Autumn Budget 2025: Key Tax Changes and Impacts for Small Businesses in the UK
Announced by Chancellor Rachel Reeves on 26 November 2025 – Insights from Harkia Chartered Accountants, London
Overview of the Autumn Budget 2025
The Autumn Budget 2025, delivered by Chancellor Rachel Reeves, focuses on economic stability, investment incentives, and closing tax gaps while supporting small businesses and growth. Key themes include tax threshold freezes until 2031, capital allowance adjustments, and enhanced compliance measures. As an ICAEW-chartered firm in London (harkia.co.uk), we specialise in helping SMEs, startups, sole traders, limited companies, partnerships, LLPs, landlords, and charities navigate these changes.
This blog covers all major updates, including lesser-known impacts like the cap on NIC relief for salary sacrifice pensions and VAT relief for charity donations. We've included charts, examples, and graphics for clarity. Contact us for personalised advice on UK tax changes 2025.
Sole Traders
Sole traders face higher taxes on dividends, savings, and property income, plus MTD mandates. Frozen thresholds until 2031 could increase tax burdens via fiscal drag – a lesser-reported effect on growing incomes.
Dividend and Savings Tax Increases
- Dividend rates rise by 2pp: Basic to 10.75%, Higher to 35.75% (effective 6 April 2026).
- Savings rates rise by 2pp: Basic to 22%, Higher to 42%, Additional to 47% (effective 6 April 2027).
National Insurance Contributions (NICs)
- Class 2 NICs rise to £3.65/week, Class 3 to £18.40/week (effective 6 April 2026).
- Small Profits Threshold to £7,105 (effective 6 April 2026).
- Cap on salary sacrifice pension NIC relief at £2,000/person (effective 6 April 2029) – underreported impact on self-employed pension planning.
Capital Allowances and MTD
- Writing-down allowance drops to 14% (effective 6 April 2026); new 40% FYA for assets (effective 1 Jan 2026).
- MTD mandatory for income over £50,000 (effective 6 April 2026); exemptions/deferrals for small cases to April 2027.
Example: A sole trader earning £60,000 in dividends may see an extra £400 in tax from 2026 due to the rate hike. Use our advisory services to mitigate via allowances.
Limited Companies
Limited companies benefit from venture capital expansions but face allowance reductions and higher penalties. Startups gain from EIS/VCT limit increases – a boost for growth not widely highlighted.
Corporation Tax and Allowances
- Writing-down allowance to 14% (effective 1 Apr 2026); 40% FYA (effective 1 Jan 2026).
- Loans to participators tax rate to 35.75% (effective 6 Apr 2026).
Business Rates and Reliefs
- Permanent lower multipliers for RHL: Small 38.2p, Standard 43p (effective 2026-27); higher 50.8p for £500k+ properties.
- Transitional relief caps bill increases (effective 1 Apr 2026).
Venture Capital and R&D
- EIS/VCT limits double (e.g., annual £10m/£20m for KICs; effective 6 Apr 2026).
- R&D advance assurance pilot for SMEs (spring 2026).
Example: A tech startup raising funds could access up to £20m via EIS for knowledge-intensive companies from April 2026, accelerating growth.
Partnerships (Including LLPs)
Partnerships share business tax changes, with VAT and NIC tweaks. Lesser-known: Strengthened HMRC powers against avoidance from 1 Apr 2026.
NICs and Tax Alignment
- Salary sacrifice NIC cap at £2,000 (effective 6 Apr 2029).
Capital Allowances and VAT
- Same as sole traders: 14% writing-down, 40% FYA (effective dates as above).
- New VAT relief for charity donations (effective 1 Apr 2026) – underreported perk for donating goods.
Compliance
- Transfer pricing reforms for LLPs (effective 1 Jan 2026).
Example: An LLP donating office equipment could save VAT from April 2026, benefiting cash flow.
Landlords
Landlords see separate property tax rates and MTD requirements, plus IHT on pensions – impacting succession.
Property Income Tax
- Separate rates: Basic 22%, Higher 42%, Additional 47% (effective 6 Apr 2027).
MTD and IHT
- MTD for income >£50,000 (effective 6 Apr 2026); deferrals to 2027 for small portfolios.
- Unspent pensions in IHT (effective Apr 2027).
Example: A landlord with £30,000 rental income might pay an extra £400 in tax from 2027; plan with trusts to reduce IHT exposure.
Other Clients (e.g., Charities and Startups)
Charities gain VAT relief on donations (1 Apr 2026). Startups benefit from EMI expansions: Employee limit to 500, assets to £120m (6 Apr 2026) – underreported funding aid.
- Strengthened rules on tainted donations (6 Apr 2026).
New Penalties for Late Filings and Payments
Tougher penalties to close tax gaps, affecting all – doubled for corporation tax, increased for VAT/ITSA.
- Corporation tax late filing: Doubled (e.g., £200 initial, £400 over 3 months; effective post-Budget).
- VAT/ITSA late payments: Increased to 4% at days 16/31, 10% p.a. (effective 1 Apr 2027).
- MTD: No penalties for first-year quarterly updates (2026-27).
Example: A small firm missing a CT return faces £200 instead of £100 – ensure compliance with our filing services.
How Harkia Can Help
These Autumn Budget 2025 changes could raise costs but offer opportunities. Book a consultation to optimise your strategy.
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