How will the 2025 Autumn Budget Impact My Business?

The Budget this year was very late and heavily anticipated given the current “low growth” trading environment currently facing most businesses, the high levels of Government Debt, and the associated expected tax rises that may be required to compensate for this.

This was further compounded by a series of “unofficial announcements” (leaks) prior to the the budget itself, which implied Government indecision, and further drove speculation and anxiety around the scale of the potential tax rises.

In the end the Chancellor didn’t alter the “headline tax rates” in most cases, but she has continued to pursue significant increases in “stealth taxation”, which will impact business owners both financially: in terms of increases in tax, and also indirectly: by the tax system itself more complex.

It is not practical to discuss all of the changes proposed in the Budget in detail in a single article, and so this article has focused primarily on the changes which will specifically impact small owner managed businesses.

Increases in the National Living, Minimum, and Apprentice Wages

The biggest change for businesses who hire staff at entry level wages, is that these levels will be increasing from 1 April 2026.

For guidance purposes the hourly wage rate paid depends on your age, and whether you’re an Apprentice, as follows:

• You must be at least 21 to obtain the National Living Wage (NLW).
• You must be at least school leaving age to obtain the National Minimum Wage (NMW).
• You must be under 19 AND in your first year of an apprenticeship to obtain the Apprentice Wage (AW).

National Living, Minimum, and Apprentice Wage Rates:

In summary of the changes:

• The National Living Wage will increase by 4.1% to £12.71 per hour.
• The National Minimum Wage will increase by 8.5% to £10.85 per hour, and 6% to £8.00 per hour, depending on your age.
• The Apprentice Wage will increase by 6% to £8.00 per hour.

While this may not seem like a lot when looking solely at the hourly rates, the annual impact is more relevant and significant for businesses.  The impact will depend on the average hours your staff typically work each week, and each year.  But for illustrative purposes the below table shows the impact of employees and apprentices who work a 40-hour week on average:

In order to assist younger workers to find employment, the Government has also announced that it will implement a scheme whereby it will guarantee a six-month paid work placement for every eligible 18-21-year-old who has been on Universal Credit, and looking for work for 18 months.  The scheme will cover 100% of employment costs for a 25-hour week at the relevant minimum wage, although further details of this scheme and when it will be implemented are still be announced.

Increases in Dividend Tax Rates

The second most significant change for those who own their own limited company is that the rate of tax payable on dividends is set to increase by 2% for basic and higher rate taxpayers, from April 2026.

In summary of the new rates that will apply:

The first £500 of dividends earned will remain tax free via the dividend allowance.

For many small owner managed businesses this is a very significant and unwelcome tax rise!

It will not completely eliminate the tax efficiency of extracting profits via dividends, as dividends still do not attract national insurance contributions.  But for those companies who pay tax at the higher rates of Corporation Tax it will make the decision as to how to extract these profits tax efficiently more complex.

And while some will argue that this helps to level the playing field from a taxation perspective between “employees” and those who operate via their own limited companies.  This policy also discourages (and potentially discriminates against?) those who operate via limited personal service companies, and who may not receive the same rights and benefits as other employees.  As the marginally lower taxation of dividends historically helped to compensate for this.

Indeed, there is a risk that these actions may potentially even act to inhibit business growth and the economy at large by reducing the risk vs. reward incentive available to responsible business owners for taking business risk.

Increases in Property and Savings Income Tax

In addition to targeting business owners for the taxation of dividends, the Government has also specifically targeted anyone who earns income from either owning property or via interest on savings, by increasing the rates of tax they pay on this income by 2%, from April 2027.

In order to achieve this, they will effectively create new tax bands that specifically apply to these taxpayers as follows:

Note – The new property income tax rates will apply to taxpayers in England and Northern Ireland.  The Scottish and Welsh Governments have their own powers to set property tax rates in those Jurisdictions.

The first £x amount of income earned on savings per the table above (depending on whether you are a basic, higher, or additional taxpayer) will remain tax free via the savings allowance.  Thereafter you will pay tax at the Basic, Higher, or Additional rates.

As per dividends this will not completely eliminate the tax efficiency of earning income via these methods, as asset-based income still does not attract national insurance contributions.

However, these policies will similarly discourage the holding of UK rental property and personal savings.  And while this may have the short-term impact of increasing the volume of liquidity in the market, it is generally not advisable to encourage this treatment in the longer term, as it discourages the creation of wealth.

Although not directly linked to the taxation rate on savings income, it was also similarly announced that the amount available to hold as cash within ISA’s will be reduced from £20k to £12k, from the same date.

