Autumn budget 2025: Small business impact analysis

Published 11 March 2026

Table of contents

• What is the Autumn Budget 2025?
• Key changes for small businesses
• Changes that take effect later
• What small businesses should do to prepare
• Get Budget-ready with Xero
• FAQs on the Autumn Budget 2025 for small business

Key takeaways

• The Autumn Budget 2025 confirmed frozen tax thresholds, higher dividend and asset income taxes, and new digital reporting rules.
• Payroll and employment costs will rise from April 2026, driven by higher wage rates and frozen National Insurance thresholds.
• New investment rules, including the 40% First Year Allowance and continued capital allowances, create opportunities to reduce the tax cost of upgrading equipment and technology.
• Longer-term changes such as Making Tax Digital, e-invoicing, and new customs duties on low-value imports mean businesses should start preparing now, even where rules don’t take effect for several years.

What is the Autumn Budget 2025?

The Autumn Budget 2025 is the government’s annual fiscal statement outlining its tax and spending plans for the next financial year, as well as policies expected to affect the economy, businesses, and households.

It was delivered on 26 November 2025 by Chancellor Rachel Reeves.

Small businesses will feel the effects of these changes in different ways.

Key changes for small businesses

Here are the key changes from the Autumn Budget 2025 you need to know about:

Tax changes

The income tax threshold freeze is extended to 2031

The freeze on personal tax thresholds, in place since 2022, has been extended until 2031. Thresholds remain at the following rates:

• personal allowance: £12,570
• higher rate threshold: £50,270
• additional rate threshold: £125,140

Income tax rates of 20%, 40%, and 45% also remain unchanged.

National Insurance changes

Employee and employer NI thresholds were also frozen at £12,570, keeping them aligned with the personal allowance for income tax.

The main change relates to pension contributions. Previously, all pension contributions made through salary sacrifice were fully exempt from NICs. But from 2029:

• only the first £2,000 of each employee's salary-sacrificed contributions will be exempt from NICs
• above £2,000, standard employee and employer NICs of 8% and 13.8% will apply

Dividend tax rates increases by 2%

The £500 dividend allowance remains unchanged. However, dividend tax rates rise by two percentage points from April 2026:

• basic rate: from 8.75% to 10.75%
• higher rate: from 33.75% to 35.75%
• additional rate: unchanged at 39.35%

Savings and property tax changes

From April 2027, savings and property income tax rates will increase by two percentage points across all bands:

• basic rate: 22%
• higher rate: 42%
• additional rate: 47%

This narrows the gap between tax on employment income and assets, which don’t incur National Insurance.

Payroll and wage changes

National Living Wage increases

The Budget confirmed that the National Living Wage and National Minimum Wage rates will increase from April 2026. The new rates are:

• people aged 21 and over: £12.71 – a 50p increase
• people aged 18–20: £10.85 – an 80p increase
• people aged 16–17 and apprentices: £8.00 – a 45p increase

Reliefs, incentives, and compliance

Business rates relief for retail, hospitality, and leisure

A lower business rates multiplier applies to RHL properties from 2026.

• The RHL small business multiplier will be 38.2p.
• The RHL standard business multiplier is 43.2p.

Both rates are 5p lower than the equivalent non-RHL multipliers, benefiting around 750,000 businesses and providing a much-needed boost to the high street.

To help fund the relief, properties valued at £500,000 or more will pay a 2.8p surcharge on the higher multiplier, bringing it to 50.8p. This mainly affects large distribution warehouses – such as those owned by online retailers – and aims to level the playing field between online and high street businesses.

A 40% First Year Allowance (FYA)

A new, permanent 40% FYA is available from 1 January 2026. This allows businesses to deduct 40% of the cost of qualifying main-rate assets from their taxable profits in the year of purchase.

• The 40% FYA will also be available for the first time to unincorporated businesses, such as sole traders and partnerships.
• For incorporated businesses, the new rule also extends relief to certain assets that are not eligible for full expensing – specifically those purchased for lease.

To help fund the change, the main writing-down allowance on the remaining value of main-rate assets reduces from 18% to 14% from April 2026.

Green investment incentives

The Autumn Budget introduced a range of measures to encourage environmentally responsible investment and support the UK’s net zero goals. Businesses installing electric vehicle infrastructure will benefit from 10 year, 100% business rates relief on EV charging points and EV-only forecourts. The existing 100% First Year Allowance for zero-emission cars and EV charging points has been extended for an extra year.

But from April 2028, EV drivers will pay a new Electric Vehicle Excise Duty (eVED). The added charge works out to around £240 per year, depending on mileage, and is set at about half the fuel duty paid by petrol and diesel drivers. Factor this cost into your fleet planning if your company runs electric vehicles.

