As we work with a mix of small businesses and charities, we’re reviewing the impact of the Chancellor of the Exchequer’s budget from both a small business and a charity perspective – this is the first of two posts, and I will be focusing on the impact of the budget on the small businesses that I work with.
The UK Autumn Budget arrives at a time when small businesses have faced several years of navigating rising costs, economic uncertainty, and evolving compliance requirements. Understanding the latest shifts now is crucial for planning ahead and protecting your business’s sustainability in the long term.
1. Dividend Tax Increase
From April 2026, the ordinary and upper rates on dividend income will rise by two percentage points. This will affect business owners, rather than businesses themselves, but many freelancers and owners of small businesses take income through dividends. Planning ahead for this change is essential. I recommend reviewing your remuneration over the coming months to prepare for next tax year.
2. Business Rates Relief Reduced
Retail, hospitality, and leisure businesses in England will see business rates bills increase. The current 40% discount will be replaced by a 5p reduction on the multiplier, equating to around 12% relief. While this is permanent (unlike previous time-limited schemes), it’s a significant drop from current support.
3. National Living Wage Rises
As expected, the national ‘living wage’ is increasing. For employees aged 21+ will rise by 50p (4.1%) to £12.71 per hour, and the rate for 18–20-year-olds will increase by 8.5% to £10.85 per hour. Separately, the Living Wage Foundation’s Real Living Wage is also increasing. This is a voluntary rate based on the actual cost of living, and it’s significantly higher than the government’s National Living Wage. For the 2025/26 period, the announced rates are:
UK Real Living Wage (outside London): £13.45 per hour
London Living Wage: £14.80 per hour
These rates represent a 6.7% increase nationally, and 6.9% in London, and accredited employers have until 1 May 2026 to implement them. Unlike the statutory National Living Wage, this is not mandated by law but is adopted by over 15,000 organisations committed to fair pay
4. Pensions and National Insurance
National Insurance will apply to employer and employee salary-sacrifice pension contributions above £2,000 per year. This could increase costs for businesses offering generous pension schemes, so reviewing benefits packages will be important. There is time to review this as it is not being implemented until 2029, so I recommend discussing and consulting with your staff before deciding how to act.
5. Income Tax Threshold Freeze
The freeze on Income Tax thresholds will continue for three more years, from 2028 to 2031. While this doesn’t directly affect business tax, it may influence employees’ disposable income and wage expectations.
6. Corporation Tax
The Corporation Tax rate remains at 25%, providing stability for business planning. The lower 19% ‘starter’ rate will also be kept which benefits businesses with very small profits
7. Apprenticeships
A positive development: training for apprentices under 25 will be free for small businesses in England. This is a great opportunity to invest in skills and future talent without additional training costs, we will be looking into this ourselves, and we expect a number of small businesses will find this beneficial
8. More digital transactions
From 2029, all VAT invoices for Business-to-Business and Business-to-Government transactions must be electronic. Businesses should start preparing for this digital shift now by reviewing invoicing systems and ensuring compliance. There will also be no delays in the move to Making Tax Digital for sole traders. This really emphasises the importance of using up-to-date accountancy software and our clients as already on track with both of these, but it is worth making sure you are ready if you are not a Holy Brook client.
Conclusion: Actions for small businesses
The Autumn Budget should be a checkpoint to take action to ensure your resilience:
- Update cash flow forecasts to reflect wage changes.
- Review remuneration and pension strategies based on the new tax rates.
- Ensure your digital systems are ready for invoicing and payroll compliance.
- Take advantage of free apprenticeship training if appropriate to build your talent base.
- Engage with your accountant early to plan for dividend and NI changes.
As ever, planning ahead and understanding how the changes impact you is the best approach to make sure that whatever changes come from the wider world your small business is ready for them.
