The UK Autumn Budget 2025, announced yesterday, brings a mix of steady rates and subtle but significant changes that will impact business owners over the coming years. As widely expected, this Budget increases the overall tax take. While headline tax rates remain largely unchanged, the government is leaning on threshold freezes and targeted adjustments to raise revenue.

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

• Income Tax & NIC Thresholds Frozen
  • Personal allowance (£12,570), higher-rate (£50,270), and additional-rate (£125,140) thresholds will remain frozen until 2030–31. NIC thresholds also frozen. Please note that Scottish income tax bands and rates differ.

• • The NICs secondary threshold of £5,000 is being frozen for an extra three years until 5 April 2031.

• 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.

Impact: More sole traders and directors will be pulled into higher tax bands over time (fiscal drag), as more people are pulled into paying higher rates over time as their wages rise with inflation.

• Dividend Tax Increase (Limited Companies)
  From April 2026, dividend tax rates rise by 2 percentage points:
  • Basic rate: 10.75% (was 8.75%)
  • Higher rate: 35.75% (was 33.75%)
  • Additional rate: unchanged at 39.35%.

Impact: Owner-managers relying on dividends will see higher tax bills. Now is the time to be strategic about salary-dividend mix.

• Savings & Property Income Tax
  The government is creating separate tax rates for property income, similar to those that already exist on savings and dividend income. From April 2027, new rates apply:
  • Basic: 22%
  • Higher: 42%
  • Additional: 47%

Impact: Relevant for landlords with rental income (where property is on their personal name) or significant savings.

• Salary-Sacrifice Pension Cap
  From April 2029, only the first £2,000 of salary-sacrificed pension contributions per employee will be NI-exempt. Above that, employer and employee NI applies.

• Individual Savings Accounts

For 2026/27, the limits are as follows:

• • Individual Savings Accounts (ISAs) £20,000
  • Junior ISAs £9,000
  • Lifetime ISAs £4,000 (excluding government bonus)
  • Child Trust Funds £9,000.

These limits will remain frozen until 5 April 2031.

From 6 April 2027, the annual ISA cash limit will be set at £12,000. The remaining £8,000 will be designated for stocks and shares ISA investment. This restriction will not apply for those over the age of 65, where the cash ISA limit will remain at £20,000.

Corporation Tax & Business Reliefs

• Corporation Tax Rate stays at 25% (lowest in G7).

• Capital Allowances
  • New 40% First-Year Allowance for main rate assets from Jan 2026.
  • Writing-down allowance drops from 18% to 14% from April 2026.

• Annual Investment Allowance remains at £1m.

• Enterprise Incentives Expanded
  • VCT/EIS limits doubled (up to £10m annually, £20m for Knowledge Intensive Companies).
  • VCT income tax relief reduced from 30% to 20%.

• Corporation Tax late filing penalties doubled from April 2026 (e.g., £100 → £200; £1,000 → £2,000 for repeated failures).

• Making Tax Digital: Quarterly updates remain penalty-free in 2026–27, but new penalty regime applies from April 2027 for ITSA taxpayers.

• National Living Wage rises to £12.71/hour (over 21s) from April 2026.

• Business Rates: Permanent lower rates for retail, hospitality & leisure; funded by higher rates on properties over £500k.

• Fuel Duty frozen until Sept 2026, then phased reversal of 5p cut.

• Sole Traders: Frozen thresholds = higher tax over time; property/savings tax hikes from 2027; compliance costs rising with MTD penalties.

• Limited Companies: Dividend tax hike from 2026; corporation tax stable but capital allowance changes affect investment planning; pension NI cap adds cost for generous schemes.

• Overall: Budget leans on stealth taxes (threshold freezes) and targeted hikes rather than headline rate increases.

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

Proactive planning, whether through tax-efficient strategies, investment timing, or pension adjustments, will be essential to stay ahead. If you’d like tailored advice on how these changes affect your business, get in touch with MSG Accountancy today.