The UK’s Autumn Budget 2025 contained several measures aimed at small and medium-sized enterprises (SMEs).
This article summarises the impact for these businesses and their owners, and what actions you may need to take.
The Budget and policy papers are available, but good advice is to consult professional advisers for guidance on how the changes will affect your circumstances.
Here’s what is discussed in this article:
- Wages, including statutory rates
- Making Tax Digital: Soft landing period is back, plus other tweaks
- Help for apprenticeships
- Pension salary sacrifice limit
- Supporting the high street
- E-Invoicing for VAT
- Business and property taxation, including dividends
- Cut to Employee Ownership Trust relief
- Expansion of EMI, EIS and VCTs
- Supporting AI adoption
- Writing down allowances
- Final thoughts and next steps
Wages, including statutory rates
Headline rates of Income Tax, National Insurance contributions (NICs) and VAT are unchanged.
However, the government has frozen Income Tax and equivalent NIC secondary thresholds for employees and the self-employed at current levels for a further three years, from April 2028 to April 2031.
Therefore, while you should always consult the P9X ahead of payroll year end, it’s not going to throw up any surprises for 2026.
From April 2026, business will need to pay higher National Minimum Wage (NMW) and National Living Wage (NLW) hourly rates, as follows (according to the usual age brackets):
- For those aged 21 and over, the NLW will rise by 4.1% to £12.71.
- For those aged 18 to 20, the NMW will increase by 8.5% to £10.85.
- For those aged 16 to 17, or who are within government-approved Apprenticeship schemes, the NMW will go up by 6% to £8.
Also of note is that the accommodation offset will increase by 4.1%, to £11.10 per day.
Businesses may need to adjust FY26 salary and growth planning in light of this.
Lucy Cohen, president of the Association of Accounting Technicians (AAT), says National Living Wage rises are likely to present a challenge to growing companies—especially combined with the increases in employer NICs from the 2024 Budget.
There might be a knock-on effect for managers’ pay, she says:
“If junior workers are paid more, managers may also want more to take on the extra responsibility. So, some scaling businesses will need to consider whether to also hike managers’ pay, or whether they’re happy with a smaller differential.”
Making Tax Digital: Soft landing period is back, plus other tweaks
To ease the transition to Making Tax Digital (MTD) for Income Tax, the government has announced it will not penalise late submissions for quarterly updates during 2026/27, the first year when MTD is implemented.
This only affects the quarterly updates. The yearly digital tax submission, due by 31 January, could still attract penalties for late submission.
Known as the “soft landing period” when the earlier MTD for VAT scheme was rolled out, this partial year-long reprieve is intended to reduce pressure on millions of sole traders and landlords as of April 2026, as they introduce new processes to comply with MTD.
However, the government also said it will increase the penalties due for late payment of Self Assessment and VAT from April 2027. It will apply the new penalty regime for late submission and late payment to all Income Tax Self Assessment taxpayers not already due to join the new system from 6 April 2027.
It will also exempt one small taxpayer group from MTD for Income Tax, and defer the start date for some others to April 2027. More details will follow, the government said.
Help for apprenticeships
The government is making over £1.5b available for investment in employment and skills support.
This funds £820m for the Youth Guarantee, which includes a guaranteed six-month paid work placement for eligible 18 to 21-year olds who have been on Universal Credit and looking for work for 18 months.
The funding also includes £725m for the Growth and Skills Levy to support apprenticeships, including fully-funded SME apprenticeships for eligible under 25s and other changes to streamline apprenticeships.
Businesses keen to nurture young talent would be wise to investigate these schemes, because they offer benefits for both employer and employees.
Gemma Gathercole, strategic engagement lead, England at ACCA, welcomes the changes to apprenticeship funding for SMEs as an important step to taking on younger employees. However, she pointed out that funding for over 21s will be removed from January 2026, potentially limiting the impact for businesses.
Pension salary sacrifice limit
The total amount that can be salary sacrificed in employee wages for pension contributions is presently tax and NI-free.
From 6 April 2029 the government will cap the amount that can be salary sacrificed in pension schemes without paying employer and employee NICs.
The cap will apply at £2,000 per employee, per year. Other pension tax reliefs were unchanged, meaning tax relief at source—which has the biggest impact on pension payments—will continue to be applied.
Yogesh Dhanak, senior technical advisory manager at the Association of Chartered and Certified Accountants (ACCA), says the result could be increased NIC payments for employers.
Many employers currently add the NICs saved into their employer pensions. However, those that don’t—and currently pocket the NIC savings—will have to pay these as part of PAYE as of April 2029.
Helen Wood CA, Technical Content Writer at TaxAssist Accountants, says pension contribution salary sacrifice schemes have been popular as an efficient way for SMEs to attract and retain employees.
