What does the Budget mean for businesses in the Consumer sector?

The UK Budget on 26 November 2025 announced £26 billion in tax increases to attempt to balance the UK's books. The Chancellor introduced a wide package of measures, drawing on a range of sources, being careful not to noticeably raise the main rates of income tax, national insurance contributions or VAT. For businesses in the retail, food or hospitality sectors, there is much to digest. The Government has again opted for tinkering around the edges, rather than wholesale tax reform, leading to increased complexity and risk for businesses in the sector to manage and comply with. Our UK Tax team, in collaboration with our Employment and Pension colleagues, has taken an initial look at some of the key tax announcements affecting this sector. For more general business measures, please see our initial tax Budget analysis. 

In addition to changes to employment taxes and key measures relevant to all businesses generally, we consider some of the announcements contained in the Budget specifically affecting businesses in the Consumer sector, including business rates reform, the soft drinks industry levy, a visitor levy for England, vaping duty and the customs treatment of low value imports.

Read the key areas of this update:

• General income tax, National Insurance contributions and other employment tax measures 

• Announcements specifically relevant to the Consumer sector

• Other business measures

General income tax, National Insurance contributions and other employment tax measures 

Income Tax Thresholds

The Government has confirmed a significant extension to the freeze on personal income tax and national insurance thresholds, a policy that will have a substantial impact on both taxpayers and the Exchequer over the coming years.

The income tax personal allowance (£12,570), higher-rate threshold (£50,270), and additional-rate threshold (£125,140) will now be frozen until the end of the 2030–31 tax year. This extends the freeze by a further three years beyond the previous end date of April 2028, as set out in the Autumn Statement 2022. The National Insurance Contributions ("NICs") secondary threshold, which was reduced significantly from £9,100 to £5,000 in the 2024 Budget, is also frozen until 2030–31.

The extension of these threshold freezes is expected to raise substantial additional revenue:

• The freezes to personal tax thresholds are forecast to raise £8.3 billion in 2029–30, with £7.6 billion of this attributable to income tax threshold freezes alone. Behavioural adjustments (such as workers negotiating higher wages) are expected to increase this yield by a further £0.2 billion. 
• By 2030–31, the total yield from all income tax threshold freezes (including those announced previously) is forecast at £56 billion, with £12 billion directly resulting from the measures in the 2025 Budget.
• The freeze to the employer NIC secondary threshold is forecast to yield around £11 billion in 2030–31, with £0.9 billion from the latest extension.
• The overall impact of freezing all allowances and thresholds is estimated to be £67 billion (1.8% of GDP) by the end of the forecast period, with the 2025 Budget’s measures contributing £13 billion in 2030–31.

The Office for Budget Responsibility projects that, between 2022–23 and 2030–31, 5.2 million additional individuals will be brought into paying income tax; 4.8 million more tax payers will move into paying the higher rate of income tax; and 600,000 more taxpayers will pay the additional rate of income tax. The proportion of taxpayers paying the higher or additional rate is forecast to rise from 15% in 2021–22 to 24% by 2030–31.

Income Tax – Investment Income

Because individuals who receive property, dividends and savings income do not pay NICs, the Government is increasing the income tax rates on these types of income as follows:

• Separate income tax rates will apply to property income received by English, Welsh and Northern Irish taxpayers – from April 2027, the property basic rate will be 22%, the property higher rate will be 42% and the property additional rate will be 47%.
• From April 2026, the basic rate of tax on dividend income will increase for all UK taxpayers from 8.75% to 10.75% and the upper rate will increase from 33.75% to 35.75%. The additional rate of 39.35% will not be changed.
• From April 2027, the income tax rate on savings interest income will increase for all UK taxpayers by 2 percentage points across all bands, i.e. the basic rate band will rise from 20% to 22%; the higher rate from 40% to 42%; and the additional rate from 45% to 47%.

Although this is a rise in income tax, it is economically equivalent to levying a flat 2% employee national insurance contribution on these types of income. The Government may have chosen not to raise the additional rate of income tax for dividend income in an attempt to provide some comfort and stability to high-income investors and business owners, amidst other tax measures targeting the wealthy.

