The Budget has once again reminded small business owners that resilience is part of the job description. There are a few helpful tweaks, but also some tough measures that land squarely on the shoulders of people who keep the economy moving. The income tax threshold freeze is one of the clearest examples. At Collective Concepts we do not sit on the fence. We help you understand what has changed, what it means for you and what you can do to stay confident and in control of your finances.

Headline numbers

Pension Salary-Sacrifice Cap. From 6 April 2029, the Government will cap pension salary-sacrifice eligible for NI relief at £2,000 per person, per tax year. Anything above that will be hit with employer National Insurance.

Savings Income - Rates Going Up. From 6 April 2027, savings income tax rates rise by 2 percentage points: 22% basic, 42% higher, 47% additional.

Property Income Tax - Separate Bands Introduced. From 6 April 2027, property income will have its own rates: 22% basic, 42% higher, 47% additional.

Dividend Tax - Higher Costs for Business Owners. From 6 April 2026: 

Ordinary dividends: 8.75% → 10.75%

Upper rate: 33.75% → 35.75%

Additional rate unchanged at 39.35%

Non-resident dividend tax credit abolished

From April 2027, income tax reliefs applied to salary before dividends

Income Tax – Freezes Continue until 2031. Personal Allowance £12,570, Higher rate threshold £50,270, additional rate threshold unchanged at £125,140. These freezes quietly act as tax rises as inflation pushes incomes upward.

No major VAT surprises for SMEs

EMI scheme expanded with higher limits and reduced admin

VCT & EIS limits increase from April 2026 (though VCT income tax relief drops to 20%)

The headline changes small businesses need to know

Dividend tax is going up for business owners

Business owners extracting profits via dividends will feel this one directly.

From 6 April 2026:

• Ordinary dividend tax rises from 8.75 per cent to 10.75 per cent
• The upper rate rises from 33.75 per cent to 35.75 per cent
• The additional rate remains at 39.35 per cent
• The non-resident dividend tax credit will be abolished

And from April 2027, income tax reliefs will apply to salary before dividends, which will reshape the order in which income is taxed.

This means that many business owners will pay more when taking dividends in the years ahead.

As an example, assuming you take a director salary of £12,570:

A £50k dividend will mean £748.60 more tax (2% x £37,430)

A £100k dividend will mean £1,748.60 more tax (2% x £87,430)

Action: Revisit your remuneration planning. You may need to reshape the balance between salary, dividends and pension contributions to keep your overall tax position efficient.

Pension salary sacrifice cap: a major change is coming

This is one of the biggest announcements for employers. From 6 April 2029, the Government will cap the amount of pension salary-sacrifice that qualifies for National Insurance relief. Only the first £2,000 per person, per tax year will be eligible. Anything above that will attract employer NIC.

This is a significant shift. Many businesses rely on salary sacrifice to reduce payroll costs and boost pension savings for their teams. As the cap approaches, the cost of topping up employee pensions through salary sacrifice will rise.

Action: Review your workplace pension arrangements well ahead of time so you are not hit with unexpected NIC bills when the change arrives. However, remember that paying staff pension contributions via salary sacrifice is still well worth doing, certainly as 2029 is a long way away.

Savings income tax rates are increasing

From 6 April 2027, the tax rates on savings income will go up. The basic rate will rise to 22 per cent, the higher rate to 42 per cent and the additional rate to 47 per cent. For many individuals who have benefitted from higher interest rates on savings accounts, this will take a noticeable bite.

This also affects business owners who keep higher balances in savings or rely on interest as part of their financial planning.

Action: Keep close track of the interest you earn. Rising rates may push you into a tax bill you were not expecting or make certain accounts less worthwhile.

Property income tax gets its own rates

Landlords and property investors face a separate tax structure from 6 April 2027. Property income will sit in its own set of tax bands at 22 per cent, 42 per cent and 47 per cent.

For landlords with slim margins, this will sting. Rising costs, regulation and now a higher tax take could turn some properties from profitable to loss making. 

As an example, if you have a £40k salary and £10k rental profits, you will pay an extra £200 more in tax.

If you have a £60k salary and £20k rental profits, you will pay £400 more in tax. 

Note that this is only for properties owned personally, so it may be worth considering starting a company for your rental property.

Action: Reassess the performance of each property in your portfolio. Marginal units may no longer make financial sense once these rates take effect.

Income tax threshold freezes continue

There is no movement in the main income tax thresholds. The Personal Allowance remains frozen at £12,570 until 2031. The higher rate threshold will stay at £50,270 and the additional rate threshold at £125,140.

