The Chancellor delivered Budget 2025 on November 26th, and while the government focused on “growth” and “stability,” the reality for small business owners is more challenging.
Building on last year’s National Insurance increases and minimum wage rises, this budget adds further pressure to already squeezed margins.
The Good News (Yes, There Is Some)
Business Rates Relief for Retail, Hospitality & Leisure
The government is making business rates permanently lower for retail, hospitality and leisure properties. This is funded by higher rates on expensive properties like large warehouses used by online retailers.
If you run a shop, restaurant, pub or hotel, this could provide meaningful relief.
Corporate Tax Roadmap Maintained
The government has stuck to its commitments in the corporate tax roadmap, keeping the main Corporation Tax rate at 25%. For planning purposes, this stability is valuable.
Investment Incentives
From January 1st 2026, there’s a new 40% first-year allowance for main-rate assets (though this comes with a reduction in the main rate of writing down allowances from 18% to 14%). The government is also introducing UK Listing Relief from Stamp Duty Reserve Tax to encourage scaling companies.
The Challenges Pile Up
Minimum Wage Increases (Again)
From April 2026, the National Living Wage rises to £12.71 per hour (up from £12.21). That’s a 4.1% increase on top of last year’s rises. For a full-time employee, that’s an extra £900 per year in gross wages you’ll need to find.
With 2.4 million workers expected to benefit, this isn’t a small group. If you employ minimum wage staff, you’re facing another year of increased payroll costs – coming right after last year’s National Insurance hikes.
National Insurance Threshold Freeze Extended
Remember the NI secondary threshold freeze announced last year? It’s now being extended for another three years until 2031. This means you’ll continue paying employer National Insurance at 13.8% on lower wage levels, with inflation pushing more of your wage bill into the taxable zone year after year.
Income Tax Thresholds Frozen (Again)
Personal tax thresholds are frozen until April 2031 – another three-year extension. This “fiscal drag” means your employees’ take-home pay is being squeezed by inflation, potentially forcing you to offer higher gross wages just to maintain their real-terms income. It also means you might cross tax thresholds sooner than expected if you’re self-employed or taking dividends.
Higher Dividend Tax
If you take income from your business through dividends (as many directors do for tax efficiency), the ordinary and upper dividend tax rates are increasing by 2 percentage points from April 2026. The new rates will be:
- Ordinary rate: TBC (currently 8.75%, likely 10.75%)
- Upper rate: TBC (currently 33.75%, likely 35.75%)
Capital Gains Tax on Business Sales
While not directly in this budget, it’s worth remembering last year’s CGT increases still apply. If you’re planning to sell your business, Business Asset Disposal Relief (entrepreneurs’ relief) has been reduced, and from April 2026, the rate rises to 18% (matching the main lower CGT rate).
The relief for Employee Ownership Trust disposals has been cut from 100% to 50%, making that exit route less attractive.
Hidden Costs in the Small Print
Corporation Tax Capital Allowances Changes
While the 40% first-year allowance is positive, the reduction in the main rate of writing down allowances from 18% to 14% means the tax relief on equipment and plant is being spread more thinly over time. This could impact cash flow.
VAT Changes for Ride-Sharing Apps
If you operate as a private hire vehicle operator acting as a “principal,” you’ll need to pay VAT in the standard way from January 2nd 2026, closing a loophole some operators were using.
Business Investment Headwinds
The OBR forecasts business investment will actually decline by 0.4% in 2026, suggesting the private sector isn’t confident about the environment for growth despite government rhetoric.
What Should You Do?
- Review your payroll budgets now – Factor in the April 2026 minimum wage increase and the extended NI freeze
- Model your dividend strategy – With rates rising in April 2026, consider whether to accelerate or defer dividend payments
- Check your business rates – If you’re in retail, hospitality or leisure, ensure you’re claiming the lower rates
- Review capital investment plans – The new 40% first-year allowance could make early 2026 a good time for qualifying purchases
- Plan for continued pressure – With frozen thresholds until 2031, budget for ongoing “fiscal drag” impacts
The Bottom Line
This budget continues the squeeze on small businesses that began last year. While there are some targeted reliefs, the combination of rising minimum wages, frozen tax thresholds, higher dividend taxes, and reduced capital allowances means margins will remain tight.
The government’s focus on “growth” will ring hollow for many small business owners dealing with the practical realities of higher costs and limited room to absorb them.
Need help navigating these changes or reviewing your business finances? Get in touch with Acorn.finance for expert advice tailored to your situation.