These increases were a surprise announcement in the Budget, although a reduction in national insurance contributions and corresponding increase in income tax, which would have had a similar effect, was widely reported. The Government has noted in the Budget documents that over 90% of UK taxpayers do not have taxable property income and do not pay income tax on savings income or receive taxable dividend income. The political reason for raising these taxes is clear – according to the Budget statement, two thirds of the £2.1 billion expected to be raised from these tax increases is expected to come from the top 20% of the wealthiest households. The Government is therefore claiming to keep to its manifesto promise of not increasing taxes on working people and ensuring greater equity between the tax treatment of income received from employment and income received from assets.

However, the Office for Budget Responsibility has noted that these changes are expected to result in some behavioural changes, such as individuals reducing their taxable dividend income, moving more savings into ISAs and, in the longer term, when taken together with previous measures that have reduced returns to landlords, reduce the supply of rental property.

Cap on National Insurance contributions exemption for salary sacrificed pensions contributions

Many employers offer an option for employees to contribute to their pensions arrangements by means of a salary sacrifice arrangement. The main benefit of salary sacrifice is to save on NICs for both the employee and the employer.

In simple terms when employees contribute to their pension directly from their salary, there are no NICs savings, as NICs are calculated on the full amount of earnings. However, if part of an employee’s salary is exchanged for an employer pension contribution (known as salary sacrifice), gross earnings are reduced. This makes salary sacrifice arrangements a tax-efficient way to fund pensions savings.

The Budget announced that the NICs exemption for salary-sacrificed pension contributions will be capped at £2,000 per annum from 6 April 2029. Salary-sacrificed pension contributions above £2,000 will therefore be treated as ordinary employee pension contributions and be subject to both employer and employee NICs.

The Government has confirmed that employer pension contributions will remain exempt from employer NICs.

In its Budget publication, the Government estimated that the annual cost of the relief as it stood would rise from £2.8 billion in 2016-17 to £8 billion by 2030-31, pointing out that the relief disproportionately benefitted higher earners. The Office for Budget Responsibility has assessed that capping the NIC exemption will raise £4.7 billion in 2029-30 and £2.6 billion in 2031-31.

Given the long lead-in time, employers have time to prepare for changes to the payroll process, but perhaps more importantly, consider their overall remuneration strategies and options for offsetting the additional NIC costs, which may include making use of tax-advantaged share option schemes or alternative benefits or rewards.

National Minimum Wage and National Living Wage

Following advice from the Low Pay Commission ("LPC"), the Government has accepted the LPC’s recommendations in full, raising National Minimum Wage rates from April 2026 with the aim of easing cost of living pressures.

From 1 April 2026, the new rates will be:

• National Living Wage (workers aged over 21 years): £12.71
• 18-20 years: £10.85
• 16-17 years: £8.00
• Apprentice Rate: £8.00
• Accommodation Offset: £11.10

Each rate will increase by at least 4.1 per cent, with the 18-20 years rate having the largest increase of 8.5 per cent. The Government estimates that around 2.4 million low paid workers will benefit from these increases.

It is important for businesses to ensure that these changes are implemented correctly in their payroll systems to capture payments to be made from 1 April 2026.

Employment rights

Marking a significant shift in enforcement strategy, the Government will introduce a dedicated “hidden economy” team within the Fair Work Agency from April 2026 with a clear mandate to tackle serious breaches of employment rights, illegal working and tax evasion. The Fair Work Agency will work more closely with trade unions and local business groups to gather intelligence about unscrupulous employers. Employers who exploit workers will face increased scrutiny.

The Government is exploring how powers under the Companies Directors Disqualification Act 1986 can be used against directors who repeatedly breach employment rights. This could mean personal consequences individual directors, not just corporate penalties.

Transparency is the new norm. All employers who break the law will be named within a year of their case closing. Reputational risk will become a major deterrent, so compliance is no longer just a legal obligation, it’s a brand protection issue.

