Navigating 2025

Banks have strong liquidity, and many are setting challenging lending targets. At the same time, 70% of UK businesses will likely need to apply for additional funding next year, according to our Business Outlook Tracker.

However, this seemingly ideal match of supply and demand doesn’t equal a home run for borrowers. They're experiencing three key challenges: increased borrowing costs due to high interest rates, rising input and labour costs and, for some sectors like hospitality, exposure to waning consumer confidence.  

Businesses should prepare to answer questions from lenders on these barriers to borrowing by demonstrating their ability to afford debt. As well as detailed financial information, they must be able to accurately define their market position and how current and future trading is able to service their borrowings (among many other things).  

Increasingly, borrowers will also need to demonstrate that their ESG credentials will support a lender's ability to meet its own sustainability commitments.

Our data shows that 69% of UK businesses are turning to alternative lenders to access funding. The beginning of the year is a good opportunity to assess whether your current financing is the best deal on offer and explore alternatives to high-street banks, such as challenger banks, private credit funds, and also Government-backed lending schemes.

The 2024 Autumn Budget and new Corporation Tax Roadmap have given finance and tax functions a lot to consider in 2025.

Centre stage is the increase in employer NICs from April 6, 2025. To try to manage the impact of this, companies will be looking to review their existing benefit provision and fully realise the potential of salary sacrifice – lowering employees' taxable income by exchanging a portion of their salary for non-cash benefits, which may include pension contributions. Employers can also use voluntary benefits to increase the tax efficiency of their employee remuneration arrangements.

Proposed changes to inheritance tax (IHT) rules, with the restriction of Business Property Relief (BPR) to £1 million at 100% and 50% thereafter from April 6 2026, will also be a big focus for owner-managed businesses. These create a new and potentially very material risk for family businesses, with the funding of any IHT liability unpredictable in terms of timing, and typically needing to come from the business itself. For this reason, succession planning and shareholder protection should be on the agenda for all privately-held businesses in 2025, giving time to plan accordingly before the proposed changes take full effect. 

The Corporation Tax Roadmap has set out several commitments for the duration of Parliament, including capping the headline rate of corporation tax (CT) at 25% and maintaining tax incentives, such as full expensing and R&D tax relief rates. 

There were also several areas earmarked for future consideration, including transfer pricing. UK businesses will be keeping a close eye on these potential changes (to be consulted upon in Spring). These include a cross-border reporting requirement, removal of the exemption for medium-sized businesses and adjusting the threshold for small-sized businesses, and introducing a potential exemption from UK transfer pricing for UK-to-UK transactions.

Finally, finance departments should consider how to leverage technology, whether by optimising their existing systems or laying the groundwork to modernise legacy processes, in preparation for the UK Government's upcoming consultation on e-invoicing in 2025. 

As we approach this pivotal year, finance teams must explore how technologies like AI can enhance tax planning and compliance. AI's ability to process large volumes of data in real time can help identify tax optimisation opportunities and ensure adherence to increasingly complex regulations. At the same time, it’s essential to address the ethical challenges posed by AI, including ensuring transparency in decision making, minimising bias in algorithms, and committing to responsible and sustainable tax practices. A strategic, thoughtful approach to AI integration will be key to unlocking its full potential.

69% of UK businesses are expecting to increase investment in sustainable initiatives over the next 12 months, according to Grant Thornton International Q4 Business report data. 

UK businesses with a European presence will be busy preparing for Phase Two of the European Union's Corporate Sustainability Reporting Directive (CSRD), which will extend the reporting to more companies in Europe. There may also be an indirect impact on organisations with European businesses in their value chains.

The UK Government has been actively working on establishing the UK Sustainability Reporting Standards (UK SRS), which are based on the global corporate reporting baseline of IFRS Sustainability Disclosure Standards. The Government plans to consult on the exposure drafts of UK SRS in the first quarter of 2025. Listed companies and large UK businesses will have to start preparing for this incoming regulation throughout the year.

Though financial services businesses have welcomed the premise of 'regulation for growth', they still face several challenges in 2025. In a difficult economic environment, there’s an existential need to demonstrate ongoing financial resilience, as commercial and regulatory drivers shine a light wider than the balance sheet, into areas like governance, risk management, data, digital, and cybersecurity.

The Consumer Duty fundamentally refocused regulators' attention to consumer outcomes. Although the rules were introduced in 2023, firms still have a lot to do to embed a new way of thinking as we enter the new year. The utopia will see all firms able to track data across the distribution chain to show how expected consumer outcomes are delivered, particularly around price, value and, increasingly, enabling informed consumers to make good post-sale decisions.

Related to this, the entire industry will be closely watching regulators' next moves in response to recent rulings in relation to motor finance commission, particularly as to the wider potential impact on financial products sold outside of motor finance. The Financial Conduct Authority (FCA) plans to publish its findings and potential compensation scheme in May 2025. The outcome could have significant repercussions on the wider financial services market and could lead to sweeping changes in how financial products are marketed and sold.

This area is just one example of where the power of data management and analytics is key. Now is the time for all firms to validate and organise their data and records to put themselves in the best possible position to evidence how good outcomes have been delivered from historic sales and distribution channels. The Consumer Duty may be a driver, but the real value for the industry and customers alike will be operational integrity and unlocking medium and long term growth.