What the 2025 Autumn Budget means – in layman’s terms

Capital allowances & investment incentives update

Businesses have overheads – equipment, machinery, etc. – and the 2025 Autumn Budget has evolved how quickly they can claim tax relief on such investments.

From 1st January 2026, a new 40% First-Year Allowance (FYA) will apply to main-rate expenditure (e.g., specific plant & machinery and leased assets) that previously might not have been eligible.

That’s not all. The ‘writing-down allowance’ (WDA), which allows businesses to spread tax relief over several years, will reduce from 18% to 14% for the main pool of assets. Then there’s the full-expensing regime, which will remain, allowing companies a 100% write-off for qualifying plant machinery where it already applies. In other words, it won’t expand to cover anything new.

We’ve veered away from layman’s terms, so let’s rein ourselves back in, because what you need to know is what it means for your business.

If you invest in new plant and machinery, you may be eligible for accelerated tax relief under the 40% FYA rule, creating investment opportunities. For existing investments, the slower WDA pace allows you to stretch out the tax relief over more years than you could previously, which could affect long-term tax planning or depreciation strategies.

There are some changes that you need to watch out for. Or, in this case, dates to add to the diary. From April 2026, the government will double the late-filing penalty for Corporation Tax returns. Additionally, some relief claims that were previously automatic, such as incorporation relief, will require you to make an active claim from 6th April 2026.

Pensions 

Pension salary sacrifice schemes enable employers and employees to reduce their National Insurance contributions, and many employers invest those savings back into the employee’s pension. The Autumn Budget 2025 pension changes come into effect from April 2029, when pension contributions will only be exempt from NICs up to £2,000. 

Any employee who sacrifices more than £2,000 a year to their pension will see additional NICs costs – as will the employer.

The predicted impact is that many employees may set aside less for the future, thereby affecting their long-term financial resilience. Future-focused people who continue to set aside the same amount as before will pay more for doing so, decreasing their disposable income.

As for employers, the changes coming in 2029 will reduce the savings they’ve been able to make by reducing their NIC bill.

Employee benefits

The 2025 Autumn Budget announced several changes relating to employee benefits, so we’ll keep this succinct.

New or expanded tax-free benefit reimbursements: From 6th April 2026, employer reimbursements -- think eye tests, flu vaccines, home-working equipment – will be tax-free, which is a shift from previous rules. Previously, the tax exemption applied only when the employer provided the benefit directly. This change gives employers more flexibility to support employee health and wellbeing.

Benefit in Kind (BiK)

The Autumn Budget also announced changes to BiK for some employer-provided assets — especially vehicles. 

The BiK rate for zero-emission cars will still increase over time, rising from 3 to 4% between 2026 and 2027. One of the reasons for this change is new, stricter emissions testing standards (Euro 6e‑bis), and many plug-in hybrid vehicles (PHEVs) that previously had low carbon-emission figures now test significantly higher for carbon emissions.

There is a temporary BiK easement in place, though. For qualifying PHEVs made available for private use, the taxable benefit will be based on a nominal CO2 value, effectively reducing BiK tax liability. This easement applies retrospectively from 1st January 2025 and runs until 5th April 2028; for eligible vehicles under certain conditions, the lighter BiK treatment may last until 5th April 2031, or potentially earlier.

What employers and employees should plan for

In layman’s terms, if you offer company cars (or van/fuel benefits), you need to review fleet choices, as stricter emissions standards and rising BiK rates may make high-emission vehicles much less tax-efficient.

The temporary easement works in your favour, but you should plan ahead. By 2028 or 2031, depending on how the policy unfolds, BiK tax liabilities could jump significantly. Benefits involving vans or van fuel for private use, in particular, will get more expensive. 

From April 2027, employers must report and tax all BiKs through payroll rather than via the traditional P11D system.