Labour’s Autumn Budget 2025: what it means for small businesses, employers, and directors
If you’ve felt a bit on edge about this Budget, you’re not alone. There’s been a lot of noise in the run-up; rumours of tax rises, questions about wages, and a general “what’s this going to mean for me?” feeling for business owners and working families alike.
So here’s a clear, no-fluff breakdown of the announcements that matter most. Whether you run a café, a salon, a construction firm, an online shop, or you’re a fellow bookkeeper/accountant supporting small businesses, this guide pulls out the practical points and what you might want to do next.
1) Payroll & staffing: National Living Wage rising in April 2026
The headline for employers is wages.
From April 2026, the National Living Wage (NLW) (21+) rises by 4.1% to £12.71/hour, with bigger percentage increases for younger age bands and apprentices.
What this means in real terms
Even though April 2026 feels a way off, this affects 2026 pricing, staffing plans, and cash flow right now - especially in hospitality where wages are a huge slice of costs.
A quick example:
A team member on 30 hours per week at NLW currently costs you roughly:
30 hrs × current rate (≈£12.20) × 52 weeks = ~£19k/year basic pay.From April 2026 at £12.71/hour, that becomes:
30 hrs × £12.71 × 52 = ~£19.8k/year basic pay.
That’s about £800 extra per employee per year before employer NI, pension auto-enrolment, holiday pay uplift, overtime, and the “wage ripple” (where supervisors need a bump to stay meaningfully above NLW).
Your action list now
Check your lowest pay rates against April 2026 levels.
Budget for knock-on increases for experienced staff.
Update cash-flow forecasts early so you can price properly for spring/summer 2026.
If you want, we can run a quick payroll-impact review and map out scenarios.
2) “Stealth tax” continues: income tax thresholds frozen
The Budget confirms that income tax and NI thresholds remain frozen until 2031.
Why it matters
When thresholds don’t rise with wages, more people get pulled into higher tax bands over time - even if tax rates don’t change. That’s why this is often called “fiscal drag.”
For employers, this matters because:
Staff may feel pay rises don’t go as far as they expect.
It can add pressure for bigger gross pay increases in future.
3) Dividends tax rising from April 2026 (directors take note)
If you’re a limited company director who takes profits as dividends, there’s a clear change coming.
From April 2026, dividend tax rates rise by 2 percentage points, taking:
basic-rate dividends to 10.75%
higher-rate dividends to 35.75%
(with additional rate up by the same 2 points).
The £500 dividend allowance stays in place.
What this means for you
This doesn’t hit this tax year, but it does affect how you plan 2025/26.
If you’re close to a band edge, taking a little more dividend in 2025/26 (where sensible) might keep you ahead of the rise. The right salary/dividend mix will matter more.
4) Landlords: rental income tax rising - and new bands from April 2027
Landlords are included in the same “unearned income” tax package.
Tax on property (rental) income rises by 2 percentage points over the next few years, starting from April 2026.
From 6 April 2027, new property income tax bands are introduced: 22%, 42% and 47%.
What to do now
Build the increase into your 2026/27 forecasts.
If rental income is pushing you up bands, it’s worth looking into.
We’re happy to run those numbers with you.
5) Savings tax rising (quick heads-up)
Savings interest is also part of today’s tax changes.
Savings income tax rates rise by 2 percentage points from 2027 into 2028. Most people will still pay no savings tax because allowances remain, but larger non-ISA savings pots may feel the change.
The Budget also caps Cash ISA contributions at £12,000 a year from 2027 (still within the wider £20k ISA allowance).
6) Two-child benefit cap scrapped from April 2026
A major cost-of-living change: the two-child benefit cap will be removed from April 2026.
Even though this isn’t a business tax measure, it affects household income for many working parents - which can ease financial pressure in day-to-day life.
7) Business rates: 40% relief, longer-term multiplier cuts, and a boost for growing firms
For cafés, pubs, restaurants, shops and other venues, business rates are still one of the biggest fixed costs.
40% business rates relief continues for retail, hospitality and leisure properties in 2025/26.
