The recent Autumn Budget delivered stability for businesses but introduced several measures that will impact SME owners, employers, and individuals. While markets welcomed the lack of major surprises, the changes signal higher personal taxes, increased labour costs, and reduced generosity in long-term tax reliefs. This is a summary of the key implications for SMEs and their directors:

1. Corporation Tax and Business Tax Landscape

• Corporation tax rates unchanged: main rate remains 25%; small profits rate and marginal relief thresholds maintained
• Full expensing retained, and the £1m Annual Investment Allowance (AIA) remains permanent
• R&D and Patent Box regimes unchanged

Implications:

The Budget provides welcome stability for SMEs in terms of tax planning, offering a predictable environment for financial decision-making. Capital investment decisions also remain favourable, particularly for businesses that rely on the Annual Investment Allowance (AIA) and full expensing to optimise cash flow.

2. Capital Allowances – New First-Year Allowance

What changed:

• 40% First-Year Allowance (FYA) from 1 January 2026 for qualifying expenditure.

Particularly helpful where:
o £1m AIA already fully used, or
o AIA not available (e.g., certain groups, specific assets)

• Main pool WDA reduced from 18% → 14%

Implications:

For SMEs, the changes bring more generous upfront relief for certain investments, which can help with immediate cash flow. However, this is offset by slower ongoing relief due to a reduced Writing Down Allowance (WDA) rate. Additionally, the claiming process has become more complex, so seeking professional support is strongly recommended.

3. National Minimum Wage (NMW) and Workforce Costs

What changed (from April 2026):

• NLW (21+) increased 4.1%
• NMW for 18–20s increases 8.5%; 16–17 and apprentices rise 6%
• Additional apprenticeship funding announced

Implications:

These changes represent a significant cost pressure for SMEs, particularly when combined with the National Insurance adjustments introduced earlier in the year. To manage the impact effectively, employers are encouraged to use cash flow modelling and cost forecasting tools as early as possible.

4. Enterprise Management Incentive (EMI) Schemes Expanded

What changed:

• EMI eligibility extended to include larger “scale-up” businesses, not just start-ups

Implications:

More companies can now offer tax-efficient share options, providing a valuable tool for retaining key employees. This approach is particularly helpful for recruitment and long-term retention during periods of wage inflation.

5. Employee Ownership Trusts (EOTs) – Reduction in Relief

What changed:

• CGT relief for sales to EOTs reduced from 100% → 50% with immediate effect (due to higher-than-expected cost to Exchequer)

Implications:

Selling to an Employee Ownership Trust (EOT) remains a strong succession option for SMEs, but the tax advantages are now less generous than before. As a result, careful tax modelling is essential to ensure the approach remains viable and aligned with long-term objectives.

6. Business Asset Disposal Relief (BADR)

What changed:

• CGT rate on qualifying disposals increased again: from 14% (2025) → 18% (from April 2026)

Implications:

There is now a higher tax cost on business sales, so succession planning should be reviewed without delay.

7. Personal Tax Measures Affecting SME Owners

a. Income Tax & NI Threshold Freeze to 2031

Implications:

Fiscal drag is expected to push many SME directors into higher tax brackets despite static earnings. To mitigate the impact, directors should review their remuneration strategies, considering the balance between salary, dividends, and pension contributions

b. Dividend Tax Increase (+2% from 2026)

Implications:

Dividend extraction is becoming less tax efficient, increasing the importance of regular remuneration reviews for company directors to ensure optimal tax planning.

c. Tax on Property and Investment Income

2% increases from April 2027

Implications:

Owners with rental portfolios or significant cash reserves may face higher personal tax bills, creating an opportunity to review ownership structures to ensure they remain tax efficient.

d. Salary Sacrifice Restrictions

NI relief on salary-sacrifice pension contributions capped at £2,000/year from April 2029

Implications:

For SME employers, these changes could increase National Insurance costs for businesses that make extensive use of salary sacrifice arrangements for pension funding. There has been some confusion around what qualifies as “salary sacrifice,” but to clarify: only formal salary sacrifice arrangements are affected, not standard employer pension contributions or employer matching.

8. Inheritance Tax – Major APR/BPR Restriction Affecting SME Owners

From April 2026:

• APR + BPR (combined) capped at £1m at 100% relief; value above this gets 50% relief
• Allows £2m per couple due to new transferability

Implications:

Family businesses and farms with values above £1 million (or £2 million for couples) could face significant exposure to Inheritance Tax, making this a strong prompt to review succession and estate planning now. In addition, trust planning rules have been tightened, adding complexity to future arrangements.

Pensions brought into IHT from 2027

Implications:

Large, untouched pension funds may create unexpected Inheritance Tax liabilities, so SME owners are advised to consult financial planners to determine whether withdrawing or restructuring pension assets would be beneficial.

9. ISA Changes

• Cash ISA limit reduced to £12k (under 65s)
• Stocks and Shares ISA allowance remains £20k combined
• Lifetime ISAs to be scrapped pending consultation

Implications:

Directors who use ISAs for personal wealth-building may need to rebalance their investment strategy to maintain tax efficiency.

Build Confidence in Your Future Planning

The recent changes highlight the importance of proactive tax and financial strategies for both SMEs and individuals. To build confidence in your future planning, we strongly encourage you to seek guidance from a trusted business adviser. Streets are highly experienced in supporting businesses and individuals through complex tax and succession planning, ensuring decisions are both informed and effective. For expert advice tailored to your circumstances, please email info@streets.uk.