Compliance should be a strategic priority. With a raft of new employment legislation making its way through Parliament, it is crucial for employers to keep on top of the changes. Those who fail to act risk not only financial penalties but also lasting damage to their reputation and leadership credibility.  In an environment where enforcement is becoming more proactive and public, businesses that invest in robust compliance frameworks and foster a culture of fair treatment will be better placed to attract talent, maintain trust, and safeguard their future.

Proposed changes to income tax rules for umbrella companies

As anticipated in our article in September, the Government has confirmed significant changes to tackle non-compliance in the umbrella company market in the Budget. From 6 April 2026, recruitment agencies will share legal responsibility for operating Pay As You Earn ("PAYE") and Class 1 NICs on payments made to workers supplied through umbrella companies. Where no agency is involved, the end client will share this responsibility. This is being implemented earlier than was initially expected.Umbrella companies are easily set up when their non-compliant predecessor companies are wound up. Consequently, pursuing umbrella companies for unpaid tax is frequently ineffective. By making recruitment agencies and end-users jointly responsible, the Government aims to improve compliance and raise standards across the temporary labour market.

The Government has articulated three aims:

• Close the tax gap by reducing losses caused by fraudulent umbrella companies.
• Protect workers from large, unforeseen tax liabilities.
• Create a level playing field by preventing non-compliant operators from undercutting legitimate businesses.

Recruitment agencies, end clients using temporary workforces labour, and umbrella companies should review their compliance processes and due diligence procedures now. Our Employment and Tax teams at DWF can help assess risk and prepare for April 2026 when the changes are due to come into force.

Announcements specifically relevant to the Consumer sector

Business rates in England 

There are a number of important business rates changes in England to be aware of following the 2025 Budget. Key changes are:

• a new business rates structure confirmed for England;
• the multiplier (rates) applicable from April 2026 have been published;
• the Valuation Office Agency has published the outcome of the latest revaluation for England and Wales;
• a transitional support package for some businesses facing changes to business rates liabilities as a result of the revaluation;
• a new Call for Evidence considering further business rates reform in England; and
• a ten-year relief for electric vehicle ("EV") charging points and EV-only forecourts.

New business rates structure in England

As anticipated, the Government confirmed that a new structure for business rates in England will apply from April 2026. This previously announced measure had recently been the subject of lobbying from large retailers in particular, which led to speculation about whether the Government would proceed with the new structure.

The Government has confirmed that it will introduce permanently lower business rates multipliers for retail, hospitality and leisure ("RHL") properties that have a rateable value under £500,000. This reduction will be funded by a higher multiplier on all properties with a rateable value over £500,000. Alongside the Budget, the Government has published updated guidance that provides its interpretation of secondary legislation setting out which properties can qualify for the lower RHL multiplier.

Those RHL businesses with portfolios of properties with rateable values under £500,000 could therefore see a reduction in their business rates bill in England. The Chancellor pointed out in her Budget speech that this measure aims to target large distribution centres used by online retailers, given that these large warehouses are likely to have a rateable value exceeding £500,000. However, it is also likely that most larger retail outlets, hotels, and supermarkets will have a rateable value above £500,000 and could be subject to an increased rates bill from April 2026.

Business rates are devolved to Scotland and Wales, where different regimes and rates apply. Navigating these changes and planning for potential increases will be a critical part of business and tax plans for businesses going forwards. In Wales, the Welsh Government has previously proposed that there will be a lower multiplier for a limited number of RHL properties, again funded by a higher multiplier for all premises with a rateable value over £100,000. Although similar to the English model, the lower multiplier appears to apply to a narrower group of outlets (shops and kiosks) and the threshold at which the higher multiplier will apply is much lower than proposed in England.

The Scottish Budget was delayed as a result of the timing of the UK Budget, and will take place on 13 January 2026. The Scottish Budget is expected to include business rates measures affecting properties in Scotland. Key differences in Scotland include different thresholds for rates (basic, intermediate and higher) depending on the rateable value of the property, with a tone (“valuation”) date of one year (rather than two in England). At its most recent Budget, the Scottish Government froze the multiplier for the basic property rate, with other rates rising with inflation, and confirmed a limited 40% relief for small properties in the hospitality sector with a cap of £110,000 per business, and a temporary 100% relief for hospitality premises in the islands. Notably, the Scottish Government shelved plans to reintroduce a public health supplement on larger retailers, which would have seen an additional business rates charge on those selling alcohol or tobacco products. 

