Autumn Budget 2025: Expert Insights for SMEs

Business Tax

This budget marks another significant shift in the corporation tax landscape, particularly for owner-managed and entrepreneurial businesses.

Capital allowances and investment

The reduction in the main rate of Writing Down Allowances from 18% to 14% from April 2026 reduces tax savings. However, retaining full expensing and a new 40% first-year allowance offers some mitigation. Slower tax relief on investment means more profit brought into charge earlier, increasing the tax cost of growth-oriented capital expenditure.

Dividend taxation

The rise is dividend tax rates by 2% on the basic and higher bands from April 2026 narrows the long-standing tax advantage of taking income as dividends rather than salary. Combined with frozen tax thresholds and wider income-tax changes, the Government is clearly moving towards equalising the taxation of labour and investment income, and this will impact how owner-managed companies structure profit extraction going forward.

NICs on pension contributions

Business owners will also be stretched by the decision to apply both employers’ and employees’ National Insurance contributions to pension contributions above £2,000 where salary sacrifice is used. For many SMEs, pension contributions form a key part of attracting and retaining staff. Bringing NICs into scope above this threshold increases employment costs and adds complexity to reward structures.

Employee Ownership Trusts (EOTs)

The cut to Employee Ownership Trust (EOT) CGT relief from 100% to 50% is a significant blow to the employee ownership sector. It is likely to generate very little in tax revenue but will heavily impact the attractiveness of EOTs as a succession planning tool. Sales into EOTs will clearly decline. Given the additional restrictions introduces last year, it is surprising to see such a significant reduction in relief. From here on, we are likely to see EOT transactions only where founders genuinely believe in employee ownership as a long-term governance model.

EMI: A bigger, more flexible tool for retaining talent

From April 2026, EMI will become accessible to a much larger pool of companies, with:

• The qualifying employee limit doubling to 500
• The gross assets threshold quadrupling to £120 million
• The company-wide share option limit doubling to £6 million
• Maximum option life extended to 15 years – including for existing schemes
• And, from 2027, the removal of the burdensome EMI notification requirement

For scaling companies, particularly those competing for specialist talent, this provides a powerful, tax-efficient tool to attract, retain and reward staff in a way that was simply not feasible under the previous limits.

EIS: A major boost to investment capacity

The EIS changes are even more dramatic. From April 2026:

• The annual investment limit will rise to £10 million, and £20 million for Knowledge-Intensive Companies
• The lifetime company limit will double to £24 million (or £40 million for KICs)
• The gross assets test will increase to £30 million pre-investment and £35 million post-investment

This tenfold increase for many companies signals a clear Government intention to support early-stage and high-growth businesses through private investment rather than public subsidy.

Conclusion

Taken together, these measures amount to a tightening of the corporate tax regime at almost every stage: investment reliefs are reduced, the extraction of profits is more heavily taxed, pension contributions become more expensive, and long-standing succession incentives have been curtailed. While the Government argues these steps broaden the tax base, they risk curtailing growth for SMEs.

Nick Wright, Director, Jerroms Miller Specialist Tax

Temporary Non-Residence Rules

Somewhat hidden in budget press releases was a significant change to the Temporary Non-Residence Rules (TNR), specifically rules relating o dividends paid to non-UK tax residents from close companies.

Currently individuals who returned to the UK after a temporary period of non-residence (broadly five years or less) would, along with certain other sources of income and gains, be taxed on dividend income in the year return. An important exception to this was dividends paid out of ‘post departure trade profits’; such dividends would not be taxed in the year of return, even if the individual had resumed tax residency within five year.

The new proposals will, from 6 April 2026, remove the exclusion for the post departure trade profits, resulting in all dividends being taxed in the UK in the year of return at the prevailing rate of tax. This has been described as closing a ‘loophole’, although it was never a loophole as such, but an intended consequence of the legislation when it was first introduced in 2013. This change could have important consequences for anyone who has left the UK who is caught by the TNR – such individuals will need to carefully review their circumstances to avoid a surprise tax liability.

