Budget 2025

[tony]

By Liz Barclay

The markets are calm following the chancellor's budget speech. I'm not sure the same can be said for small businesses: minimum and living wage increases, dividend tax rises and the compliance costs associated with the employment rights bill are just the direct costs. Freezing income tax thresholds and various other additional tax costs on members of households could leave the small business owner in the home with less room to use family income to bootstrap their business if that's their preferred way of funding additional business costs.

All the scary stuff that was leaked ahead of the budget may not have come to pass but the damage was done as businesses held onto any resources and didn't invest. We've lost a year of investment that could have increased productivity and contributed to valuable growth. Instead productivity fell by 4.6% in the third quarter of the year due to the speculation and uncertainty.

One change the Chancellor announced that may have been missed is that both the Federation of Small Businesses (FSB) and Small Business Britain pressed the Chancellor to make apprenticeships more affordable and flexible for SMEs, focusing on scrapping co‑investment costs and reforming the levy. They rightly emphasised youth employment concerns and highlighted apprenticeships as a key route to tackle skills shortages and youth unemployment, asking for targeted support for under‑25s.
They wanted apprenticeships for young people in small firms to be fully funded, removing the co‑investment requirement. The Chancellor announced in response that:
Co‑investment will be scrapped for under‑25 apprentices in small businesses, training costs will now be fully funded, extending previous relief (which only applied up to age 21) to cover 22–24 year olds, and £820m “Youth Guarantee”: Funding will ensure every 18–21 year old gets a place in college, an apprenticeship, or personalised job support.
Future reforms were promised: Treasury documents mention simplifying apprenticeship standards and introducing short courses from April 2026.
However, levy reform and broader flexibility remain unresolved, meaning small businesses will still face structural barriers in how apprenticeship funding can be used.
I expect further campaigning on levy reform and flexibility.

The government also announced plans to introduce mandatory e-invoicing for all VAT invoices.
This is to come into force in 2029 and a roadmap to implementing this mandate will be announced in the 2026 Budget. Starting from January 2026, a co-creation process will begin where government will work closely with businesses, representative bodies, software providers, and internal teams to develop the policy and delivery approach. Small businesses may worry about the costs of implementing e-invoicing and the inconvenience of onboarding to customers’ systems but those problems should be ironed out between now and implementation. The upside of this move is that small businesses should find their invoices get paid quicker, there’s less room for making errors in billing etc and there’s less time consuming paperwork to contend with, all making the business more productive.
Another announcement in the Chancellor’s Budget that might affect some small businesses is a major expansion of the Enterprise Management Incentive (EMI) scheme, effective from 6 April 2026. The scheme is one of the UK’s most powerful employee retention tools and allows growing companies to continue rewarding and retaining talent with tax advantaged share options and by expanding it the government aims to strengthen the UK’s entrepreneurial ecosystem.
Instead of being limited to firms with a maximum of 250 employees it will be open to those with up to 500 and a new higher asset limit of £120million. Employees will be allowed a maximum of £6,iooiom in share options instead of the current £3million and to hold them for up to 15 years instead of 10.
Importantly, the extension can also apply retrospectively to existing EMI contracts that haven’t yet expired or been exercised. It’s designed to make EMI more “founder-friendly” and accessible to scale-ups that were previously exempt, as well as start-ups. If the longer exercise periods and higher option limits make EMI more attractive for employees they are more likely to stay with the firm. This is highly unlikely to be a feasible scheme for micro businesses but bigger amll businesses may want to think about it if they would qualify. You could use the higher option limits to design more competitive employee incentive packages.