When thresholds stay still but incomes rise, you quietly drift into higher tax. This is a real pressure point for employees and directors alike.

Action: Factor this into pay reviews, director drawings and long term planning. The freeze is effectively a tax rise, so build that into your forecasts.

VAT: no major surprises

After weeks of speculation, the VAT registration threshold remains unchanged. There are no increases, no cuts and no sudden traps. For many small businesses, this is a relief. With costs rising elsewhere, stability in VAT is welcome.

Action: If you are edging close to the threshold, keep detailed turnover tracking in place so you know exactly when you will cross it. No one needs a surprise VAT registration.

EMI, VCT and EIS: good news for those planning ahead

The Enterprise Management Incentive scheme is being expanded with higher limits and reduced admin. This is very helpful for fast growing businesses wanting to use share schemes to retain talent.

VC (Venture Capital Trust) and EIS (Enterprise Investment Scheme) limits will increase from April 2026. The only caveat is that VCT income tax relief will drop to 20 per cent, but access to investment should improve for businesses who rely on these channels.

Action: If you are planning to raise investment or offer share options in the next couple of years, the new rules may give you more flexibility.

Capital allowances: full expensing plus new rules

On capital allowances, the message is “more of the same, with some tweaks.” Full expensing has been retained for companies, which means many incorporated businesses can still claim 100 % relief in year one on qualifying new plant and machinery, with 50% for certain special rate assets. 

Alongside that, the Autumn Budget introduces a new 40% first year allowance from 1 January 2026 for main rate expenditure. This is designed to help unincorporated businesses and those using assets for leasing, who cannot use full expensing. At the same time, the main writing down allowance rate is being reduced from 18% to 14% from April 2026, which will slow relief for expenditure that does not qualify for these upfront allowances.

The practical takeaway is that timing and structure of investment matter. For many small businesses, using full expensing (if you are a company) or the Annual Investment Allowance will still be the main ways to secure quick tax relief on equipment, vehicles and other kit.

Energy: help for households, less direct support for business

A lot of the Budget headlines on energy focus on households. The government is cutting average domestic bills by around £150 a year by ending the Energy Company Obligation scheme and shifting most of the domestic Renewables Obligation cost into general taxation, alongside extra funding for the Warm Homes Plan.

For businesses, there is less immediate excitement. Commercial energy costs are not directly reduced by these measures and there are no big new schemes for SME energy efficiency. Analysis from energy specialists notes that while the policy direction is clearer, there are no fresh grants or tax breaks specifically aimed at business upgrades in this Budget. 

That does not mean you should ignore energy. It just means that decisions about efficiency, solar, batteries or low carbon heating still need to be based on your own numbers rather than expecting new government help to close the gap.

What you should consider doing now



Refresh your cash flow and tax forecasts

There are multiple changes coming in at different times. Some hit in 2026, others in 2027 or 2029. Good planning will soften the blow. Review your forecasts so your cash flow reflects future dividend tax rises, salary sacrifice limits and savings income changes.

Revisit your remuneration strategy

Between the dividend increases and income tax threshold freezes, many business owners will be paying more tax unless they adjust their planning. A review with us now could save you a lot later.

Look at your investment and savings structure

Savings taxes rising in 2027 could change which accounts are worthwhile. For landlords, rising property income tax may alter how you hold or structure your properties. For investors, EIS or VCT changes may open or close certain options.

FAQs on the 2025 Budget for small businesses

Will my taxes go up this year?
There is no rise in the main corporation tax or VAT rates, but frozen income tax and NIC thresholds, plus dividend and savings tax changes, mean many owners will pay more overall. It is worth modelling your personal and business tax position.

Is it worth deregistering from VAT now?
If your turnover is near the deregistration threshold it might be an option, but it depends very much on your business model and costs. Service based businesses may benefit, while product businesses might lose out on reclaiming VAT on inputs. Always seek advice before deciding.

Will salary sacrifice still be worthwhile?
Yes, but the benefit becomes limited once the new NIC cap is introduced in April 2029. It remains useful, but only up to the first £2,000 of sacrificed pension contributions each year.

Does full expensing apply to everyone?
No. Full expensing is for companies buying new qualifying plant and machinery. Sole traders and partnerships usually rely on the Annual Investment Allowance or, in future, the new 40% first year allowance.

Is this a good time to invest in technology or equipment?
For many businesses, yes. With full expensing, a generous Annual Investment Allowance and a new first year allowance on the way, there are still strong tax incentives to invest. The key is to line up the timing and structure with your overall tax and cash flow plan.

If would like to find out how the Budget affects your business finances, please get in touch.