Adam Bonell, Private Client Partner, HW Fisher

Personal Taxes

Whilst the main rates of income tax have remained unchanged, extending the freeze on tax thresholds will mean that everyone is going to see an increase in the amount of tax they are paying.

The cap of £2,000 for salary sacrifice pension contributions has been confirmed and whilst the Chancellor suggested this was aimed at those with substantial bonuses, it will also be a further cost to employers and possibly discourage those who are looking to save for the future.

Overall this year’s Budget delivered a collection of small tax tweaks and changes which will undoubtedly increase complexity and costs for SME clients.

We’ll be working hard to assess exactly how the 2% increase in rental, saving and dividend income will affect our private clients.

Sam Stent, Tax Advisory Partner, Scrutton Bland

Stealth Tax Rises

One of the most important messages for SMEs from this year’s Budget sits between the lines: the freeze on Income Tax and NIC thresholds until 2030/31. Although the Chancellor avoided increasing the main tax rates, the extended freeze means many business owners and their teams will still see their overall tax bills rise.

For SMEs, this has two clear effects. First, employment costs will continue to rise as more staff drift into higher tax brackets, putting additional pressure on wage expectations at a time when margins are already tight. Second, many owner-managers will find more of their own income taxed at higher rates, reducing the net benefit of extracting profits from the business.

This sits alongside a further shift towards taxing our non-labour income. Dividend, savings and property income will se a 2% rate increase over the coming years. For SMEs where dividends form part of the remuneration strategy, this narrows the gap between salary and dividends and will require a fresh look at extraction planning.

Taken together, these measures point towards a more expensive landscape for business owners: higher employment costs, tighter cashflow, and fewer tax-efficient routes to reward themselves and their teams.

For SMEs, keeping a close eye on remuneration structures and forward planning will be essential to staying ahead of the curve.

Gordon W Buist, Partner, EQ Accountants

Inheritance Tax

Inheritance Tax continues to feel like a moving target, and the latest updates do little to change that impression. With the nil rate band and residence nil rate band now frozen until 2031, more families will find themselves drifting into the IHT charge simply because asset value keeps rising. It’s classic fiscal drag, and it means proactive planning is becoming increasingly important rather than optional.

The extension of the £1 million cap on Business Property Relief and Agricultural Property Relief to 2031 was widely expected, but the real game-changer is the new ability for spouses to transfer unused APR and BPR between them. This finally brings these reliefs in line with transferable nil rate band and removes a long-standing complication in estate planning.

It will make life easier for many families, although it still makes sense for spouses to keep estates relatively balanced to avoid unnecessary pressure on the survivor.

On the trust side, the government is tightening the net. A net £5 million cap on certain chargers for pre-30 October 2024 excluded property trusts offers some certainty, but new anti-avoidance measures show a clear intention to close perceived loopholes, particularly around asset situs changes and non-UK structures.

Restricting the charity exemption to UK bodies reinforces this direction of travel.

Overall, the theme is clear: simplification in some areas, tighter rules in other, and a continued push to broaden the IHT base.

Lisa Wilson, Partner and Head of Tax, Cowgills

Innovation Taxes/R&D Tax Relief

This budget signals a strong commitment to innovation and AI while maintaining stability in the R&D tax regime. The £2 billion investment in public compute, £137 million for AI in science, and faster grant decision-making show a clear intent to accelerate discovery and strengthen the UK’s research ecosystem. Businesses can plan with confidence knowing the R&D framework remains steady.

For Northern Ireland, the measures were concrete: £310 million for City and Growth Deals, a new Enhanced Investment Zone expected to create over 1,000 jobs, and targeted funding for the Belfast-Derry corridor and GB-NI trade.

Together, these commitments from the UK Government to NI provide a genuine boost to our R&D-intensive sectors, balancing ambition with certainty for companies investing in innovation.

Caroline Keenan, Tax Partner, Sumer Northern Ireland

Read our full budget summary here.