Spring Statement 2025: Announcements and Tax Changes

The headline forecast figure is that OBR lowered its GDP growth forecast from 2% to 1% for 2025. This change highlights the effects of ongoing political uncertainty as well as the impact of higher NICs and teetering inflation. However, the OBR expects a slow recovery in the coming years. It sees GDP growth climbing to 1.9% in 2026 and staying around 1.8% after that, figures which are above the previous forecast provided following the Autumn Statement.

The Chancellor was keen to reiterate her aim of providing stability and security for the UK, pointing at the Bank of England’s recent cuts in interest rates as a demonstration of an improved economy. The rate of inflation fell slightly in the 12 months to February 2025 to 2.8%, according to the ONS, which brings it closer to the Bank of England’s target of 2%.

Reeves also claims that her announced changes will restore the Government’s £9.9bn surplus at the end of its five year budget period. The ONS pointed out that this is a very small margin which may not be sufficient to ensure a surplus at the end of the period.

One of the key changes was a notable rise in defence spending, which will reach 2.5% of GDP by 2027. This move to boost the UK’s defence will be funded partly by cuts in overseas aid and savings from within the Ministry of Defence. The Chancellor also introduced a new “transformation fund” with £3.25 billion to upgrade public services by using technology like AI. The overall aim is to improve public finances and reduce public sector administration costs by 15% by the end of the decade.

Reeves also confirmed that there would be notable cuts to the welfare budget. The OBR believes this will save the Treasury £4.8 billion. Most of these savings will come from updates to Universal Credit. This includes stricter requirements for the daily living part of Personal Independence Payments and a freeze on the health element of Universal Credit for current claimants. Even though these changes might stir up some controversy, the Chancellor said they are necessary for keeping the welfare system sustainable in the long run. There is also a provision of £1bn of employment support with the aim of reintroducing more people back into work.

While none of the headline changes announced included big changes to the UK tax system there were a few important announcements buried in the accompanying document to Reeves speech.

With the introduction of Making Tax Digital for Income Tax approaching, greater certainty was provided with respect to the reporting for individuals receiving over £20,000 of property or sole trade income. In addition to this, HMRC will be cracking down on tax avoidance with the hope of raising an additional £1bn of tax revenue.

Making Tax Digital (MTD) for Income Tax is an important part of the government’s plan to update the UK tax system. With Making Tax Digital for VAT introduced in 2019 the next phase of the MTD rollout is to cover Income Tax reporting. With Making Tax Digital for Income Tax (MTD IT), self-employed people and landlords will begin to need to keep digital records and adhere to more frequent reporting deadlines. The first phase of MTD IT will become mandatory from April 2026, whereby sole traders and landlords with income from these sources in excess of £50,000 will need to maintain digital records and submit quarterly returns as well as a final declaration through MTD compliant software. The threshold will then be lowered in 2027 to £30,000.

The Spring Statement announced that starting in April 2028, the threshold for MTD for Income Tax will drop to £20,000. Under the MTD reporting requirements individuals and sole traders will need to be proactive in seeking professional advice to ensure that they remain compliant with the new reporting standards.

The Spring Statement also contained information regarding the Final Declaration for MTD IT. Previously it was announced that individuals would be able to submit this declaration directly to HMRC but this will not be the case. All submissions for MTD IT will need to be made through the individual’s software and therefore choosing a software that offers comprehensive filing solutions is vital to ensuring compliance with the new legislation.

This migration to MTD reporting is a part of HMRC’s plan to improve efficiency, reduce mistakes, and help taxpayers handle their taxes better.

Whether you must report with MTD for Income Tax depends on how much you earn from self-employment or property income. Starting in April 2026, if your total income from your business and property is more than £50,000 a year, you must follow the MTD for Income Tax rules. This threshold will drop to £30,000 in 2027 then, following the Spring Statement, £20,000 in 2028.

If your income is below the £20,000 limit, there is currently no proposed start date for reporting through MTD IT. It is important to understand that the thresholds are for total revenue from property and self employment, not just profit on these activities.

Making Tax Digital means you need to keep digital records of your income and expenses. You will file summaries every three months using MTD-compatible software. You must also send an End of Period Statement through the software each year. This gives a summary of your income and expenses for the whole tax year.

The Spring Statement also introduced higher penalty amounts for late payments for MTD liabilities. From the 6th April 2025 payments that are overdue by 15-29 days will be subject to penalties amounting to 3% of the outstanding amount at 15 days. If the liability is over 30 days overdue the penalty amount will be 3% of the amount outstanding at day 15 plus 3% of the amount outstanding at day 30.

These penalties will apply to MTD for VAT and Income Tax liabilities and highlight the importance of ensuring payments reach HMRC by the deadlines.

The Chancellor used the Spring Statement to restate the government’s promise to combat tax avoidance. Reeves shared plans to keep investing in HMRC’s tools and skills. Part of this crackdown is to hire 400 additional HMRC staff to tackle offshore non-compliance in a move that is estimated to bring in an additional £500m over five years.

Reeves committed to continuing the Government’s investment in cutting edge technology and investing in the HMRC’s capacity to crackdown on tax avoidance. The Chancellor stated that this crackdown will increase revenues by £1bn, bringing the total revenue to be raised from reducing tax avoidance to £7.5bn under this Labour Government.

High Income Child Benefit Charge (HICBC) is paid by individuals who earn over £60,000 and receive child benefit through themselves or their partner. From summer 2025 employees who pay HICBC will be able to report this directly to HMRC and pay the charge through PAYE rather than needing to register for Self Assessment.

While the Spring Statement did not introduce ang tax changes itself there are still important changes that will take effect from April 2025. The key changes are to Capital Gains Tax and employer National Insurance Contributions.

The headline announcement in October’s Autumn Statement was a rise in Employer National Insurance Contributions (NICs), a measure that Rachel Reeves claimed would raise an additional £25bn in tax revenue for HM Treasury. From 6th April 2025, the rate employers must pay will rise from 13.8% to 15% on qualifying salaries. The secondary threshold, above which employers must pay NICs, will also decrease from £9,100 to £5,000

These rises will be somewhat alleviated for small businesses that qualify for the Employment Allowance, as this will be increased from £5,000 to £10,500 for qualifying businesses. The relief will also be available to more eligible employers thanks to the removal of the requirement that annual employer NICs be lower than £100,000.

The Capital Gains Tax rates increased following the Autumn Statement are remaining in place. The rate of CGT for basic rate taxpayers is 18%, for higher rate taxpayers this is 24%.

Business Asset Disposal Relief (BADR) is a tax break that helps business owners pay a reduced rate of Capital Gains Tax when they sell their business, or a part of it. As part of Ms Reeves Autumn Budget she announced that the rate of BADR would increase from April 2025. Before April 2025, BADR would see business owners pay a reduced rate of 10% Capital Gains Tax on all qualifying assets up to a lifetime allowance of £1,000,000. From April 2025, this rate will increase to 14%, and again in 2026, this will rise to 18%. The annual exempt amount of £3,000 is unchanged; this applies for individual taxpayers before any CGT liability is calculated at the relevant rates.

These changes will affect decisions for people selling their business or company assets, some business owners who were planning to sell in the next 3-5 years may instead opt to hold on in the hope that future governments and budgets will see the rate of BADR decrease or the lifetime allowance increase.