Further, the Scottish Government is currently pushing through emergency legislation to deal with an error in earlier business rates legislation, which could have resuted in owners of properties who have paid rates on empty properties collectively claiming millions of pounds if new legislation is not enacted.

Rateable values published

At the 2025 Budget, and as expected, the Government published the new rateable values ("RVs"), which apply from April 2026. These can be summarised as follows:

Revaluation outcome

In addition to the policy announcements in the 2025 Budget, the Valuation Office Agency has published the outcome of its latest three-yearly revaluation of rateable values for all commercial and non-domestic properties in England and Wales. Rateable values are based on how much it would cost to rent a property for a year on a pre-determined valuation date. For the 2026 revaluation, the antecedence valuation date is 1 April 2024. 

Now that new rateable values have been published and new rates for multipliers announced, businesses (operating in England, at least) can begin the critical task of estimating their business rates liabilities for April 2026 onwards.

Transitional relief

As a result of the revaluation, the Government has confirmed the details of support packages for those businesses facing a change in liability. Measures include a transitional relief scheme and supplement to spread the impact of changes to liabilities as a result of the 2026 revaluation (not the new structure), as well as a scheme aimed at supporting small businesses facing increased bills or losing their existing RHL relief.

The future of business rates

The Government's latest Call for Evidence on business rates, published alongside the Budget, gives an indication of the future direction of travel, including:

• a new ‘slab’ to ‘slice’ approach – exploring moving from the current tax structure, where a single multiplier is paid on the full RV, to one where each multiplier only applies to the RV above the relevant threshold;
• reviewing small business rates relief and improvement relief;
• considering ratepayer concerns over the current methodology and options to address these ahead of the 2029 revaluation;
• exploring the possible benefits of shortening the antecedent valuation date in the future; and
• making administrative changes following the merger of the Valuation Office Agency with HMRC.

Further, it asks for views on the relationship between business rates and investment decisions. We know from many clients that business rates continues to be a key concern. We will be digesting the detail in due course and will continue to actively engage with HMRC in this area.

EV relief

Finally, on business rates, the Chancellor announced a ten-year 100% business rates relief for EV charge points and EV-only forecourts with effect from April 2026.

The Soft Drink Industry Levy extension (the "milkshake" tax)

In April 2018, the Government introduced the Soft Drinks Industry Levy ("SDIL"), a tax on pre-packaged soft drinks with levels of sugar above 5g per 100 ml. There are various exceptions to this levy and a number of products have been out of scope, including drinks made with fruit or vegetable juice with no additional sugar. Small producers also escape the levy.

The Government consulted on three proposals to strengthen the SDIL, with the intention of making more drinks subject to the levy and stimulating further reductions in sugar content.

1. Reducing the threshold of in-scope drinks from 5g to 4g per 100 ml.

The Government has decided to lower the threshold to 4.5 g per 100ml (not 4g as originally consulted), having listened to industry on the challenge of reformulating products below 4g. The Government says this "strikes the appropriate balance between supporting health objectives and fostering conditions that allow the soft drink industry to continue to grow and invest."

2. Removing the milk-based exemption, which means drinks containing 75% of milk by volume will now be subject to SDIL.

The Government has decided to bring milk-based products into scope because it believes excess sugar cannot justify its continued exemption.

The Government has departed from its proposal to aggregate the average lactose content of semi-skimmed milk (3.8 lactose per 100ml) with the SDIL thresholds. Instead (with the exception of sugars added as an ingredient, hydrolysed lactose and lactose in milk powder) other lactose will be excluded from the "total sugar" value when determining liability to SDIL.

3. Removing the exemption for milk-substitute drinks, meaning drinks containing at least 120 mg of calcium per 100 ml. The added sugars beyond that derived from the principal ingredient (e.g. oat or rice) would be subject to the levy.