“They allow employees to give up some of their salary in return for their employer making a larger pension contribution, saving employee and employer NICs.”
However, the 2029 change impacts higher paid employees more.
As a first step businesses should audit their workforce to get a general idea of the likely impact. A care home business comprising a majority of National Living Wage employees is likely to be lightly affected, for example, compared to a business such as a consultancy, where employees may use salary sacrifice payments as a method of tax reduction.
These changes will require adjustments to PAYE software. Speak to your software vendor ahead of time. Cloud payroll software will be automatically updated, although you will still have to make the adjustments for each employee if they wish to change their arrangements.
In a survey of Pensions UK members, 75% said savers will likely do this as a result of the changes.
Zoe Alexander, executive director of policy and advocacy at the organisation, offers advice: “Applying the changes from 2029 should give businesses time to prepare. We urge them to consider how they can maintain the generosity of their workplace pensions.”
Supporting the high street
The government announced a package of measures intended to support high street businesses, as follows:
- Removing customs duty relief on low-value imports (under £135) that unfairly advantaged online retailers, and reforming the way these goods are declared into the UK.
- Exploring planning reforms to support growth in high street businesses.
- Introducing permanently lower business rates for retail, hospitality, and leisure (RHL) properties. The RHL multipliers will be 5p below their national equivalents.
To fund this, a higher rate (2.8p above the national standard) will be applied to properties with rateable values of £500,000 and above, representing around 1% of properties
The government is also expanding the Supporting Small Business scheme to businesses who were eligible for RHL relief, in a bid to protect independent pubs and shops.
E-Invoicing for VAT
The Budget included an announcement that e-invoicing will be required for all VAT invoices for business-to-business (B2B) and business-to-government (B2G) transactions from April 2029.
Fuller details will follow next year in the 2026 Budget, including a roadmap for rollout.
An e-invoice is generated in software. Although it has the same purpose as any other invoice, it is a structured data file, enabling the recipient’s system to automatically interpret and handle it.
Essentially, e-invoicing both digitises and standardises invoices, and there’s been a huge push worldwide to embrace the technology, including in the European Union, where e-invoicing for VAT is already a requirement in several countries and will be mandatory by 2030.
This streamlined approach can significantly improve how invoices are sent and received, enhancing efficiency for organisations ranging from businesses to public services such as the NHS. Tasks such as reconciliation can be entirely automated, for example, because there’s no longer a need to use technology such as AI to try and determine where details are listed within ordinary printed or PDF invoices.
E-Invoicing requires software but the groundwork for VAT has already been completed in the UK thanks to Making Tax Digital for VAT, introduced back in 2019, that legally mandated the use of software for VAT accounting. For businesses using cloud accounting software, this will be an automated feature update that will arrive well ahead of the deadline.
However, any businesses resisting the government’s push to entirely digitalise their accounting will find it increasingly harder to stick to the likes of time-honoured receipt and invoice pads, for example. Instead, they should consider invoicing using accounting apps on a mobile phone onsite when a job is completed, for example. E-Invoices can feature useful tools such as Pay Now buttons, or QR codes to allow people to make instant payments. This can significantly boost cash flow.
Business and property taxation, including dividends
Corporation Tax sees no increases. However, penalties see an increase, with the government announcing it will double the penalty for submitting a Corporation Tax return late from 1 April 2026.
This means the £100 fine for being a day late becomes £200, for example, and the further £100 applied at three months becomes £200.
When it comes to transport the key announcements were:
- The 5p fuel duty cut is extended until the end of August 2026, with duty gradually returning to March 2022 levels by March 2027. The planned retail price index (RPI)-linked increase for 2026/27 was cancelled.
- Vehicle Excise Duty (VED) for cars, vans, motorcycles and heavy goods vehicles (HGVs) will rise in line with the RPI from 1 April 2026. The government will also uprate the heavy goods vehicle levy in line with the RPI from 1 April 2026.
- The government will uprate the Van Benefit Charge and Car and Van Fuel Benefit Charges by CPI from 6 April 2026.
- Electronic or hybrid vans, buses, coaches and HGVs will not be included in the new electric Vehicle Excise Duty (eVED) for electric vehicles (EVs), which will see charges of 3p per mile as of April 2028 (and 1.5p for plug-in hybrids). The government says this is because the transition to such vehicles is “currently less advanced than for cars”.
Business rates multipliers in England are reduced from 1 April 2026:
- Small business multiplier falls from 49.9p to 43.2p.
- Standard multiplier falls from 55.5p to 48p.
The government is raising taxes on property and dividend income, to “help to close the gap between tax paid on work and on income from assets”. The 2025 Budget creates separate property income rates taking effect as of 6 April 2027.
