Autumn Budget 2025
Announcements that may affect our clients.
A horrible budget, particularly for small business owners, which has made the UK tax system even more complicated from all the fiddling around the edges rather than the much needed fundamental reform.
The main tax rise (by stealth) is that all tax-free allowances & thresholds, for every type of tax and National Insurance, are frozen until 2031!
Personal
They have raised dividend tax again (except for the highest rate tax payers presumably to encourage investment in the stock market) by 2% from 6 April 2026 to 10.75% for basic rate tax payers and 35.75% for higher rate tax payers. This is on top of the corporation tax paid by your companies of between 19% – 26.5%.
Due to the self-employed National Insurance being only 6% and basic rate personal tax remaining at 20%, we will check all our small limited company clients (particularly those with single directors) to make sure it still makes sense to remain limited beyond March 2026.
From 6 April 2027, a 2% increase in tax rates will be applied to property and savings income, so 22% basic rate ,42% higher rate and 47% highest rate. You will no longer be able to choose which income to set your tax-free personal allowance against; it must be set against your employment/trading income first on which the lowest rate of income tax is paid. From April 2029, you will also have to pay more tax during the tax year through your tax code whereas currently you can choose to only pay tax on your employment income during the tax year.
Making Tax Digital for Income Tax will be coming in as expected from April 2026 for sole traders and landlords with income over £50,000 in 2024/25 tax year. Pillow May will contact you in early 2026 if you will be affected.
Whilst the tax-free allowances are all frozen, the lower earnings limit and small profits threshold for National Insurance (which are the minimum earnings at which entitlements to benefits are given) are increasing to £6,708 and £7,105 respectively.
The annual ISA allowance of £20k is restricted to £12k if you only invest in cash and are under 65 years old.
A High Value Council Tax Surcharge will be introduced on residential properties in England with a value of more than £2 million from April 2028 and a “targeted valuation exercise” will be carried out by the valuation office in 2026. The annual charge will be from £2,500 to £7,500 for any properties valued at over £5 million and will be collected by the local authorities alongside council tax but paid over to central government.
Business
They did almost keep their promises (for good or bad) and so there are no changes to the corporation tax rates and last year’s roadmap confirming no changes to company tax pretty much still applies.
However there was a change to capital allowances which the writing down allowance on the main pool reducing to 14% from 18% and 40% first year allowances on new assets (when the more restrictive full expensing rules don’t apply but not cars). This shouldn’t affect most of our clients as the Annual Investment Allowance remains in place which gives 100% relief on expenditure up to £1m each year. 100% first year allowances on new electric or zero emission cars and EV chargers remain until 31 March 2027.
Penalties for late corporation tax returns will double from 1 April 2026 but at Pillow May, we try our very hardest to ensure you don’t ever pay these! Also the government is investing £2.3bn in tax enforcement specifically targeted at small businesses, where they feel most of the tax gap arises. Fortunately all Pillow May clients are automatically covered by tax investigation insurance as part of our service!
The National Minimum Wage is increasing from £12.21 to £12.71 from April 2026 for over-21s. This represents an increase of 4.1%. The government is gradually trying to remove the lower minimum wages rates for younger employees and so the rate for 18-20 year olds increased from £10 to £10.85 (8.5%) and for under 18s/apprentices from £7.55 to £8 (6%).
The main good news for small business if you employ young team members and want to train them; apprenticeships will be free for all under 25s. However beware the paperwork that you`ll need to complete in order to access this funding!!
A small administrative simplification was announced where employees can be reimbursed tax-free for the costs of any eye tests, flu vaccinations or home working equipment. Currently these are only tax-free if paid for directly by the employer. However the exemption for £6 per week tax-free flat rate home working costs reimbursement has been abolished.
The payrolling of benefits will be mandatory from April 2027 but the Pillow May team like to be ahead of the game and so most clients are already doing this!
The National Insurance exemption on pension payments made under salary sacrifice arrangements will be capped at £2,000 from April 2029. This doesn’t affect company pension contributions not managed through payroll.
A new vehicle excise duty will be introduced from April 2028 based on annual mileage at 3p per mile for electric cars and 1.5p per mile for hybrids. A whole new IT system will need to be built to calculate this duty so it may represent a change in approach to vehicle excise duty for the future. Fuel duty is frozen until September 2026 (or a decision pushed down the road again).
All VAT invoices must be sent electronically from April 2029 but this shouldn’t cause an issue for Pillow May clients who keep digital accounting records anyway.
Retail, hospitality and the leisure sectors will pay lower business rates from April 2026 and large warehouses and distributions centres will pay more to compensate.
If you are planning to sell your business to your employees using an Employee Ownership Trust, then the tax break has been halved so you will pay corporation tax on 50% of the gain or a capital gains tax rate of 12% on the whole gain. This is still lower than a trade sale to external parties on which Business Asset Disposal Relief will apply to the first £1m gain (assuming you haven’t already used your lifetime limit) and capital gains tax would be payable at 18% from 6 April 2026.
Tax relief on Venture Capital Trusts (VCTs) will decrease from 30% to 20% from April 2026 although all the eligibility limits for VCTs, Enterprise Investment Schemes & Enterprise Management Incentive schemes will increase. This probably only benefits larger businesses who are scaling up.
There is a tightening of the anti-avoidance provisions on company reorganizations & restructures planned and completed after 26 November 2026, which may impact some family investment companies in the future.
Inheritance tax (IHT)
From April 2026 and as previously announced, 100% Agricultural Property Relief (on land and property used for agricultural purposes) and Business Property Relief (on business assets and shares in unquoted trading companies) will only apply to the first £1m of value with the remainder getting 50% relief (effective rate of tax of 20% payable). However any unused element of £1m threshold can now be passed across to your spouse in line with the other IHT thresholds.
There were no changes announced for potentially exempt transfers (still IHT free if the donor survives seven years) or capital gains tax holdover relief for trading and agricultural property. Therefore it continues to be worthwhile considering lifetime gifts of these assets (and no restriction to lifetime gifts was announced either).
A reminder that pension funds which have not been drawn down or converted into annuities will be included within an individual’s estate for inheritance tax purposes from April 2027. It would be worth ensuring that you have withdrawn your 25% tax-free lump sum before that date.
Other
HMRC are finally recognizing the cost of their brown envelopes which make up around 90% of Pillow May’s post and will use digital communication by default (with an opt out available) from Spring 2026. We would recommend loading the HMRC app on your smart phone as you will then receive notification of new communication from HMRC.
As always, Pillow May will complete our Purposeful Financial Review of your affairs in February/March 2026 to ensure that your family and business finances remain as tax efficient as possible despite all the changes.