The Government has gone ahead with this proposal. Sugars derived from the principal ingredient (e.g. oat or rice) would not be subject to the levy so long as there were no additional sugars. Where there are additional sugars, the aggregate of sugars from the principal ingredient and additional sugars would be subject to the SDIL thresholds. 

With the drinks industry preparing for the Deposit Return Scheme, the Government has decided to delay the implementation of stronger SDIL until 1 January 2028 (originally 1 April 2027).

Plastic packaging tax

Plastic packaging tax ("PPT"), which was introduced in 2022, is charged on the production and import of plastic packaging with less than 30% recycled content. Broadly, PPT is payable when the proportion of recycled plastic in a finished plastic packaging component is less than 30% of the total amount of plastic in the component by weight. Plastic packaging components containing 30% or more recycled plastic are not chargeable for the tax.

At Budget, the Government confirmed the following changes:

1. Rate increase. The Government announced an increase in line with CPI to the rate for PPT from April 2026. The Government suggests this will incentivise businesses to use recycled, instead of new, plastic for packaging.
2. Mass balance approach. Following a consultation in 2023, the Government announced at the 2024 Budget that it would incorporate a "mass balance" approach for calculating the proportion of recycled content in chemically recycled plastics for the purposes of PPT. The underlying issue is that the method of chemical recycling typically means that it may not currently be possible to distinguish between plastic from virgin or recycled sources. The Government explained previously that: "a mass balance approach is a chain of custody model that is used by industries to track materials through a complex value chain. It enables recycled or sustainable inputs which are mixed with virgin material during the process to be allocated to particular outputs." It is considered that adopting a mass balance approach has the potential to increase rates of plastic recycling, as it enables more types of plastic to be recycled, and to a higher grade (which can be used in food contact packaging, for example). 
3. Pre-consumer waste. Additionally, the Government will remove "pre-consumer waste" from the definition of recycled plastic for PPT purposes, with the intention of addressing a loophole undermining the objectives of the tax. Pre-consumer waste refers to the practice of businesses using their own production scraps, reprocessing them internally, and counting this toward the 30% recycled content threshold to be exempt from paying PPT. As these materials were already being reused as standard practice, the Government identified that it did not incentivise additional recycling. Businesses using pre-consumer waste as a source of recycled plastic will be able to continue this practice, but it will no longer contribute to the 30% recycled content required for an exemption from PPT. The Government suggests that this will level the playing field for businesses where interpretations of pre-consumer waste can vary significantly, and many businesses regard the use of pre-consumer waste as good practice, rather than recycling.
4. Mechanically recycled plastic and certification consultation. A consultation will be launched in early 2026 on the introduction of mandatory certification for mechanically recycled plastic packaging for businesses to claim an exemption from PPT.

Changes to the legislation will be introduced in the forthcoming Finance Bill and will take effect from April 2027.

Vaping Products Duty and Vaping Duty Stamps Scheme

The Government announced the introduction of a new Vaping Products Duty ("VPD") in the last year's Budget to be implemented from 1 October 2026. To support implementation and enforcement of VPD, it also announced a Vaping Duty Stamps ("VDS") scheme also to be brought into operation from 1 October 2026.

In this year's Budget, the Chancellor has confirmed the introduction of both VPD and VPS with effect from 1 October 2026 and issued two policy papers setting out a description of the measures and those who will be affected.

VPD will apply to apply to vaping liquid which is not a medical or tobacco product and will be charged at a flat rate of £2.20 per 10 millilitres on all vaping products produced or imported into the UK. The liability for payment will lie with UK manufacturers and importers.

VDS will require all vaping products manufactured or imported into the UK to have a physical duty stamp affixed to them. Metadata collection will include details of the manufacturer and the product, date of stamping and date product leaves duty suspension or date of release for consumption in UK. Duty stamps will only be issued to approved individuals, manufacturers and importers. From 1 April 2026 businesses must apply for approval from HMRC to affix duty stamps.  It will be compulsory for stamps to be affixed from 1 October 2026.

The new measures are intended to include provisions for enforcement including penalties, forfeiture of goods, civil penalties, revocation of excise licences and potentially criminal prosecutions.

