Another year, another budget speech. This one, however, might go down in history as the most overhyped and anticipated budgets of all time, not helped by the chancellor pushing back the date. (Or the OBR publishing all the details 45 minutes before Ms Reeves actually spoke.)
In the lead up to the speech, there were many rumours of tax rises and potential revenue-raising measures, some of which turned out to be true.
In this blog we will focus on the budget changes for small businesses, so you know the main points that will affect you.
Let’s break down the announcements.
No changes to “headline” Income Tax, NICs or VAT rates
The budget said that the government is working towards “Making the tax system fairer and fit for 21st-century Britain.”
Despite the noise in the run-up, the government did not alter the main rates of Income tax, National Insurance rates, or the VAT rate. However…
– Tax thresholds remain frozen
The tax thresholds dictate the percentage of tax you will pay on your earnings. Freezing them means they do not rise in line with inflations. So if you have a pay rise (or give your employees one), that raise could push that extra income from the basic rate of 20% into the higher rate bracket, at 40%.
This means that more people and more income will be pulled into higher tax bands. This represents a quiet but very real tax rise for many business owners and their employees over the next few years.
– Dividend and investment income tax rises
A key theme in the Budget was “Making the tax system fairer”. The government believed that needed to include:
– Dividend tax rises:
The rate of tax you will pay on a dividend will rise by 2% for basic and higher rate taxpayers (no additional-rate increase for those earning over £125,140 per year).
This will affect most owner-managed companies extracting profits through dividends.
– Property income & savings income rises
These will now be taxed at: 22% / 42% / 47%. You will still have a savings allowance to allow some of your savings to be taxed at 0%.
Corporation Tax: rates unchanged
Good news!
There is no increase to the Corporation Tax rates. The government have stayed on the path they laid out in the ‘corporate road map’.
Not so good news!
Capital allowances are changing. This is the tax relief that you get on bigger items you might buy, such as equipment.
From April 2026:
- The Writing Down Allowance drops to 14% but a new 40% First Year Allowance (FYA) will help soften the blow.
- Cars and second-hand assets are excluded from the new FYA.
For many small businesses this won’t have as much effect, as you still have access to better reliefs for most equipment. However it marks a slowing down of tax relief on items like cars.
Employment Costs Are Still Rising
The minimum wage continues to increase, adding pressure to wage bills. What is most concerning is yet again a large hike in the minimum wage rate for those aged 18-20. The new rates are:
| NMW rate from April 2026 | Increase (£) | Increase (%) | |
| National Living Wage (21 and over) | £12.71 | 50p | 4.1 |
| 18-20 Year Old Rate | £10.85 | 85p | 8.5 |
| 16-17 Year Old Rate | £8.00 | 45p | 6.0 |
| Apprentice Rate | £8.00 | 45p | 6.0 |
| Accommodation Offset | £11.10 | 44p | 4.1 |
If we compare this 18-20 rate at the start of 2024 with now, the cost of employment will have increased nearly 45%. That has put real pressure on pay bands and those roles for younger employees.
A team member aged 21 or over now costs around 22%, or £500 pcm (£6k per year) more than they did at the start of 2024, especially when the additional changes from the last budget are factored in.
For a small business, that is a LOT of money.
If you then factor in the adjustments required for the pay bands above this, it’s another costly budget for small business employers.
Pension salary sacrifice cap — big change
There are now new restrictions to the way ‘salary sacrifice’ schemes will work.
Currently it’s possible for a team member to give up some salary in return for a direct employer contribution to their pension pot. This works for both employee and employer, as both are saving tax.
From 2029, only the first £2,000 per person of pension salary sacrifice will remain NI-free. Anything above that will attract National Insurance for both company and employee.
This is a major shift, as salary sacrifice has been a strong tax-efficient retirement planning tool for a while. This will ultimately lead to an increase in employment costs (again).
VAT and Customs Duty changes
While the VAT registration threshold is unchanged, several significant administrative changes are coming:
– Mandatory e-invoicing
From April 2029, all B2B and B2Government VAT invoices must follow a new UK e-invoicing standard. More details are due on the roadmap for this during 2026.
– VAT on ride-sharing apps (think Uber!)
From 2 January 2026, apps like Uber fall under normal VAT rules. Currently they’ve been able to justify use of another VAT scheme to reduce cost.
