Autumn Budget 2025: the lowdown for you and your small business clients

Despite months of rumour and briefings and the unprecedented early leaking of many of the details of her tax and spending plans, Chancellor Rachel Reeves still had plenty of surprises for small businesses in her Autumn Budget.

Here are the key changes for your clients included in the Chancellor’s Budget and detailed in the HM Treasury reports. 

Personal tax thresholds frozen for longer, pulling more into higher tax bands 

The Chancellor confirmed that headline Income Tax and National Insurance (NI) rates on earned income are not changing. However, she announced that the current freeze on Income Tax and NI thresholds will be extended for a further three years from 2028-29 to 2030-31. When the thresholds at which people pay different rates of Income Tax and National Insurance stay static rather than rising with inflation, this creates fiscal drag, as more people are pulled into paying higher rates over time as their wages rise with inflation. 

Changes to Class 2 National Insurance

The Small Profits Threshold - the profit level below which sole traders can opt to pay Class 2 NI contributions voluntarily - will increase to £7,105, with the rate of Class 2 NI being £3.65 per week, from 6th April 2026.

Tax rates on income from assets rising

While Income Tax rates on earned income remain unchanged, the government did announce plans to increase tax on income from certain assets, including property, dividends and savings.  

Tax on assets: what’s changing and when? 

Dividends: from April 2026 there will be a 2% increase to the basic and higher rates of Income Tax on dividend income taking them up to 10.75% and 35.75% respectively. The additional rate remains unchanged at 39.35%.

Savings: from April 2027 there will be a 2% increase to basic, higher and additional tax rates of Income Tax on interest income - this will take them up to 22%, 42% and 47% respectively.

Property: the government is creating separate tax rates for property income, similar to those that already exist on savings and dividend income. From April 2027 there will be a 2% increase to basic, higher and additional tax rates of income tax on property rental income - this will take them up to 22%, 42% and 47% respectively.

Major pensions change, as salary sacrifice capped at £2,000

The Chancellor has introduced a cap of £2,000 a year on the amount of salary an employee can sacrifice without paying National Insurance (NI). 

How will the change affect salary sacrifice? 

The cap will increase NI bills for both employers and employees. The employee and their employer will have to pay NI on any salary sacrificed above £2,000 per employee per year.  

How will the change affect pensions? 

Employers should be prepared for changes in payroll as well as increased bills. The change follows last year’s rise in employer’s NI. There are also fears the plan will lead to decreased pension contributions. 

When will this come into effect? 

April 2029.

Changes to capital allowances 

From 1st January 2026, a 40% first-year allowance on main rate expenditure will be introduced - including most expenditure on assets for leasing and expenditure by unincorporated businesses. From 1st April 2026 for Corporation Tax and 6th April 2026 for Income Tax, main rate writing-down allowances will reduce from 18% to 14%.

Increases to Corporation Tax late filing penalties

The penalties will double for taxpayers submitting a Corporation Tax return late from 1st April 2026. This will be legislated for in Finance Bill 2025-26.

Reduction in Capital Gains Tax relief

The government is restricting Employee Ownership Trust (EOT) Capital Gains Tax relief from 100% to 50%, meaning 50% of the gain will be taxable when a business is sold to an EOT. This change is due to the scheme being on course to cost £2 billion, 20 times beyond the original costings when the scheme was announced in 2013. 

Expansion of Enterprise Management Incentives

There’s an increase in company eligibility limits for the Enterprise Management Incentives (EMI) scheme to allow scale-ups to join start-ups in offering tax-advantaged shares to the talent they need to grow. The government will increase the employee limit to 500, the gross assets test to £120 million and the company share option limit to £6 million from April 2026. The maximum holding period will increase to 15 years including in respect of existing EMI contracts.

Venture Capital and Enterprise Investment

The government is also increasing the Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS) investment limit to £10 million, and to £20 million for Knowledge Intensive Companies (KICs). There will also be an increase in the lifetime company investment limit to £24 million, £40 million for KICs. The gross assets test will increase to £30 million before share issue, and £35 million after, from April 2026. Alongside this, the VCT income tax relief will decrease to 20%.

Free apprentices for small businesses in England

Small businesses will be able to take on younger apprentices for free, under new plans for the government to fully fund apprenticeships for eligible people under 25. More details on this programme, including a start date, are due to be announced soon. 

Employers facing increased wage bill with pay rise for millions of workers

Employers will need to factor in a pay rise for millions of workers after a pre-Budget announcement that minimum wage rates are to rise again next year. 

What are the new minimum wage rates? 

From April 2026 the minimum wage for those aged over 21 (the National Living Wage) will rise to £12.71 an hour - an increase of 50p. For under-18s and apprentices, the National Minimum Wage rate rises to £8, and for 18 to 20-year-olds it rises to £10.85. This follows a rise announced in advance of the Autumn 2024 Budget.

Businesses will have to factor in the resulting pay rises for nearly 2.7 million eligible workers according to the Chancellor.

Making Tax Digital 

Potential change to payment deadlines

The government has said that it “will require income tax Self Assessment taxpayers with Pay As You Earn (PAYE) income to pay more of their Self Assessment liabilities in-year via PAYE from April 2029. The government will publish a consultation in early 2026 on delivering this change, and on timelier tax payment for those with only Self Assessment income.” Whether this last sentence points towards quarterly payments against quarterly updates under MTD for Income Tax is yet to be clarified.

Changes to exemptions and start dates

The government has announced they will exempt “one very small taxpayer group” from MTD and “will defer the start date to April 2027 for some others”. At this stage they have not given further details about exactly who this will apply to. 

To learn more about all the changes announced in the Budget, you can read the full report on the government’s website.

And to keep your clients informed, you can share our blog post on what the Autumn Budget means for small businesses which also covers increased costs for electric vehicle drivers, lower business rates for small businesses in England and more.