HMRC has made it clear that all parties in the supply chain must ensure compliance and therefore businesses who obtain vaping products from a supplier must verify that duty tax has been paid. Supply chain due diligence will become crucial, and all businesses will need to ensure that they have put in place reasonable and proportionate checks to identify fraudulent transactions or transactions involving goods where duty may have been evaded.

Manufacturers and importers of vaping products will need to register with HMRC in order to obtain the vape duty stamps and to become verified suppliers. Verification is likely to take approximately 45 days and so early registration is suggested and recommended.

Overnight Visitor Levy in England

The Government has confirmed in the 2025 Budget that Mayors of Strategic Authorities in England will have the option to introduce an overnight visitor levy to raise revenue locally.

A consultation on the structure of this new power was published on 26 November 2025 and will end on 18 February 2026. It seeks views on the structure of the power, how the levy should be implemented and whether it should be extended to local leaders in Foundation Strategic Authorities.

As highlighted in the consultation, this change demonstrates the Government’s dedication to fiscal devolution, currently enabling mayors, and possibly other local leaders, depending on the consultation, to introduce a visitor levy on overnight visitor accommodation in their region.

This change aims to bring English cities in line with other major tourist destinations, including parts of the UK that already apply a visitor levy, including Edinburgh as noted in our prior articles on this subject.

Customs treatment of Low Value Imports into the UK

The Government has announced the end of the low value import relief, which allows individual consignments imported into the UK with a declared value of £135 or less to be imported without paying customs duty.

In April 2025 the Chancellor announced that a comprehensive review of the customs treatment of low value imports ("LVI") was needed after concerns from high-street retailers who considered that they were being disadvantaged in comparison to online retailers; whom they considered were benefitting from a customs duty relief and less stringent data requirements. The Government has decided to remove the current low value import limit, making LVIs subject to tariffs and will replace the existing customs arrangements with a new duty and new payment and data requirements. The proposed changes will result in increased customs duty being payable and an increased compliance burden for businesses.

HM Treasury and HMRC have launched a joint consultation, which will run until 6 March 2026, on the removal of the £135 customs duty relief and the design of the new replacement LVI customs arrangements. The new measures are expected to be implemented from March 2029 at the latest. A consultation launch event will be held on 4 December 2025, which will provide further details about the consultation.

Other business measures

Enterprise Investment Scheme ("EIS") and Venture Capital Trusts ("VCT")

The Government has announced changes to both the EIS and VCT rules, which had already been extended to 6 April 2035 in the 2024 Budget. These changes ensure that vital sources of finance for small and growing businesses remain available to increase those businesses capacity and enable follow-on investments are available for such growing start-up businesses.

From 6 April 2026, the following changes will apply to both EIS and VCTs:

• Annual company investment limit: Increased to £10 million (from £5 million), and £20 million for Knowledge Intensive Companies ("KICs") (from £10 million).
• Lifetime company investment limit: Increased to £24 million (from £12 million), and £40 million for KICs (from £20 million).
• Gross assets test: Increased to £30 million before share issue (from £15 million), and £35 million after (from £16 million).

However, the upfront income tax relief for individuals investing in VCTs will fall from 30% to 20%. This change is intended to better align the relief with EIS, which does not provide dividend relief, and to encourage VCT funds to focus on higher-growth companies.

Following the reduction in VCT relief, EIS funds may become more appealing to investors seeking to maximise upfront tax benefits. From 6 April 2026, EIS will retain the 30% income tax relief and typically allows pooled investments through a nominee, offering access to a diversified portfolio of early-stage companies similar to VCTs.

The changes also mean that start-up and early-stage companies will be able to access more tax advantaged capital and do so at a later stage in their growth. The clear political bet here is that rather than raising revenue directly, these changes will drive wider growth across the economy.

This shift could prompt some investors to move from VCTs, which remain attractive for tax-free dividends and greater liquidity, to EIS funds. Ultimately, the choice will depend on individual priorities around income, growth, and risk appetite.

