The Chancellor delivered the 2026 Budget on 28 October against a backdrop of higher energy and fuel costs and continuing pressure on household and business finances.
The government’s headline message was one of providing “breathing space”. There are no increases to the headline rates of Income Tax, National Insurance or VAT, and the government has maintained the Corporation Tax headline rate at 25%.
For small businesses, however, the picture is more nuanced.
There are some genuinely helpful measures, particularly around business rates, mileage and support for smaller traders. Alongside these are higher employment costs and changes to capital allowances and Business Asset Disposal Relief that some business owners will need to plan for.
Here are some of the main announcements small business owners should have on their radar.
Business rates: significant help for some small businesses
Retail, hospitality and leisure businesses are among the clearest beneficiaries of the Budget.
From April 2027, the Small Business Rate Relief thresholds for qualifying retail, hospitality and leisure properties in England will rise substantially. The rateable value threshold for 100% relief will increase from £12,000 to £18,000, while tapered relief will extend up to £21,000 rather than £15,000. The government estimates this will take around 70,000 additional high street businesses out of business rates altogether.
Pubs, social clubs and most live music venues will receive total relief of 35% from April 2027, including the additional 20 percentage points announced at the Budget. Qualifying retail, hospitality and leisure businesses will also benefit from a real-terms freeze in bills for 2027/28 and 2028/29.
For businesses with physical premises, particularly independent shops, cafés, pubs and hospitality businesses, these measures could therefore make a meaningful difference to overheads.
It is worth checking your individual position rather than assuming the headline announcements automatically apply, as the outcome will depend on the type of property and its rateable value.
National Living Wage: employment costs rise from April
Businesses employing people on or close to the minimum wage will need to incorporate another increase into their forecasts.
From 1 April 2027, the National Living Wage will increase by 3.9% to £13.21 an hour. The National Minimum Wage for 18 to 20-year-olds will also rise by 3.9%, to £11.27 an hour. The government estimates that around 2.3 million workers will benefit.
For employers, however, the impact is wider than simply the additional hourly wage. An increase in gross pay can also affect employer National Insurance and pension contributions and may create pressure to maintain pay differentials for employees already earning a little more than the minimum.
For businesses with significant staffing costs, updating payroll and cash-flow forecasts before April 2027 would therefore be sensible.
Business mileage: higher tax-free rates
There is welcome news for employees and self-employed people using their own cars or vans for work.
The tax-free and tax-deductible mileage rate for the first 10,000 business miles increased to 55p per mile from 6 April 2026. The Budget makes that increase permanent.
From 6 April 2027, the rate for business mileage above 10,000 miles will also increase, from 25p to 35p per mile.
The temporary 5p-per-litre fuel duty cut is also being extended to 1 July 2027, with the planned RPI increase deferred to the same date.
Neither measure transforms the economics of running a vehicle, but they will be useful for business owners and employees who regularly use their own vehicles for work.
Capital allowances: a mixture of good and bad news
The Budget contains changes to the tax relief available for investment in qualifying business assets.
The main rate First Year Allowance will increase from 40% to 50% from 1 January 2027. At the same time, the main writing down allowance will fall by two percentage points to 12% from April 2027. The government has also confirmed that the existing full-expensing regime will continue.
For many smaller businesses, these headline changes will not necessarily determine the tax treatment of their expenditure, as the relief available will depend on what they buy and which capital allowance applies.
Businesses considering significant capital expenditure should therefore look at the tax position before deciding when to invest rather than assuming the Budget has simply made capital allowances either more or less generous.
Selling your business: BADR and the new Founders’ Relief
There are two important Budget announcements for business owners thinking about a future sale.
From 6 April 2027, the lifetime limit for Business Asset Disposal Relief (BADR) will fall from £1 million to £500,000. This potentially makes the relief less generous for established business owners making larger gains.
At the same time, the government is introducing a new Founders’ Relief aimed at founders and significant early investors in high-growth, innovative UK companies.
The new relief will provide a 10% Capital Gains Tax rate on qualifying gains of up to £10 million per individual over their lifetime, for qualifying disposals made on or after 6 April 2027.
However, this is not a general replacement for BADR. The proposed relief is specifically targeted at people who have played a significant role in founding qualifying high-growth and innovative companies and who meet the relevant conditions. The detailed design is currently subject to technical consultation, with legislation due to be introduced in Finance Bill 2026/27.
For many typical owner-managed small businesses, therefore, the reduction in the BADR lifetime limit is likely to be more immediately relevant than Founders’ Relief. But for founders of businesses that meet the new conditions, the £10 million lifetime limit could make the new relief particularly significant.
I would not recommend allowing tax considerations alone to drive an important commercial decision such as selling a business. However, anyone already considering succession or an exit should take advice about how the changes could affect them before deciding on timing.
The Trading Allowance rises to £3,000
There is also a potentially useful change for people earning relatively modest amounts through self-employment or a side business.
From 6 April 2027, the Income Tax Trading Allowance will increase from £1,000 to £3,000.
This measure may be particularly relevant to people beginning a small business or generating additional income alongside employment.
Tax administration continues to become more digital
The direction of travel towards a more digital tax system also continues.
The government is setting out an implementation roadmap towards mandatory VAT e-invoicing from April 2029. It is also consulting on how technology might simplify Corporation Tax administration.
There is another significant change ahead for some taxpayers who make Income Tax Self Assessment payments on account. From April 2029, those taxpayers will move towards smaller, more regular contributions during the year rather than the existing pattern of payments.
None of this requires immediate action, but it reinforces something I have been encouraging businesses to think about for some time: keeping good digital accounting records is becoming increasingly important.
Energy and fuel costs remain a concern
Energy costs remain a significant issue for many businesses.
The Budget extends the 5p fuel duty cut to 1 July 2027. More substantial direct energy support is targeted at energy-intensive manufacturers, rather than the majority of smaller businesses.
For most small businesses, therefore, the immediate benefit from the energy measures is more limited. Businesses should continue to budget on the basis of their actual contracted costs rather than assuming significantly cheaper energy is imminent.
So, is Budget 2026 good news for small businesses?
As ever, it depends very much on the business.
Some retail, hospitality and leisure businesses could see a meaningful reduction in business rates, mileage rates have become more generous, and the increase in the Trading Allowance will be welcome for some people running small or side businesses.
There is also potentially valuable new relief for people building qualifying high-growth companies.
On the other hand, labour-intensive businesses face a further National Living Wage increase. The capital allowance changes are mixed, while established business owners contemplating a future sale will need to take account of the significant reduction in the BADR lifetime limit.
Perhaps the most important point is that relatively small changes can add up. A business employing several people, running vehicles, occupying commercial premises and considering capital investment could be affected by several Budget measures at once.
Rather than looking at each announcement in isolation, we would recommend using the Budget as an opportunity to revisit forecasts for the next financial year, particularly payroll costs, tax, capital spending and cash flow.
This article is based on the Budget announcements published on 28 October 2026. Individual circumstances vary, and further legislation or detailed guidance may affect how individual measures apply. This article is for general information and is not a substitute for specific tax or financial advice.
Further Reading: HM Treasury, Budget 2026, 28 October 2026. Read the official Budget document
