UK businesses braced for another Budget blow as tax hikes loom

With the Autumn Budget a couple of days away, Chancellor Rachel Reeves’ reported U-turn on raising Income Tax has fuelled speculation that UK businesses may once again be targeted with further tax increases to plug the £20–£30bn gap in the public finances.

This follows the 1.2 percentage point increase in employer’s National Insurance Contributions (NIC) introduced in April, which was the single largest tax increase of last year’s Budget, and is forecast to cost UK businesses between £23.8 billion and £25.7 billion per year over the next five years.

Reeves is reportedly favouring a ‘smorgasbord’ approach of various smaller tax changes in this year’s Budget. Due to poor business confidence and weak economic growth, this is generally expected to fall mainly on wealthier, individual taxpayers.

Nevertheless, there has been speculation about potential tax changes affecting UK businesses, and Saffery says businesses are ‘braced’ for unwelcome surprises on the day.

Some of the tax changes for UK businesses that have been speculated include:

• Bank Levy – Whilst the Chancellor is reportedly reluctant to raise the banking levy, there is speculation we may see a hike in the surcharge on corporation tax after record banking profits in 2024.
• Business Rate Reform – A reform of the current business rates system seems likely, following an interim report published by the government outlining priority reforms including lower tax rates for retail, hospitality and leisure properties with rateable values below £500,000 from April 2026, and a higher one for properties over £500,000 to fund this.
• Employer NIC for LLPs – Plans to apply a charge equivalent to employer national insurance contributions (NICs) to members of limited liability partnerships (LLPs) was widely trailed in the media, but faced strong opposition due to concerns it could lead to firms restructuring, offshoring work, or even harming the broader economy. In recent days the government has reportedly abandoned its plans, as it’s been suggested it could cost more than it would raise.
• Pensions and Salary Sacrifice – Possible changes to tax relief on high-value pensions and employer contributions. The Chancellor is reportedly looking at a £2,000 cap on how much employees pay into pensions using salary sacrifice without having to pay NI, adding to employer costs.
• Property Taxes – Possibility of levies or SDLT reforms on commercial and high-value property.
• VAT – The government may make changes to the long‑standing £90,000 VAT registration threshold, potentially pulling thousands of small businesses into the VAT system.

Zoe Thomas, Partner in the Corporate Tax Team at Saffery, comments:

“After last year’s employer NIC hike, businesses might be forgiven for hoping to emerge relatively unscathed from next week’s Budget. Economic growth, after all, is this government’s headline priority. But with a fiscal hole of £20–30 billion to fill – and tight manifesto pledges limiting changes to the major taxes – increases elsewhere are far from off the table.

“Speculation has swung back and forth on whether the Budget will include a tax raid on the banking sector, which already pays an additional 3% corporation tax surcharge alongside a separate balance sheet levy. Given the Government’s strong emphasis on unlocking infrastructure development, housing, digital transformation and other growth-critical industries, it seems unlikely the Chancellor will want to weigh too heavily on financial lenders for fear of dampening economic momentum. With inflation falling last month and an interest rates cut on the cards in December, the Government may ultimately prefer that banks deploy their capital directly into the economy rather than see it absorbed through higher taxes.

“Businesses have been clear that any increase in their tax burden in the Budget – including through proposed reforms to business rates – risks derailing investment and spending plans. They are already on hold across the country while business leaders await clarity from the Chancellor. It may also weigh heavily on future hiring decisions, compounding existing challenges in the UK labour market, particularly for young people and graduates.

“The Government’s manifesto pledge to protect ‘working people’ from tax rises has long prompted speculation that pensions could come under closer scrutiny. This may include how employers are taxed on pension contributions, particularly through potential reforms to salary sacrifice – a valuable mechanism that helps businesses manage the cost of providing high-quality pensions.

“How well the Government balances fiscal responsibility with its ambition to foster business growth will ultimately determine whether the Budget reassures or unsettles the corporate sector. For now, businesses remain braced for unwelcome surprises – and the decisions made next week could set the tone for a challenging winter ahead.”