salaries, consider enhancing your benefits package to offer valuable non-monetary perks. Flexible working arrangements, professional development opportunities, and wellness programs can all add appeal without impacting payroll costs.

Long-Term Solution

Invest in retention strategies, such as career advancement pathways and performance-based bonuses, to retain talent without permanent increases to base salaries. These measures can strengthen employee loyalty and engagement, helping you keep valued employees on board even if they’re affected by the non-dom tax changes.

5. Employment Allowance Increase

With the increased Employment Allowance, you can employ up to four full-time workers on the National Living Wage without incurring NIC costs, making it easier to manage expansion.

What You Need to Do Right Away

Work with your bookkeeper to ensure you claim the total Employment Allowance and that the NIC savings are correctly applied to your payroll expenses. Recalculate payroll budgets to reflect the reduced NIC liability and determine how much relief this allowance offers.

Short-Term Solution

Prioritise new hires that directly support growth, such as business development or customer service roles. This makes it easier to scale your team while controlling payroll costs.

Long-Term Solution

Schedule regular payroll reviews to ensure you continue to get all the benefits as your team grows. For roles that don’t require a full-time commitment, consider outsourcing or hiring part-time employees to stay within the NIC reduction threshold.

6. Stamp Duty Surcharge Increase on Additional Properties

With the surcharge on additional residential properties rising from 3% to 5%, new property investments will now come with a higher upfront cost. This change may affect profitability for landlords and property investors.

What You Need to Do Right Away

Update your property acquisition budget to account for the new stamp duty surcharge. Your bookkeeper can ensure the new costs are accurately reflected in your financial statements and help you understand the short- and mid-term cash flow consequences.

Short-Term Solution:

If you’re still interested in property investment, consider alternative options like commercial properties or mixed-use developments, which may offer higher returns with different tax implications. For properties you already own, upgrading them to improve rental income—such as adding energy-efficient features—can help offset the increased acquisition cost.

Long-Term Solution

Consider diversifying your investment strategy by looking beyond residential property. Reinvesting capital in other business opportunities, such as expanding your core business, can provide returns without the added tax burden of residential property purchases. A balanced investment portfolio helps reduce exposure to future stamp duty increases.

Now Is the Time to Consider Professional Bookkeeping Support

Overall, the 2025 Budget brings new complexity to financial management for small and medium businesses. These changes require precise bookkeeping and a proactive approach to stay compliant and financially resilient.

Here’s why outsourcing bookkeeping could be one of the smartest moves in this evolving landscape:

• It’s hard to navigate complex calculations and compliance for rising payroll taxes, new CGT rates, and altered business rates relief. Outsourcing ensures that experienced professionals handle these tasks, minimising the risk of costly errors.

• Keeping track of new tax rules and changing rates takes time and attention to detail. A professional bookkeeper can manage these updates efficiently, freeing up your time and reducing the likelihood of mistakes that could lead to penalties.

• A skilled bookkeeper doesn’t just track expenses—they provide strategic insights, helping you make informed decisions about budgeting, cash flow, and tax planning. With expert guidance, you can prepare for rising rates and make adjustments that keep your finances steady.

• By handing over bookkeeping to an expert, you can concentrate on growing your business. With peace of mind that your finances are in order, you’ll have more time and energy to drive innovation, boost sales, and develop your brand.

Yes, the 2025 Budget brings challenges but it also offers the chance to strengthen your financial foundations. With professional bookkeeping support, you’ll stay compliant and gain the insights and freedom to steer your business confidently through these changes.

If you have questions about how these changes might affect your business—or if you’re simply looking for clarity on any financial topic—we’re here to help. Whether you’re curious about specific calculations or compliance details or just want to understand your options, don’t hesitate to reach out. Our team is here as a resource, ready to provide guidance, answer questions, and offer insights to help you confidently navigate this bookkeeping milestone.