Skills and apprenticeship support

The new Youth Guarantee scheme starts rolling out in Spring 2026, supporting SMEs in hiring eligible people aged 18–21 by fully covering their employment costs for the first 6 months of a placement. This includes:

• funding for 25 hours per week at the relevant minimum wage
• additional support before, during, and after the placement to give young people the best opportunity to succeed in the role

The government is also overhauling the apprenticeship system to make it simpler and more flexible for employers. From April 2026, businesses will be able to use shorter, more targeted training routes. The aim is to reduce administration and give SMEs more ways to upskill staff quickly according to their specific needs.

Making Tax Digital is expanded to Income Tax

The Autumn Budget finally confirmed that Making Tax Digital (MTD) for Income Tax will go live from April 2026.

Under the new MTD rules, sole traders and landlords with income over £50,000 need to keep digital records and submit quarterly updates using approved software. There were no significant changes to the existing plans and timelines – view the MTD rules here.

Changes that take effect later

E-invoicing mandate

The government announced that, starting in 2029, all VAT invoices must be issued electronically in a specific format.

The government will release a detailed implementation timeline in the 2026 Budget announcement to give businesses time to prepare their systems for the changes.

Customs duty on low-value imports

Customs duty relief for goods valued at £135 or less will be removed by March 2029 at the latest. Imports below this value are currently exempt from all customs duties.

The exact duty rates have not been confirmed. If your business imports lower-value items, keep an eye on HMRC updates to understand how this might affect you.

What small businesses should do to prepare

Here are the key steps small businesses can take to stay ahead of the Autumn Budget’s new rules:

Review your pricing and internal budgets

Employment and operational costs are rising, so review your pricing structure to ensure you can absorb these increases while protecting your margins.

• The National Living Wage increases to £12.71 from April 2026, and with tax thresholds frozen until 2031, you'll pay employer National Insurance contributions sooner on staff pay raises. Factor these increased costs into your staffing budget.
• Business rates will also change from 2026 – lower for retail, hospitality, and leisure businesses; higher for large warehouses.

Learn more about budgeting for small businesses

Update your payroll for April 2026

If you employ minimum-wage workers, make sure payroll is ready for the new National Living Wage and minimum wage rates that come into effect from April 2026. Update your systems in advance to stay compliant and avoid accidental underpayments.

Prepare for Making Tax Digital for Income Tax

Get your MTD-compliant software in place well before the April 2026 deadline so you can meet your new obligations with minimal issues.

You can also start using MTD early if you like. This will give you time to familiarise yourself with the process and iron out any issues before you’re legally required to comply.

Here’s more info on MTD.

Review your dividend and salary mix

With dividend tax rates increasing by two percentage points from April 2026, your mix of salary and dividends may no longer be the most efficient one – and could mean a higher tax bill.

So before the 2026/27 tax year begins, review how you draw income from your business and decide whether a different balance of salary and dividends puts you in a more tax-efficient position.

Ask your accountant

After changes like the Budget, it’s worth checking in with your accountant to understand exactly what the changes mean for your business.

Their expertise can help you optimise your salary and dividend mix, make sure you’re benefiting from any relevant tax reliefs, and make sure you’re fully compliant in time for the new regulations.

Get Budget-ready with Xero

Xero helps you stay on top of the latest Budget changes with real-time financial insights, MTD-ready software, and powerful forecasting tools. Stay compliant with the latest UK tax rules, collaborate with your accountant in real time, and make informed decisions based on your latest financial data.

Get one month free

FAQs on the Autumn Budget 2025 for small business

Here are answers to the most common questions small businesses are asking about the Autumn Budget 2025:

When do changes usually take effect?

Most Budget measures come into force from April 2026, which aligns with the start of the new tax year. However, some changes are announced well in advance to give businesses more time to prepare, such as the new customs duty rules for low-value imports that is planned for 2029.

Here’s the full list of official budget measures and proposed start dates.

What are the new dividend tax rates?

From April 2026, dividend tax rates will increase by two percentage points. The basic rate rises to 10.75%, and the higher rate increases to 35.75%. The additional rate remains unchanged at 39.35%. The £500 dividend allowance remains in place.

How does the business rate relief work?

All eligible retail, hospitality, and leisure properties will benefit from multipliers dropping 5p below non-RHL rates – 38.2p for small business properties (ratable value below £51,000) and 43.2p for standard-sized properties (rateable value between £51,000 and £499,999). This relief is permanent and will automatically apply to qualifying properties.

Here’s more info from the government on small business rate relief and how to apply.

When does MTD for Income Tax start?

MTD for Income Tax starts from April 2026 for sole traders and landlords with income over £50,000. The threshold is set to drop to £30,000 from April 2027, bringing more businesses into the scheme.

Where can I find official Budget 2025 documentation?

Official Budget documentation is available on the government website.