This measure has been designed to force taxpayers to invest a larger proportion of their savings into stocks and shares, instead of being held as cash reserves.  And while this will no doubt “encourage” investment, please always remember that holding funds as stocks and shares does incur additional risk, in the event of adverse movements in the stock market.  Although please note that these measures will not apply to those aged 65 and over, to provide some protection against adverse market movements closer to retirement.

Tax Bands Frozen Until 2031

In previous years we were led to believe that the tax band thresholds would be increased in line with inflation from April 2028 onwards.  In this budget, the position has completely changed and we have now been advised that tax band thresholds for a number of different taxes will now be frozen until the 2030/31 tax year.

And as the tax bands are not increasing by inflation a greater proportion of income and assets will now be subject to tax, resulting indirectly in across the board tax rises.

Taxes which will be impacted by these measures and remain frozen until 2030/31 include the following:

• Income Tax – The personal allowance, basic, and higher rate thresholds.
• Employees (class 1), Employers (class 1a) and Self-Employed (class 4) National Insurance.
• Inheritance Tax – Including both the IHT nil rate band of £325k. and the main residence nil rate band of £175k.

Salary sacrifice for pension contributions

For those employees that previously took advantage of this scheme to save for their retirement, the Government have also limited the amount of salary sacrifice pension contributions that will be exempt from National Insurance Contributions (NICs).

From 6 April 2029, the amount that is exempt from NICs will be limited to £2k a year.  Any employee contributions above this amount made under salary sacrifice will now be subject to employer and employee NICs!

Note that this only affects contributions from salary sacrifice schemes.  Contributions made via other methods are already limited to income tax relief (excluding NICs).  So, this measure effectively limits the benefits that employees are able to take advantage of under this particular scheme.

Thankfully these measures will not prevent employees from making tax efficient pension contributions, but they will discourage the use of “Net Pay Arrangement” salary sacrifice schemes that deduct pension contributions “before tax” in favour of “Relief at Source” schemes that deduct pension contributions “after tax”, certainly where employees plan to contribute more than £2k per year.

Capital Allowances to be Maintained and Extended

Capital allowances can be a very confusing area for most people who have not studied this when training to be an Accountant!  But in very simplistic terms, money that you spend when buying capital items (such as assets to be used in the business, fixtures and fittings for your office, or vehicles used for work purposes) is not automatically allowed as a business expense in your accounts in the year when you buy these assets.

Instead, the Government require you to “capitalise” this expenditure, by recording it as a fixed asset in your accounts and then receiving “some” of this value as a business expense each year over a period of time.  The amount you are allowed to receive each year as a “Written Down Allowance” (business expense) is defined by tax law, to try and standardise the process by ensuring that all businesses account for their assets consistently.

Furthermore, in order to encourage investment and stimulate growth in the economy the Government have in some cases allowed businesses to recognise a higher proportion of this expenditure in the first year.  So, for these assets, you are allowed to claim what is referred to as a “First Year Allowance”, by treating a larger percentage of the value you have paid for these assets as a business expense in the first year.

And increasing the amount you are allowed to treat as a business expense in any year reduces the amount of tax you will have to pay in these years.  Businesses are therefore (in theory anyway) encouraged to “invest” more into the economy by buying assets, because they pay less tax in the years in which these allowances are available.

The Budget has therefore announced that the following allowances announced in earlier years will therefore be maintained and extended, including:

• 100% first year allowances (FYA) for expenditure on zero emission cars and the 100% FYA for expenditure on electric vehicle (EV) charge points will be extended until 31 March 2027 for corporation tax purposes, and 5 April 2027 for income tax purposes.
• The Annual Investment Allowance (AIA) will continue to offer 100% first-year relief for plant and machinery investments up to £1m for all businesses.
• Full expensing with 100% first year allowances (FYA) for qualifying new main rate plant and machinery (e.g. most types of P&M), and a 50% first-year allowance for special rate machinery (e.g. integral features, long life assets, cars).
• From 1 January 2026 a new First-Year Allowance of 40% for main-rate assets is also introduced. This relief will apply to certain assets beyond the current availability of full expensing and the AIA. This will enable the leasing sector, which is currently excluded, to now be eligible for first year allowances.
• From 1 April 2026, the main rate for Writing Down Allowances will reduce from 18% to 14%.

Businesses are allowed to use the allowances which apply to them based on type of assets they are buying in the best combination possible to reduce their tax liabilities.  And the Government has indicated in the Budget that “full expensing” which allows you to treat the whole cost of an asset as a business expense in the year in which you buy it, will continue to be available going forward to encourage business investment.

Changes to Business Rates

The Chancellor has announced that she will be reducing the value of rates (council tax) payable by smaller high street retail, hospitality and leisure properties (RHL) from 2026/27.  This will primarily be funded by charging more to larger businesses, by increasing the tax payable on properties with rateable values of £500,000 and higher.

