Predicting the UK government’s future tax policies shortly after the presentation of a new Budget may seem like a far-fetched exercise. But the November 2025 Budget contains some tax measures that could be indicative of what will happen next.
So here are my three tax predictions for 2026 and beyond that will affect UK-based businesses, payroll service providers and individuals.
First, employee (and self-employed) National Insurance contributions (NICs) will be merged with income tax in a phased approach. To explain why I can see this happening we need to take a few steps back to 2023 when the main rates of Class 1 NICs payable by employees were 12% (for annual earnings between £12,570 and £50,270) and 2% (for annual earnings above £50,270), while the main rate of Class 4 NICs payable by self-employed individuals was 9%.
Since 2023 the primary rate of Class 1 was cut twice, to 8%, and the main rate of Class 4 was reduced to 6%, while in 2024 an increase in employer NICs was announced that in retrospect could be seen as a compensatory measure. A pattern appears to be emerging: workers’ NICs go down and taxes are increased elsewhere.
The 2025 Budget did not cut NICs for employees or self-employed individuals further, but introduced a 2% income tax rise for property, savings and dividend income.
Excluding dividend income, from 2027 we will have two income tax rate sets: one for employee and self-employed earnings (20%, 40% and 45%) and one for property and savings income (22%, 42%, 47%). This matters because the natural next step could be to align at least the first two rates without increasing taxes overall.
Should these changes materialise, they would be transformative for any payroll provider
This can be achieved by lowering the main rate of primary Class 1 NICs from 8% to 6% and the second rate from 2% to 0%, while at the same time increasing the basic and higher rates of employment and self-employment income tax to 22% and 42%, respectively. Self-employed Class 4 NICs could be further reduced to 4% or 5%.
The basic and higher income tax rate of 20% and 40% may only survive for pension or retirement income, which are not subject to NICs.
The final step of the merger – perhaps to be announced in two to three years’ time and phased in across multiple tax years – will then be to scrap the remaining primary rate of NIC of 6% (and 4% or 5% for self-employed individuals) and increase the basic rate of income tax from 22% to 28%.
This will not result in a tax increase for employees, but it will be raising further tax revenues, as the 6% increase in the basic rate will hit savings and property income, which are not currently subject to NICs.
This tax increase could be justified as a matter of simplification (the link between NICs and benefits entitlement is now quite weak) and fairness (NI in isolation is a regressive tax, as the rate is still much higher for basic rate taxpayers compared to higher rate taxpayers).
Should these changes materialise, they would be transformative for any payroll provider or business with PAYE obligations.
On the road
My second prediction is that UK drivers of any vehicle will be subject to a toll tax or charge when using any motorway, with repercussions for both company or fleet vehicles and private cars.
Taxes for car drivers have already gone up with the recent introduction of the Electric Vehicle Excise Duty (EVED), a mileage tax on electric vehicles only that from 2028 is meant to compensate for the expected loss of excise duty receipts on petrol and diesel sales.
But at the current rate (3p per mile), replacing fuel duties with the EVED will likely create a tax shortfall of at least £6bn a year from 2030, as previously reported.
There might be a reduction in the small profits rate of corporation tax to help small businesses
Increasing the rate or similar taxes (such as the road tax) in the years to come may not be sufficient to bridge the £6bn gap, and a new tax or toll road charge may be introduced for those driving on the UK’s motorway network, replicating a model currently in use in France and Italy.
For businesses whose employees travel frequently in company cars, the additional charge may be significant: as a comparison, to drive on the French motorway network from Paris to Calais you are charged about €25.
In reverse
As for my final prediction, I think at least one tax increase included in the 2025 Budget may be reversed or a tax cut for small businesses introduced, if the UK’s economic growth gathers pace.
Substantially all major tax rises announced in the latest Budget kick in between 2027 and 2029. This could mean that some of them are meant to be more backstops than intended tax rises and they would only take effect if the UK GDP growth remained stagnant or if the tax receipts in the coming years fell below expectations and the interests paid on the government debt did not fall.
However, if the economy grows more than forecast, I would expect at least one of these backstops to be removed. For example, the government could unfreeze the income tax thresholds earlier than currently planned (2031).
The alternative might be a reduction in the small profits rate of corporation tax from 19% to 17% or 18% to help small businesses hit hard in the last few years by Brexit-related red tape (if they are also exporters), higher costs and business rates.
Whatever happens, we’ll all be eagerly watching this space.
