Autumn Budget 2025: What Small Businesses Need to Know
Rachel Reeves delivered the Autumn Budget on 26 November 2025, and it landed harder on small business owners than most had hoped. Dividend tax is rising, income tax thresholds stay frozen for years longer, and business rates are being restructured. There’s some relief too — a bigger Employment Allowance, a new investment allowance, and permanently lower rates for many retail and hospitality properties.
This guide covers every confirmed change that affects small businesses, sole traders and company directors, with the dates each one takes effect.
Autumn Budget 2025 at a Glance
| Measure | Change | Effective From |
|---|---|---|
| Dividend tax | Basic rate up to 10.75%, higher rate to 35.75% | April 2026 |
| Income tax & NI thresholds | Freeze extended to 2030/31 | Ongoing |
| Corporation tax | Stays at 25% main rate, 19% for profits under £50,000 | No change |
| Business rates (small business multiplier) | Falls from 49.9p to 43.2p | April 2026 |
| National Living Wage | Rises to £12.71/hour | April 2026 |
| Employment Allowance | Rises from £5,000 to £10,500 | Already in effect |
| Capital allowances (WDA) | Cut from 18% to 14% | April 2026 |
| New First Year Allowance | 40% on main-rate assets | 1 January 2026 |
| BADR relief on business disposals | CGT relief cut from 100% to 50% of the gain | 26 November 2025 |
| VAT | No change to rate or threshold | — |
Tax Changes for Small Business Owners
Dividend Tax Is Going Up
Dividend tax rises by two percentage points from April 2026. The basic rate moves from 8.75% to 10.75%, and the higher rate goes from 33.75% to 35.75%. The £500 tax-free dividend allowance stays the same.
This hits company directors who pay themselves through a mix of salary and dividends hardest, since it directly reduces take-home income without touching the corporation tax the company already paid on those profits.
Income Tax and National Insurance Thresholds Stay Frozen Until 2031
The personal allowance stays at £12,570, the higher-rate threshold at £50,270, and the additional-rate threshold at £125,140 — all frozen until April 2031, three years longer than previously planned. National Insurance thresholds are frozen on the same timeline.
Because wages tend to rise with inflation, more income gets pulled into higher tax bands every year even though the rates themselves don’t change. This effect, known as fiscal drag, quietly raises the tax bill for anyone whose pay increases, including sole traders and directors who pay themselves a growing salary.
Corporation Tax Holds Steady at 25%
No change here. The main rate stays at 25% for profits over £250,000, and the small profits rate stays at 19% for profits under £50,000. The one change worth noting: the penalty for late corporation tax returns doubles to £200 from 1 April 2026.
Capital Gains Tax and Business Asset Disposal Relief
If you’re planning to sell your business, this matters. From 26 November 2025, Business Asset Disposal Relief (BADR) now only reduces 50% of the taxable gain, down from 100% previously. In practical terms, owners selling a company now pay a higher effective CGT rate on the sale than they would have done the day before the Budget.
Separately, unused inheritance tax allowances for agricultural and business property relief (up to £1 million) can now be transferred between spouses and civil partners from April 2026 — worth checking if succession planning is on your radar.
Business Rates Changes
A New Five-Band Multiplier Structure
From April 2026, business rates move to a more layered system. The standard multiplier falls from 55.5p to 48p, and the small business multiplier falls from 49.9p to 43.2p. Retail, hospitality and leisure (RHL) properties get their own lower multiplier — around 5p below the standard rate. Properties with a rateable value over £500,000 face a new, higher multiplier to fund the cuts elsewhere.
Worked example: a pub with a rateable value of £100,000 could see its annual rates bill fall from roughly £50,000 to around £38,000 under the new RHL multiplier — a reduction of about 25%.
Small Business Rates Relief Grace Period Extended
Businesses that expand into a second property used to have just one year before losing Small Business Rates Relief. That grace period is now three years, giving growing firms more breathing room. Note that this relief is calculated per property, so businesses operating from shared or flexible workspace, including many using a virtual office address rather than dedicated premises, should check how their setup is classified, since flexible workspace providers are not always eligible for the same relief.
Capital Allowances and Investment Incentives
What’s New
A new 40% First Year Allowance applies to most main-rate plant and machinery assets from 1 January 2026, on top of the existing Annual Investment Allowance, which continues to offer 100% relief on qualifying spend up to £1 million.
What’s Getting Less Generous
The main-rate writing down allowance falls from 18% to 14% from April 2026. For businesses that don’t use the AIA in full — often those with capital spending beyond £1 million, or leasing companies — this reduces the annual tax relief available on longer-term equipment purchases.
