Many businesses in the UK saw the 2025 budget as a tightening of the screw in a period of already difficult conditions. While the government insists it is not raising taxes on companies overall, disquiet among businesses could have an impact on jobs, wages and the wider economy.
It’s true that corporation tax (paid by businesses on their profits) will stay at 25%. But other moves are coming. From April 2026, changes to tax allowances that companies can claim on plant and machinery are expected to increase the tax take by more than £1 billion in the first year.
Things such as equipment, vehicles and office fixtures qualify for this allowance, and it means businesses can reduce their tax bill as the value of their assets depreciates. This allowance will fall from 18% to 14% in 2026.
And hospitality and retail firms have complained that changes to business rates (levied on commercial premises) could raise their annual costs by tens of thousands of pounds.
The reduction of income-tax relief for venture capital trusts (VCTs) risks making it costlier for young ambitious businesses to secure money from venture capitalists to help them grow. Tax relief for VCTs will now fall from 30% to 20%, meaning some may choose to back less risky ventures.
And from 2029, national insurance exemptions on salary-sacrificed pension contributions will be capped. This will affect nearly 290,000 employers and act as an ongoing cost increase for firms that use these schemes.
The problem for a government that wants to encourage growth but also needs to raise revenues is that increased taxes on businesses can dampen future investment.
Even if headline corporation tax is unchanged, the mix of allowance cuts, higher employment taxes and sector-specific hits (on pubs, for example) is likely to feed a “tax-raising, not pro-growth” narrative in the business community. And evidence suggests that higher effective corporate tax rates are associated with lower business investment.
For example, dropping the main rate of capital allowance on plant and machinery means these investments take longer to pay for themselves. While this is a net revenue-raising move for government, business can perceive this as policy that is tough on productive investment.
The autumn budget relied heavily on fiscal drag (frozen income-tax and national insurance contribution thresholds) and a series of smaller revenue-raisers like the pension salary-sacrifice cap. For the government, there is the risk that this creates a fear that it will keep coming back to “small print” tax measures.
And of course not all businesses will be able to absorb extra costs – many will look to pass these on to their customers. Sectors with thin profit margins (such as pubs, hospitality and small retailers) are warning that business-rate hikes plus higher wage bills force them either to push up prices or cut service and headcount.
While firms with more power will try to raise prices,