Chancellor Rachel Reeves delivered the Spring Statement on 26th March, presenting a roadmap to steer the UK economy through uncertain times, marked by lowered growth expectations. With growth forecasts revised down from 2% to just 1% for 2025, the Chancellor’s message focused heavily on austerity measures—most notably through welfare reductions and increased defence spending.
While there were no new announcements reversing the controversial increases in employer National Insurance (NI) rates set for April, small businesses and landlords received crucial updates. Here, we explore these key points, breaking down how they’ll impact your business operations.
Making Tax Digital for Income Tax: Important Changes
Though Chancellor Reeves didn’t directly discuss Making Tax Digital for Income Tax (MTD for Income Tax) in her speech, the accompanying Spring Statement policy paper outlined several vital updates businesses need to understand.
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New Timeline Clarifications
The rollout schedule for MTD for Income Tax has become clearer. Self-employed individuals and landlords earning over £50,000 annually remain on track for mandatory compliance starting April 2026. Those earning above £30,000 will follow in April 2027. However, there’s now a confirmed date for those with annual earnings over £20,000—they must comply by April 2028, clarifying previous uncertainty from the Autumn Budget.
Yet, partnerships and Corporation Tax still await firm implementation dates. For now, limited companies and partnerships should keep an eye out for future announcements.
Who’s Exempt from MTD?
Recognising that digital record-keeping might pose disproportionate challenges, the government has announced new exemptions. The following groups can claim exemption from MTD for Income Tax:
- Individuals operating under Power of Attorney
- Non-UK resident entertainers and sportspeople without additional UK qualifying income
- Individuals unable to access HMRC’s digital services
Further, certain groups have temporary exemptions lasting for this parliament’s duration, including ministers of religion, Lloyd’s Underwriters, recipients of Blind Persons’ Allowance, and those eligible for Married Couples’ Allowance.
Final Tax Return Changes
A significant operational change has been announced: final tax returns under MTD (known as Final Declarations) must now be submitted directly through MTD-compatible software. Previously, taxpayers had the flexibility to submit quarterly updates via accounting software but could file final declarations separately through HMRC’s online portal. From April 2026, taxpayers must use compatible software, simplifying processes but necessitating early software adoption.
Tougher Penalties for Late MTD Payments
Addressing the “tax gap,” the Chancellor unveiled stricter penalties for late VAT and Income Tax payments under the MTD scheme, effective from April 2025. The revised penalty framework will be:
- 0-14 days late: No penalty
- 15-29 days late: 3% penalty on outstanding amounts from day 15
- 30+ days late: Additional 3% penalty on amounts outstanding at day 30, plus a 10% annual penalty thereafter
This represents a significant increase from current penalties (2%), reinforcing the importance of timely submissions.
Employers’ National Insurance Contributions: No U-turn
Despite lobbying from small business groups, the Chancellor confirmed that increases in employers’ National Insurance rates remain unchanged. From April 2025, employers will pay NI at 15% on employee earnings over the reduced threshold of £5,000, a substantial rise from the previous rate of 13.8%. The Employment Allowance will also rise to £10,500, but the upper eligibility limit will be removed, broadening its scope.
Enhanced HMRC Powers to Tackle Tax Evasion
The Chancellor’s commitment to combating tax evasion was evident, with increased funding and enhanced powers for HMRC. These include:
- An additional £87 million investment to improve HMRC’s debt recovery capabilities and automation processes.
- Recruitment of 500 compliance specialists and 600 debt management staff.
- Introduction of a reward scheme for whistle-blowers reporting tax avoidance and evasion, inspired by models used in the US and Canada.
- Joint operations by HMRC, Companies House, and the Insolvency Service targeting ‘phoenix companies’ and directors exploiting insolvency procedures to evade debts and taxes.
These measures aim to close the tax gap significantly, making tax evasion riskier and more difficult.
Simplified High Income Child Benefit Charge Reporting
To streamline processes for high earners, from summer 2025, the High Income Child Benefit Charge (HICBC)—applicable to those earning above £60,000 who receive Child Benefit—can now be reported and paid directly through the PAYE system. This will reduce administrative burdens for thousands of taxpayers previously required to file through Self Assessment.
Preparing for the Changes Ahead
The Spring Statement has set the stage for significant shifts, particularly regarding digital tax compliance and stricter enforcement measures. Small businesses must proactively adjust their processes and technology to comply with the new rules, avoid costly penalties, and benefit from the efficiencies promised by MTD.
For further detailed guidance on these developments, visit the full Spring Statement report on the HM Treasury website, or explore more insights in our blog covering changes effective from April 2025.
In an uncertain economic environment, staying informed and adapting promptly is key to maintaining business resilience and growth. At BM & Co Accountants, we’re committed to helping you navigate these changes effectively. If you have questions or need assistance implementing MTD or other tax strategies, don’t hesitate to contact us today.