Funding for Growth-Stage Businesses
The government confirmed the British Business Bank will invest at least £5 billion in growth-stage funds, part of a new £25.6 billion strategic capacity. Alongside this, EIS and VCT investment limits rise from April 2026: companies can raise up to £10 million a year (£20 million for knowledge-intensive firms), with a lifetime limit of £24 million. If you’re pitching to investors or weighing early-stage funding routes such as the SEIS scheme, these higher limits are worth factoring into your raise.
Employment Costs
Wages Are Rising
The National Living Wage increases to £12.71 an hour for over-21s from April 2026. Younger workers see sharper rises: £10.85 for 18-20 year olds and £8.00 for 16-17 year olds and apprentices.
Employment Allowance Increase
Employers can now claim up to £10,500 against their employer National Insurance bill, up from £5,000, and the previous £100,000 eligibility cap has been scrapped. The catch: single-director companies with no other employees still can’t claim it. If you employ even one other person, the full £10,500 is available.
Salary Sacrifice Pensions
From 2029, employer and employee National Insurance will apply to salary sacrifice pension contributions above £2,000 a year. This is several years out, but it’s worth flagging to staff now if your pension scheme relies heavily on salary sacrifice.
Free Apprenticeships for Under-25s
Apprenticeship costs for under-25s are now fully funded for small and medium businesses, removing the part-funding requirement. Combined with the 2026 apprenticeship funding rules, this makes bringing on younger talent notably cheaper than it was last year.
VAT and Making Tax Digital
VAT Is Unchanged
Despite months of speculation about a lower VAT registration threshold, nothing changed. The threshold stays at £90,000, and VAT rates are untouched.
Making Tax Digital Rollout Continues
MTD for Income Tax becomes mandatory from April 2026 for sole traders and landlords earning over £50,000, extending to those earning over £20,000 by April 2028. Affected businesses will need to submit quarterly summaries of income and expenses using compatible software, and HMRC won’t apply late-submission penalties during the initial rollout period. If your bookkeeping isn’t already digital, now is the time to review your record-keeping requirements as a sole trader.
Looking Further Ahead
E-invoicing becomes mandatory for VAT invoices from April 2029, and HMRC will introduce digital prompts within VAT and corporation tax filing software from 2027 and 2028 to flag incomplete or late returns before they’re submitted.
Compliance and HMRC Powers
HMRC is getting sharper teeth. New powers let it shut down tax avoidance schemes faster and pursue promoters more aggressively, with whistleblowers now eligible for rewards of up to 30% in high-value fraud cases over £1.5 million. An additional 350 HMRC criminal investigators are being allocated to fraud and evasion cases, including in small business and high street settings. The Construction Industry Scheme (CIS) also faces tighter checks around gross payment status.
Sector-Specific Impacts
Retail and hospitality benefit most from the rates overhaul, with permanently lower multipliers for over 750,000 eligible properties.
Tech and scale-up businesses gain from expanded EMI scheme limits from April 2026, making it easier to reward and retain staff with share options as a company grows past the early startup phase.
Landlords face new dedicated property income tax bands of 22%, 42% and 47% from April 2027, replacing the standard income tax rates currently applied to rental profits.
What Small Business Owners Should Do Now
- Review your salary/dividend split before April 2026, since the dividend tax rise changes the maths for many owner-directors.
- Check your business rates classification under the new multiplier bands, especially if your rateable value sits near £500,000.
- Bring capital spending forward where practical to make use of the 40% First Year Allowance before the writing down allowance cut fully bites.
- Confirm your MTD readiness if you’re a sole trader or landlord earning over £50,000.
- Reassess your business structure if fiscal drag and dividend tax changes are eating into take-home pay — for some, moving from sole trader to limited company (or vice versa) is worth modelling again.
- Talk to an adviser before selling, given the BADR relief cut now applies to disposals from 26 November 2025 onward.
FAQs
Did VAT change in the Autumn Budget 2025?
No. The VAT rate and the £90,000 registration threshold both stayed the same, despite pre-Budget speculation about a lower threshold.
Is corporation tax going up in 2026?
No. The main rate stays at 25% and the small profits rate stays at 19%. The only related change is a doubled late-filing penalty from April 2026.
How much is the National Living Wage rising?
It rises to £12.71 an hour for over-21s from April 2026, up 50p from the current rate.
What happened to Capital Gains Tax on business sales?
Business Asset Disposal Relief now only covers 50% of the gain, down from 100%, for disposals made on or after 26 November 2025.
When does Making Tax Digital become mandatory?
From April 2026 for sole traders and landlords earning over £50,000, expanding to those earning over £20,000 by April 2028.
Are business rates going up or down?
Both, depending on your property. Most small businesses see lower multipliers from April 2026, while properties with a rateable value over £500,000 face a new higher multiplier.