Changes to the Taxation of Company Cars & Private Electric Cars

The income tax paid on the “private use” of company cars is going to increase in future tax years.

For comparison purposes the tax rates payable in the current tax year are included below:

The Budget has therefore proposed the following tax increases in future tax years:

• Zero emission and electric vehicles – Will increase by 2% per year in 2028/29 and 2029/30, to 9% in tax year 2029/30.
• Ultra-Low (1 to 50g/km) vehicles including hybrids – Will increase to 18% in tax year 2028/29 and 19% in tax year 2029/30.
• All other vehicle bands – Will increase by 1% per year in tax years 2028/29 and 2029/30.

Furthermore, for those people who own an electric car privately, and are not currently subject to road taxes, this is now going to change!

In future tax years electric car drivers will be subject to a “pay-per-mile charge” (eVED) on battery electric and plug-in hybrid cars from April 2028. The mileage-based charge has been confirmed to be 3p per mile for battery electric cars and 1.5p per mile for hybrid vehicles for the tax year 2028/29.

The Government have justified this increase by arguing that electric car owners still use the roads and should therefore still be subject to road tax, by reference to the amount they use their car.

Tax Relief on Homeworking Expenses which are not Reimbursed

From the 6 April 2026, employees will no longer be able to claim flat rate income tax relief on expenses incurred by virtue of working from home, that are not reimbursed by your employer.

Previously this allowance was available at a flat rate of £6 per week (£312 per year), and could be included within your self-assessment tax return without the need to justify this expenditure to HMRC (with evidence such as bills and receipts).

The Government have claimed that this allowance was being abused by taxpayers who have been working at home voluntarily, because the rules state that the allowance can only be claimed in the following instances:

• your job requires you to live far away from your office
• your employer does not have an office

Those employees who continue to work from home can still claim expenses directly from their employer providing that the expenses are “wholly, exclusively and necessarily” in the performance of their duties in the normal way.  And the employer will be able to treat this as a business expense.

Therefore, while this measure may help HMRC to eliminate a very high volume of small claims, it is questionable how effective it will be at saving the tax overall?  Indeed, a high volume of business owners have used the flat rate method historically because it is easier and does not attract any scrutiny by HMRC.  By forcing businesses to use the actual method instead, there is a risk that a smaller volume of much higher value claims will instead be received.

Final Comments

The astute readers will notice that this article has excluded a number of the big-ticket headline changes such as: the elimination of the two-child limit on Universal Credit, the “mansion tax”, the removal of green levies in electric bills, gambling duty, etc.  However, per the introduction I have tried to focus on the changes which particularly impact small owner managed businesses.

The Chancellor has announced what many would agree is a: “tax big, spend big, Labour Party budget”.  And certainly, reviewing what has been announced makes it clear that it has directly targeted the needs to two specific groups:

• The Markets – By raising additional levels of taxation to offset the country’s growing and unsustainable levels of national debt.
• The Labour Party – By supporting heartland policies such as increasing the NLW, NMW, and Apprentice Wage, and increasing benefits in general across the board and in particular the removal the two-child cap on Universal Credit, for those people that need it most.

And ultimately, it has to remembered that a Budget will always have winners and losers, to the extent that all parties have different needs and objectives, and often the objectives of different parties (and sometimes even the same party) can oppose one another.

As an example, the admirable policies to increase the NLW, NMW, and Apprentice Wages will no doubt also adversely impact the labour market itself and unemployment rate, as the cost of doing business increases.

BUT, I suspect that most businesses will agree that this is definitely not a “budget for growth”, and it certainly does not encourage the growth of businesses in the private sector (which is the primary source of all public sector funds).  With the exception of a few nominal measures such as rates relief and the permanent expense of capital allowances, life is going to become increasingly more expensive, as the Government take an ever-increasing percentage of our business and personal income as tax.

And in the same way that you cannot normally spend your way out of debt, you cannot also normally encourage growth by increasing taxes, unless you use the money raised to invest in the furtherance of that goal.  And it is rare to impossible for a Government to achieve this more efficiently and effectively than an individual could do so themselves, if you had the left the money in their hands to start with….

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Please give us a call (0116 243 7868), email us, or contact us ONLINE to speak to a member of our Accounting team without delay!

Author: George Ian Hope BAcc(Hons), MSc(IT), FCCA, CGA, CPA

Managing Director – QAccounting Limited

Ian is a general practicing member of the Association of Chartered Certified Accountants with fellowship status (FCCA). He is also a member of the Certified General Accountants Association of Canada (CGA), and a member of Chartered Professional Accountants of Canada (CPA).

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