– Low-value imports rule scrapped (Customs Duty)
Relief for imports under £135 will be removed by March 2029. This should help some of the competitive issues with cheap products being shipped in from abroad.
Business Rates are likely still going up for Small Business
The 40% business rates discount for retail, hospitality and leisure ends in April 2026. Although the Government is introducing permanently lower ‘multipliers’ and a transitional relief scheme, most small businesses will still see higher business-rates bills after the 2026 revaluation.
Transitional Relief will phase valuation-driven increases over several years, but it cannot protect against the loss of the 40% relief or the shift to the new multipliers. So many businesses will still experience an overall rise in costs.
If your property is super-small (under £12k-15K vatable value) you still are likely to get Small Business Rate Relief.
In both recent budgets this is being spun as a positive, but for many small businesses it will still end up being a rise.
Really this is a “It was going to be a lot worse, but we’ve eased the pain for you” measure.
Other notable changes
- If you are in the online gambling space, remote gaming duty is jumping from 21% to 40%.
- If you are looking to buy an electric car to lock in tax savings, there is a consultation that is beginning ahead of a per-mile charge on electric vehicles from April 2028. This should be factored into your numbers.
- There is a “Entrepreneurship in the UK” prospectus due out. More on this as it comes.
- If you currently invest in Venture Capital Trusts or ‘VCTs’ the tax relief is being reduced from 30% to 20%. The aim appears to be to divert more money to other types of investments, like growing UK companies.
- As a more mature business, if you are looking to offer shares to employers there have been some increases to certain criteria for ‘EMI’ schemes. (An EMI scheme is a government-backed employee share option scheme for small and medium-sized businesses.)
- If you are a company looking to raise funds through selling shares / equity investment, there have been increases to criteria that allow for shares to qualify for the Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT). The changes effectively mean larger companies can qualify and more funds can be raised.
- If you ever get to list your company on the UK stock exchange there is a new ‘UK Listing Relief’, a 3 years exemption from Stamp Duty. The government will also “continue to evaluate Stamp Taxes on Shares to ensure the UK is positioned well for the future”.
- If you are looking to sell your company to your team, you might have considered an Employee Ownership Trust (EoT), as you could carry out the transaction with no Capital Gains Tax. This will now change to 50% relief only.
HMRC changes
His Majesty’s Revenue and Customs (HMRC) changes include:
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- A new reward scheme for informants (modelled on the US system!)
- More investment into debt management – expect increased collection activity.
- A new ‘tax debt strategy’ to be published (we will keep an eye on this for further news)
- A push to make 90% of HMRC interactions digital by 2030. They also said: “At the Budget, the government is announcing reforms to simplify reporting requirements and improve HMRC services, and will set out further reforms to streamline processes and improve the taxpayer experience in spring 2026.”
Again we will watch this one closely.
There was a line in the budget document that said: “The government is also taking steps to ensure income tax Self Assessment taxpayers pay tax automatically via regular payments throughout the year.”
There was no further details on this, it could simply have been explaining they are looking to invite more taxpayers to use the system that already exists to pay a direct debit over the year.
What wasn’t in the Budget?
Despite much talk of the government “Making the tax system fit for the 21st century” and criticism of the previous government for lack of tax reforms, there was no suggested fixes to current problems with the crazy high effective tax rates you get at certain income levels (looking at you, £100,000).
Summary
If you are an employer, landlord or limited company owner ,there are areas of bad news here for sure.
If you are self-employed (sole trader), or standard partnership, you seem to have been left alone and still have attractive tax rates.
In our experience working with clients, the best defence against government imposed changes is to have a secure and solid business. So set a date to review your numbers and ensure your business model still works profitability into 2026.
Not got an accountant or not sure the one you have is the best for your business?
Just get in touch and talk through how we can help you and your business get your accounts in order and minimise your tax bills.
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About the author:
Dan Heelan is the Business Services Director of Heelan Associates, an accounting firm that helps small business owners across the UK start, survive, and grow.
With a background as a small business owner himself, he discovered his passion for accounting and tax early in his journey and now focuses on empowering fellow entrepreneurs with the knowledge and tools to navigate the financial side of running a business.
You can see and hear Dan in action in his regular: