After weeks of speculation, including an unprecedented pre-Budget speech on 4 November and an OBR blooper, the Chancellor addressed the House of Commons on 26 November with her second Budget speech of the Labour government.
In this article, Catherine Heyes, Head of Tax in PKF Littlejohn’s Tax team, considers some of the main tax changes that were announced and what these may mean for payment services and e-money businesses.
Pension: Salary sacrifice
Pension salary sacrifice has been widely used by many, especially following the increase in employer National Insurance to 15% last April. The expectation was that this would change, and that held true.
There will now be a cap of £2,000 per year from April 2029, over which there will no longer be an exemption from National Insurance on salary sacrificed pension contributions. Whilst making pension contributions is of course a financial decision, contributions will still be exempt from Income Tax.
Impact & potential action
Employers could look to replicate the tax benefits of salary sacrifice by reducing future wage growth and instead providing employees with higher employer pension contributions, with ordinary employer pension contributions remaining exempt from National Insurance.
Income Tax thresholds
A pre-Budget announcement confirmed that Income Tax rates would not increase, however many expected that this would be countered by a freeze in thresholds; an effective stealth tax forcing many into higher rates of tax.
It was announced that the freeze on personal tax thresholds will be extended for a further 3 years from 2028/29 to 2030/31. As a result, the Income Tax personal allowance, the higher rate and the additional rate thresholds will remain at £12,570, £50,270 and £125,140 respectively.
In addition, the employee and employer National Insurance Contribution (NIC) thresholds will be frozen over the same period.
Impact & potential action
The fiscal drag effect will be felt by employees, business owners and businesses alike, bringing more individuals into higher rates of tax as well as freezing the point at which employers pay NICs. Let’s not forget that this threshold for employers was reduced from £9,100 to £5,000 and the rate of NIC increased to 15% just 12 months ago.
For those employees who pay at the higher rate of tax, income over £100,000 will see the personal allowance start to be tapered and anyone with an adjusted net income of £60,000 or more will start to see any child benefit clawed back. Where personal pension contributions are made, they can bring taxable income below the levels.
National Minimum Wage and Living Wage
From 1 April 2026, the National Living Wage (NLW) will increase from £12.21 to £12.71 per hour. The National Minimum Wage (NMW) for 18-20 year olds will also increase from £10 to £10.85 per hour and for 16-17 year olds and apprentices from £7.55 to £8.00 per hour.
Impact & potential action
It is important that businesses in the sector are fully compliant with NMW obligations; although it may only apply to a fraction of your workforce. It can be financially costly to a business with up to 200% penalties for any underpayments identified, up to a maximum of £20,000 per worker.
A common risk area where underpayment breaches can arise is with apprentices and salary sacrifice arrangements. It is vital that employers review their policies and ensure that they are compliant.
Capital allowances
From April 2026, the writing down allowance main rate will fall from 18% to 14%, reducing annual relief available on capital expenditure that does not qualify for full expensing.
Typically, this includes assets bought for leasing, second-hand assets and certain cars.
Impact & potential action
Given the availability of full expensing on other qualifying assets and the types of capital expenditure usually incurred by payment services and e-money businesses, this change is not expected to have a significant impact for businesses in this sector.
Enterprise Management Incentives (EMI)
From April 2026:
- The limit for the number of employees is increased to 500 from 250
- The gross asset limit is increased to £120 million from £30 million
- The total value of options granted under the scheme is increased to £6 million from £3 million
- The holding period form EMI options will be increased to 15 years from 10, including for EMI options already in place.
Impact & potential action
Changes announced to the EMI scheme eligibility limits are likely to be good news for the payment services sector.
The relaxation of the gross asset limit to £120 million, will mean that larger payment services and e-money businesses will still have access to the scheme and be able grant qualifying EMI share options for a significantly longer period of time.
Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS)
Further changes that may benefit the sector came in the form of changes to VCT and EIS thresholds. From April 2026:
- Company investment limits will rise to £10 million (previously £5 million), and to £20 million for Knowledge Intensive Companies (KICs) (previously £10 million)
- Lifetime company investment limits will increase to £24 million (previously £12 million), and £40 million for KICs (previously £20 million)
- The gross assets test will increase to £30 million before share issue and £35 million after (up from £15 million and £16 million respectively).
Impact & potential action
By increasing these limits, payment services and e-money businesses should be able to attract additional levels of investment at an early stage in their life from these types of investors.
However, these changes are in part offset by a notable reduction in the investor relief, with VCT Income Tax relief falling to 20% (from 30%).
These sorts of investments are often used by individuals with large tax bills, however financial advice should always be sought if you are looking to invest in these products
Cross border VAT grouping
HMRC has confirmed that it is no longer its policy to seek to collect VAT under the reverse charge on charges made by an overseas company or branch to a UK VAT group where:
- one or more of the members of the VAT group is a branch of an overseas company or a is a UK company with an overseas branch
- the overseas company / branch makes inbound charges to the UK VAT group
- the charges are inbound from certain countries such as Belgium, Denmark and Sweden.
In addition, HMRC has invited refund claims for any such reverse charge VAT paid to HMRC in the past four years.
Impact & potential action
Whilst it was not a change of VAT law, HMRC’s announcement was a welcome change of policy that will reduce irrecoverable UK VAT costs for many businesses that have had to grapple with EU regulations.
This contrasts with the announcement recently from the Irish Revenue that it is taking the opposite view with effect from 19 November 2025, such that businesses operating in VAT-exempt sectors expect to incur irrecoverable 23% Irish VAT under the reverse charge in future.
Planning ahead
Not all changes announced at this year’s Budget are due to come into effect immediately. It is therefore important that payment services and e-money businesses plan ahead to understand what these changes may mean for them so that they can consider how they best respond. Further details of the measures announced can be found in our full Budget guide here.