Enterprise Management Incentive Changes

The number of companies in the UK that can utilise Enterprise Management Incentives ("EMI") will increase in April 2026 as a result of the Government increasing the thresholds for what constitutes a "qualifying company" for EMI purposes.

The changes are:

• the limit on the value of company options able to be granted at any one time will be increased from £3 million to £6 million;
• the maximum value of a company's gross assets at the time of grant will be increased from £30 million to £120 million; and
• the maximum number of employees that a qualifying company can have at the time of grant will be increased from 250 employees to 500 employees.

The maximum period for holding an EMI qualifying option will also increase from ten to 15 years.

The Government guidance suggests that if your company has existing EMI options that are due to lapse as the tenth anniversary of the date of grant is approaching, you could consider amending the scheme rules and option agreements to extend the holding period to take advantage of the new 15-year period.  HMRC has noted that such change would not result in the EMI options being considered to be surrendered and regranted.

The Government has also announced that the EMI notification requirements will also be removed from April 2027. This extends on HMRC's previous changes to the EMI notification requirements.

This is the first change to thresholds for what constitutes a "qualifying company" for EMI purposes since the EMI scheme was introduced in 2003. These increases are welcome and well overdue and will bring many larger companies within the scope of qualifying to grant EMI options. The EMI option scheme is generally considered to have been very successful since its introduction and provides companies and employees with significant tax advantages if the rules are followed correctly. Therefore, we would encourage larger companies who, from April, will be within the scope of the EMI legislation and who are looking for ways to incentivise and retain staff to consider setting up an EMI option scheme. Our Tax and Share Schemes team has extensive experience in establishing EMI schemes so please do get in touch with us if you would like to discuss this further.

Construction Industry Scheme

The Government has announced that it will strengthen HMRC's powers to tackle fraud within the Construction Industry Scheme ("CIS").

We understand that this will include giving HMRC the power to:

• immediately remove Gross Payment Status ("GPS") under the CIS;
• assess a business for tax loss related to fraudulent payments; and
• charge a penalty of 30%, which can apply to the business or its officers.

These changes are intended to apply from 6 April 2026 and apply if a business makes or receives a payment that it knew or should have known was connected to fraud.

In addition, those who have GPS removed immediately due to fraud or serious non-compliance will be prevented from reapplying for GPS for a period of 5 years.

This measure is part of a wider effort to clamp down on fraud within the construction industry. We previously wrote about changes to the CIS and the impact it can have on a business here.

The Government has also announced that it will look to consult on simplifying the administration connected with the CIS.

We await further details of these announcements.

Capital Allowances Changes

The Government has announced two important changes to the rates of capital allowances that businesses can claim on plant and machinery expenditure.

The first is a 4 percentage point reduction in the rate of writing down allowances for "main pool" qualifying expenditure from 18% to 14% per year effective from April 2026. This will decrease the rate at which businesses can claim a deduction for most expenditure qualifying for capital allowances against their total profits for corporation tax and income tax.

This reduction will not be relevant where a business is able to claim a first-year allowance ("FYA") or annual investment allowance ("AIA") on its expenditure. These potentially permit businesses to claim a 100% tax deduction on qualifying capital allowance expenditure in the period in which the expenditure is incurred.

Currently, the most important FYA, full expensing, is only available to companies and is not available on expenditure on assets that are leased. This latter limitation has been an important practical problem for larger corporate groups with asset holding companies that lease assets to other group members.

The second important change announced in the 2025 Budget partly addresses this issue.  The Government will introduce a new 40% FYA from April 2026 that will be available for leased assets, and can be claimed by all businesses rather than just companies. However, like full expensing, it will only be available on the purchase of new assets.

While the new FYA will provide some welcome relief (particularly for leasing companies), it also adds further complexity and distinctions for those making significant capital investments.

Next steps 

Businesses can begin considering the impact of new tax policies, and where relevant incorporating changes within their own business and tax plans. The publication of rates and rateable values for business rates in England, will enable business to determine future liabilities. If you would like to discuss any of these measures in more detail, please speak to Caroline Colliston or your usual DWF contact. 

For additional analysis affecting businesses, business owners and high-net worth individuals, please refer to our initial tax Budget analysis.