- From April 2027, the property basic rate will be 22%, the property higher rate will be 42%, and the property additional rate will be 47%.
- The ordinary and upper rates of tax on dividend income will rise 2% from 6 April 2026. The additional rate will not change.
Cohen says SME owners paying themselves dividends will be affected by this increase: “However, in the right scenario, having a limited company is still an attractive option for many.
“It gives so much flexibility in how you pay yourself and when, for example when you take dividends and use benefits such as pensions, compared to being a sole trader.
“Plus, it has the legal protections of limited liability.”
Dhanak adds, in response to the dividend tax rises: “We recommend reviewing your salary and dividend mix to ensure it’s the most efficient, and optimising your use of other benefits and reliefs available such as pensions.”
The government will also abolish the dividend tax credit for non-UK residents with UK income, aligning their treatment with UK residents.
Furthermore, the government will require taxpayers to actively claim incorporation relief for transfers of a business to a company on or after 6 April 2026
Starting from November 27, 2025, UK Listing Relief will provide an exemption from the 0.5% Stamp Duty Reserve Tax on company securities for a period of three years following their listing on a UK-regulated market.
HMRC will receive new powers and will spend £59m to close the tax gap including real-time digital prompts for VAT and Corporation Tax. These prompts will appear in software used to file tax returns, such as cloud accounting apps.
Prompts for VAT will begin as of April 2027, and those for Corporation Tax will begin as of April 2028.
HMRC will consult in early 2026 on ways VAT and PAYE liabilities can be paid promptly, including requiring more Direct Debits.
It will also look for ways to improve systems integration, including the automatic transfer of sales and purchase data into accounting software.
Cut to Employee Ownership Trust relief
Effective immediately as of the Budget announcement, the government is restricting Employee Ownership Trust (EOT) Capital Gains Tax (CGT) relief, from 100% to 50%.
An Employee Ownership Trust is a legal structure that allows a company to be owned collectively by its employees through a trust. In the UK, it was defined and incentivised back in 2014 by the Finance Act.
Unfortunately, the government says this relief has cost 20 times the original estimate in 2013.
Amy Reynolds, tax partner and head of share schemes at Forvis Mazars, says: “These arrangements are often helpful where employees do not immediately have the funds to acquire the business. The restriction may result in more businesses being sold to third parties in preference to EOTs.”
Expansion of EMI, EIS and VCTs
Chancellor Rachel Reeves says tax incentives have supported start-ups, but scheme limits restrict them during the critical scale-up phase.
To address this, the government is significantly increasing company eligibility limits for the Enterprise Management Incentives scheme (EMI), allowing scale-ups to offer tax-advantaged shares to the talent they need to grow. The government also increased the Venture Capital Trust (VCT) and Enterprise Investment Scheme(EIS) limits to allow investors to follow-on as companies grow.
However, to balance the tax relief offered by VCTs compared to EISs, the government hasreduced upfront VCT Income Tax relief from 30% to 20%.
Supporting AI adoption
The Budget contained two measures to boost AI adoption.
The first is to introduce so-called AI champions who will drive adoption across the UK’s eight industrial strategies.
The second is to expand Innovate UK’s BridgeAI, which offers funding and support for innovators looking to adopt AI.
The use of AI is increasingly common within accounting software, for example, where it’s not just transformational but is bringing in a new era of productivity.
Sage Ai is found within Sage products and is built on decades of expertise and proprietary data. It powers models and services customised for small and medium business finance, ensuring accuracy, security, and relevance no generic AI can match.
It can be found in Sage Copilot, the trusted AI productivity assistant, helping businesses get work done faster with real insights, fewer errors and less admin.
The real world results are clear: businesses get paid seven days faster with Sage Copilot. Furthermore, features such as the VAT assistant alerts you when deadlines are approaching, checks your books for mistakes and calculates how much VAT you owe.
If you haven’t investigated AI within accounting then it’s time to do so.
Writing down allowances
From April 2026, the government will decrease the main rate of writing down allowances by four percentage points to 14%.
Writing down allowances are capital allowances that let you deduct a set percentage of specific asset values from your annual profits.
To encourage investment and growth, the government will introduce a permanent 40% first-year allowance for mainrate assets, from 1 January 2026.
It’s also keeping the £1m Annual Investment Allowance on plant and machinery equipment.
Final thoughts and next steps
The next step will be to get help from professional advisers on how all the Budget changes impact your business; and how you can address the challenges and grasp the opportunities in the coming months.
Creating a schedule of deadlines and enforcement dates for new measures should help you and your staff stay well prepared.
It’s critical to ensure your plans for FY26 take all the 2025 Budget measures into account to ensure a successful year ahead.
