Autumn Budget 2025: key updates for small businesses

Emily Coltman FCA
Chief Accountant

Despite months of rumours and an unprecedented leak of tax and spending plans before her speech, Chancellor Rachel Reeves still had plenty of surprises for small businesses in her Autumn Budget.

Instead of the much-trailed one-off rise to Income Tax, the Chancellor revealed a plan for “rebuilding the economy” that featured a whole range of revenue-raising measures. 

We’ve picked through the Chancellor’s Budget Day speech, the HM Treasury reports and that leaked report from the Office for Budget Responsibility, to save you the trouble. These are the key changes we think small businesses and landlords should know about.    

• Personal tax thresholds frozen for longer, pulling more into higher tax bands 
• Tax rates on income from assets rising
• Employers facing increased wage bill with pay rise for millions of workers
• Making Tax Digital updates
• Major pensions change as salary sacrifice capped at £2,000
• Customs duty change to level the playing field for UK retailers
• Increased costs for electric vehicle drivers with new pay-per-mile tax, as fuel duty freeze remains
• Free apprentices for small businesses in England
• Changes to how Self Assessment liabilities are paid
• Lower business rates for small businesses in England
• Minimum wage boosted, rail fares frozen and energy bills cut to boost economic growth

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, more people can be pulled into paying higher rates over time as their wages rise with inflation - this is known as ‘fiscal drag’.  

What are the current rates and thresholds for Income Tax and National Insurance? 

You can see the current rates and thresholds on our UK tax rates tracker page including rates for Scotland, which sets its own bands. The Scottish Government is currently preparing its draft budget for 2026/27 - due to be published in January.

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.

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

No late submission penalties for quarterly updates in 2026/27

Making Tax Digital (MTD) for Income Tax will become mandatory for most sole traders and landlords earning more than £50k from April 2026. The new rules will require those individuals to submit quarterly updates - a summary of their business income and expenses - to HMRC, using compatible software. 

However, the government will not apply late submission penalties for quarterly updates during the 2026/27 tax year - meaning that penalties will apply from April 2027.

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.

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). This might sound technical - but it has real implications for both employee’s and employer’s NI.

What is salary sacrifice? 

Salary sacrifice - sometimes known as salary exchange - is a government-backed arrangement that allows both the employer and their employees to save on tax and NI. 

Employees accept a lower salary on paper - their ‘gross salary’ - with the difference going into their pension or other benefits, such as childcare vouchers, cycle-to-work schemes or company cars. They only pay tax and employee’s NI on the salary after the sacrifice, boosting take-home pay. 

Employers also only pay employer’s NI on the lower gross salary figure, therefore reducing their NI contributions.

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? 

Salary sacrifice is widely used by employees to boost their pension contributions. 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.

Customs duty change to level the playing field for UK retailers

The UK will abolish its import ‘de minimis’ rules, which currently mean cheap imports below £135 avoid paying customs duty. Big UK high street names including Next, Monsoon and Superdry support the cancellation of this relief, which they argue has been exploited by Chinese fast-fashion outlets like Shein and Temu. 

More than 1.6 million parcels enter the country every day using the current tariff exemption. UK retailers argue these cheap imports are flooding the market and creating an unfair playing field.  

The change follows similar moves by both the United States and European Union. The US rules came into force from August this year and have already had a negative impact on micro and small businesses in the UK, as every US-bound parcel now attracts customs duties and fees.

In contrast, the abolition of the UK’s de minimis rules could be good news for some UK businesses as more customers may buy from British businesses rather than importing their purchases. However, UK businesses who rely on imports to make their own products could face increased charges. 

When will this come into effect?

Couriers including the Royal Mail, DHL Express and Evri warned a sudden scrapping of the rules could lead to border disruption, disarray in delivery operations and increased postage costs. Reeves said the customs changes will not come into effect until March 2029 “at the latest”.

Increased costs for electric vehicle drivers with new pay-per-mile tax, as fuel duty freeze remains

Reeves announced new charges of 3p per mile for all electric vehicles (EV) and 1.5p per mile for plug-in hybrids. The new Electric Vehicle Excise Duty (eVED) is intended to make up for lost fuel duty from petrol and diesel car drivers, as more people shift to the more environmentally friendly options. It will see EV and hybrid drivers charged per mile, alongside their existing Vehicle Excise Duty, which they have been liable for since April 2025. The move will raise £1.4bn, according to the OBR.

It is currently unclear how the new per-mile charge will be measured. 

All new cars will have to be electric or hybrid from 2030, when a ban on the sale of new petrol and diesel cars comes into force. 

Meanwhile, there was some good news for petrol and diesel car drivers, as the Chancellor confirmed fuel duty will remain frozen at its current rate. The 5p rate cut first introduced by Rishi Sunak will remain until the end of August 2026. The planned fuel duty increase in line with inflation for 2026/27 has also been cancelled. 

Reeves also announced a Fuel Finder website that will allow motorists to compare prices at different fuel stations.

When will this come into effect?

Per-mile charges for EVs and plug-in hybrids will apply from April 2028.

Free apprentices for small businesses in England

Small businesses will be able to take on young 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.

Changes to how Self Assessment liabilities are paid

Income Tax Self Assessment taxpayers with Pay As You Earn (PAYE) income may have to pay more of their Self Assessment liabilities in-year via PAYE from April 2029. 

The government has announced plans to publish a consultation in early 2026 about this change and on ‘timelier tax payment for those who only have Self Assessment income’. Whether this could be a pointer to more frequent payments under Making Tax Digital for Income Tax is as yet unknown.

Government consulting on payment of VAT liabilities too

There will also be a consultation in early 2026 on more prompt payment of VAT and PAYE liabilities including requiring more payments by Direct Debit.

Lower business rates for small businesses in England

From April 2026, business rates bills in England will be updated to reflect changes in property values since the last revaluation in 2023. This may mean increased bills for some businesses whose property has increased in value. 

However, there will also be a decrease in the business rates multiplier - the figure used to calculate the amount of business rates a non-domestic property owner must pay - for all but the most valuable properties. The small business multiplier will decrease from 49.9p in 2025/26 to 43.2p in 2026/27, and the standard multiplier will decrease from 55.5p to 48p.

Decreased rates for smaller businesses will be funded by increases for the most valuable properties – those with rateable values of £500,000 and above. This will affect the top 1% of properties, capturing large Amazon warehouses and the like.

An extra boost for retail, hospitality and leisure 

Reeves announced “permanently lower” business rates for small retail, hospitality and leisure (RHL) businesses. She said the change will be worth nearly £900 million a year and will benefit over 750,000 properties - including high street shops and pubs. 

The new rules will see business rate multipliers set at 5p less for RHL businesses in comparison with their national equivalent. 

When will this come into effect?

The new rates will apply from April 2026, when the small RHL business multiplier will fall to 38.2p. Business rates are devolved, so decisions for Scotland, Wales and Northern Ireland will be made by their respective Parliament / Assemblies.

Measures to tackle the cost of living crisis and boost growth

Reeves announced a suite of measures designed to get to grips with the continuing cost of living crisis. These included the rise in minimum wage, the first rail fares freeze for 30 years, a £150 cut to the average household energy bill and scrapping the controversial two-child benefit cap. Small businesses will be hoping improved living standards mean more spending power and more growth in the economy.

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