The Budget also confirms permanently lower multipliers for these sectors from 2026/27 onwards.
Extra help for growing small businesses: if you expand into a second property, the Small Business Rates Relief grace period extends from 1 year to 3 years.
That last point is a really nice practical win for anyone opening a second site, kiosk, workshop, or storage unit.
8) Soft drinks levy expansion (from 2028)
The Budget tightens the Soft Drinks Industry Levy (sugar tax) from January 2028.
What’s changing:
Pre-packaged milk-based drinks (bottled milkshakes and ready-to-drink lattes) are brought into the levy.
The sugar threshold drops from 5g to 4.5g per 100ml, so more products are likely to be affected.
There’s a lactose allowance, so naturally occurring milk sugars aren’t treated the same as added sugar.
Important café note: drinks made fresh and sold on-site remain exempt, so this isn’t a direct new tax on your homemade milkshakes or lattes — but supplier prices for bottled/canned products may rise over time.
9) EV tax: mileage-based charge from 2028
The Budget introduces a mileage-based road tax for electric vehicles and plug-in hybrids from April 2028.
Not immediate, but worth keeping in mind if you’re planning:
a business fleet upgrade, or
longer-term running cost comparisons.
10) Apprenticeships: training fully funded for many SMEs
A positive move for growing businesses: apprenticeship training will be fully funded for many SMEs when hiring eligible apprentices (removing the usual 5% co-investment).
If you’ve been thinking “we’d love an apprentice but training costs feel like a hurdle,” this pushes the door wider open.
11) Investing in your business: new 40% First Year Allowance (from Jan 2026)
From 1 January 2026, a 40% First Year Allowance (FYA) is introduced for most main-rate business assets.
In human terms: if you buy qualifying equipment (think machinery, kitchen kit, vehicles used for work, tech, etc.), you can claim a bigger slice of tax relief up front, rather than waiting years for full relief through writing-down allowances.
(Heads-up: main-rate writing-down relief drops from 18% to 14%, so the system is being nudged toward “claim more early, less later.”)
12) Digital & MTD: e-invoicing for VAT coming, and HMRC getting broader powers
A couple of longer-term digital changes are worth having on the radar:
E-invoicing becomes mandatory for VAT invoices from April 2029.
That means VAT-registered businesses will need invoicing/accounting software that can issue invoices in the required electronic format.From April 2026, HMRC is being given broader, more flexible powers around Making Tax Digital — particularly on penalties, exemptions, and admin rules as MTD expands.
This isn’t a relaxation of MTD — it’s HMRC being equipped to enforce and manage the rollout more actively as more people come into scope.
13) Looking further ahead: pension salary sacrifice cap (from 2029)
One for the long-term radar: from April 2029, employer and employee NICs will apply to salary-sacrifice pension contributions above £2,000 a year.
Not something most small firms need to act on yet, but worth noting if salary sacrifice is part of your setup.
What should you do next?
Here’s your quick checklist:
Employers:
Plan for April 2026 wage costs now.
Update payroll budgets and cash-flow forecasts.
Directors paid by dividends:
Review your 2025/26 extraction strategy before the April 2026 rise.
Landlords:
Re-forecast 2026/27 rental profits and note the new bands from April 2027.
Savers:
Be aware of higher savings-interest tax from 2027/28 and the Cash ISA cap from 2027.
Hospitality/retail/leisure venues:
Factor in 40% rates relief for 2025/26, the longer-term multiplier cuts, and the 3-year SBRR grace period if you’re expanding.
Considering an apprentice?
Revisit the numbers with the new full-funding support in mind.
Buying kit in 2026?
Look out for the 40% First Year Allowance when planning spend.
Need help making sense of your numbers?
Budget changes are one thing. Seeing what they mean for your business and your plans for next year is the useful bit.
If you want us to:
model your payroll impact,
sense-check dividend/salary mix,
forecast rental income after the changes, or
build it all into a clear cash-flow plan for 2026,
we’re here. Simplify your finances with RGR!
