On December 4th 2024, Scotland’s Finance Secretary, Shona Robison, announced the highly-awaited Scottish budget for the 2025-26 fiscal year starting 6th of April 2025. The announcement introduced several changes in tax, increases to minimum wage, and more business support for startups and SMEs, amongst other updates. Other highlights also included investments in offshore wind, support for hospitality businesses (and some types of music venues), as well as wider infrastructure changes to support a better digital network in Scotland. These new changes will take effect from the start of the 2025-26 financial year (April 6th 2025) unless otherwise stated for any specific updates.
See the full highlights relating to the business sector below:
Income Tax Changes
The new budget sees a freeze to the Higher, Advanced, and Top rate tax bands, and a 3.5% increase to lower bands, making the new bands as follows:
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- Personal Allowance: 0% tax on income up to £12,570 (no change)
- Starter rate: 19% tax on income between £12,571 and £15,397 (3.5% increase from 2024-25)
- Basic rate: 20% tax on income between £15,398 and £27,491 (3.5% increase from 2024-25)
- Intermediate rate: 21% tax on income between £27,492 and £43,662 (3.5% increase from 2024-25)
- Higher rate: 42% tax on income between £43,663 and £75,000 (no change)
- Advanced rate: 45% tax on income between £75,001 and £125,140 (no change)
- Top rate: 48% tax on income above £125,140 (no change)
See the full update on the Government website from April 6th 2025.
Business Tax Changes
In line with the UK budget announcement, Scotland also sees a 1.2% increase in National Insurance Contributions (NICs) paid by employers from 13.8% to 15% for secondary Class 1 NICs, with Class 1A and Class 1B rates rising to 13.8%. Alongside this, the secondary Class 1 NICs threshold will be reduced from £9,100 per year to £5,000. These changes will take effect from the start of the new fiscal year (6th April 2025) and will remain in place until the 5th of April 2028 when increases will align with the Consumer Price Index (CPI) each year. These changes are estimated to contribute an additional £25 billion per year to the Scottish economy.
It’s also worth noting the protections for smaller businesses through the Employment Allowance which will benefit SMEs as the reduction in liability rises from the previous £5,000 to £10,500 as the new maximum.
Changes To Minimum Wage By Age Group
From the 1st of April 2025, the following changes to the legal minimum wage will apply UK-wide:
- Under 18s: £7.55 per hour (up from £6.40 per hour)
- Apprentices (under 19, or 19 or older but within the first year of their current contract): £7.55 per hour (up from £6.40 per hour)
- 18 – 20 year olds: £10 per hour (up from £8.60 per hour)
- 21+ (National Living Wage): £12.21 per hour, up from £11.44 per hour)
Please note changes to the Real Living Wage are still pending and the current rate at the time of writing is still £12.60.
Government Spending & Business Support
Scotland will receive a total of £47.7 billion from the UK budget – the highest figure since Scotland’s devolution and the establishment of the Scottish Government in 1999. This money will help to provide opportunities for business growth, support for startups, infrastructure improvements, and skills development, as well as protecting the Small Business Bonus Scheme.
The Government has announced business spending commitments in the following areas:
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- £200 million to the Scottish National Investment Bank to provide financial business support
- £150 million investment in offshore wind supply chain (tripling the previous year’s investment) to help meet Scotland’s £500 million commitment to offshore wind
- £320 million to Government enterprise agencies to support business startup and expansion
- £15 million enterprise package to create greater clusters of high-tech companies (with £4 million of this allocated to supporting entrepreneurial women to start or expand their business ventures)
- £100 million to support Scotland’s digital infrastructure
- £62 million to support towns and local communities through regeneration projects such as improving building infrastructure, refurbishing community areas, building new homes, and more
- £34 million budget for cultural events, the arts, cultural organisations and festivals (with 40% relief available on property tax for the hospitality sector including music venues with a capacity of up to 1,500 people. The Basic Property Rate relief will be capped at £110,000 per business).
Additional notable budgets will also be allocated to tackle retail crime (£3 million) and an investment of over £2 billion will be provided to the Higher and Further Education sectors to support those entering the workforce or retraining.
Learn more about this announcement on the Government website and read Deputy First Minister and Economy Secretary Kate Forbes’ statement in full.
Pros & Cons Of The Budget Announcement For Scottish Businesses
With the number of changes coming in, businesses will see a number of benefits over the coming year as well as experience increases in costs in other areas. See a summary of the pros and cons below:
Pros
- The budget highlights a commitment to boosting Scotland’s infrastructure – not just the physical buildings and spaces, but also digital infrastructure. This can provide better connectivity for businesses, allowing more people to get online to support their work or for personal use (with the aim of increasing spend amongst the population).
- More business support will become available for startups, SMEs, and small businesses – supporting shop local initiatives and the creation of more Scottish businesses, with tax relief available for a range of business types.
- Greater progress towards net zero goals through the investments in offshore wind – supporting a cleaner way to produce electricity and supply businesses and private individuals, with a long-term aim of reducing energy costs.
Cons
- Rising labour costs through the changes to the minimum wage, which will increase staff costs across companies of all sizes
- Higher taxation for top-tier talent and higher earners, which will have implications for both businesses and individuals, including reducing disposable income
- Increases in National Insurance Contributions (NICs) paid by employers which will impact businesses of all sizes
You can read more about the budget announcement on the Government website.
Contact MMG Chartered Accountants
Take advantage of the benefits of the Scottish budget announcement and prepare for the changes ahead of April with MMG Chartered Accountants by contacting our team at mail@mmgca.co.uk or calling your local branch.