As the UK approaches the Spring Budget on 26 March 2025, businesses are closely monitoring potential legal and regulatory changes that could shape their financial and operational strategies for the year ahead. With the economic backdrop of inflationary pressures, labour market shifts, and recent tax reforms, Chancellor Rachel Reeves faces a balancing act between fiscal responsibility and economic stimulation.
This blog explores the anticipated legal and regulatory impacts that may emerge from the Budget and other legislative developments, covering taxation, employment law, corporate reporting, cybersecurity, and compliance considerations.
1. Economic and Fiscal Context
The Spring Budget comes amid challenging economic conditions. The UK economy is projected to grow by 2% in 2025, yet inflation remains above the Bank of England’s 2% target. Businesses are still adjusting to the impact of the £40 billion in tax increases announced in the October 2024 Budget, which included:
- Employer National Insurance Contributions (NICs): Raised from 13.8% to 15% for salaries above £5,000, increasing employment costs for businesses.
- Capital Gains Tax (CGT) Adjustments: Changes in CGT rates on business asset sales.
- Dividend Tax and Corporation Tax Thresholds: Previously adjusted, potentially subject to further reform in March 2025.
With limited room for further tax hikes, it is expected that the Chancellor will focus on regulatory changes and targeted incentives rather than broad-based fiscal adjustments.
2. Potential Tax Revisions
Corporation Tax and Business Reliefs
The current corporation tax rate stands at 25%, having been increased from 19% in April 2023. While businesses are unlikely to see a further rate hike, the government may:
- Adjust R&D Tax Credits: To encourage innovation, particularly for AI, life sciences, and green technology firms.
- Extend Full Expensing for Capital Investments: Allowing businesses to deduct 100% of qualifying capital expenditures, which is currently a temporary measure.
- Introduce New Sector-Specific Levies: Following discussions about increased levies on digital service providers and financial institutions.
VAT and Business Rates
Recent discussions around tax have focused on two key areas impacting small businesses and specific sectors:
- VAT Threshold Adjustments: Small businesses have pushed for an increase in the VAT registration threshold (currently £85,000) to ease the tax burden on SMEs.
- Business Rates Reform: Retail and hospitality sectors continue to lobby for a fairer business rates system, with potential relief measures anticipated.
Personal Tax Changes Impacting Business Owners
- While income tax bands are not expected to change, there may be adjustments to dividend tax allowances and capital gains tax exemptions, directly affecting business owners and investors.
3. Employment Law and Wage Increases
National Living Wage (NLW) Increase
From April 2025, the National Living Wage will rise to £12.21 per hour for workers aged 21 and over, benefiting over 3 million low-paid workers. Businesses, particularly in retail, hospitality, and care sectors, must prepare for:
- Higher wage costs: Necessitating workforce planning and budget adjustments.
- Potential cost-cutting strategies: Some businesses may reconsider employment structures, automation, or outsourcing.
Changes to Employment Rights and Contracts
Recent consultations indicate potential strengthening of employment protections, including:
- Stricter regulations on zero-hour contracts: Aimed at providing greater job security.
- Enhanced worker rights for gig economy employees: Possibly introducing a minimum earnings threshold for self-employed contractors.
- Flexible Working Law Adjustments: Businesses may need to accommodate increased work-from-home requests under anticipated “right to request flexibility” reforms.
Increases to Employer NICs
With the employer NICs rate already rising to 15% in April 2025, businesses face increased payroll costs. Employers should review salary structures, workforce planning, and potential efficiency measures to mitigate these costs.
4. Corporate Reporting and Compliance Updates
Changes to Financial Reporting Thresholds
From 6 April 2025, the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 will increase company size thresholds, impacting reporting obligations:
- Micro-entities and SMEs will see higher turnover limits, exempting many from certain auditing and financial disclosures.
- Larger businesses may need to adjust compliance strategies for more detailed financial reporting.
Mandatory ESG Disclosures
With growing emphasis on sustainability reporting, large companies may face:
- New ESG disclosure requirements aligned with Corporate Sustainability Reporting Directive (CSRD) principles.
- Stronger regulatory oversight on environmental impact statements.
5. Cybersecurity and Digital Regulation
Upcoming Cybersecurity and Resilience Bill
The proposed Cyber Security and Resilience Bill, first announced in July 2024, is expected to progress in mid-2025. This legislation aims to:
- Enhance cyber resilience for businesses and critical national infrastructure.
- Expand regulatory powers over companies handling sensitive data.
- Impose stricter penalties for cybersecurity breaches.
Businesses should proactively review data protection measures and IT security compliance to prepare for these changes.
AI Regulation and Compliance
The UK is adopting a sector-based approach to AI regulation, differing from the EU AI Act. However, UK businesses can expect:
- Tighter AI compliance rules for financial services, healthcare, and public-sector applications.
- Potential AI impact assessments as part of risk mitigation strategies.
Practical Steps for Businesses
In anticipation of these legal and regulatory changes, businesses should:
- Review Financial Plans: Assess the impact of possible tax adjustments and NIC increases.
- Update Payroll Systems: Ensure compliance with the National Living Wage rise.
- Evaluate Reporting Obligations: Check whether classification changes affect company size thresholds.
- Enhance Cybersecurity Measures: Strengthen IT security in preparation for stricter compliance requirements.
- Monitor Employment Law Changes: Be prepared for new obligations concerning flexible working and worker protections.
With less than a month to go before the Spring Budget, businesses should stay informed and plan strategically to mitigate risks and capitalise on opportunities.
Our Final Thoughts
While the Spring Budget 2025 is unlikely to bring major new tax burdens, regulatory adjustments could significantly impact employment law, corporate governance, and digital compliance. Businesses should take a proactive approach to financial planning and legal compliance, ensuring they remain adaptable in an evolving regulatory landscape.
Would you like us to provide further tailored legal advice on any of these areas? Our team at 360 Law Services is here to help businesses navigate these changes effectively.
