Rachel Reeves’ Autumn Budget 2025 introduced changes to taxation, business rates and employment law, which will significantly impact businesses and employees alike.
The changes will particularly impact employers facing higher wage bills from the increased National Minimum Wage, businesses adjusting to new salary-sacrifice limits, and SMEs navigating revised business rates.
From April 2026, the minimum wage for over-21s will increase by 50p and hour to £12.71. For workers ages 18-20, the minimum wage will rise to £10.85, an increase of 85p.
The aim is to eventually scrap the separate rate for 18-20 year olds and create a single minimum wage for all adults.
Businesses should start planning for the April 2026 increase now. The phased removal of the 18–20 rate means businesses employing younger workers will see a sharper rise in costs over time. Pay structures will need to be reviewed to maintain appropriate differentials for supervisory roles and payroll systems updated.
The amount people can contribute to their pension through salary sacrifice schemes has now been capped at £2,000 per year. Previously there was no limit in how much could be added. This will reduce how much people can add to their pensions and reduces take-home pay for those who use the scheme to stay in a lower tax band.
The introduction of a £2,000 cap significantly reduces the flexibility of salary sacrifice arrangements. Employers should communicate these changes promptly and clearly to affected staff and review existing schemes. This may impact total reward strategies and could lead to employee queries around tax efficiency. HR teams should prepare guidance and consider alternative benefits to maintain competitiveness in reward packages.
The apprenticeship levy will be replaced with a new growth and skills levy. From April 2026, employers will be able to utilise shorter 'apprenticeship units' which will initially only be available in specific areas: AI, digital and engineering. This also includes £725 million for the Growth and Skills Levy to help support apprenticeships for young people, including a change to fully fund SME apprenticeships for eligible people under 25.
The shift to a Growth and Skills Levy could offer more flexibility, particularly for digital and engineering skills. Employers should explore whether shorter apprenticeship units can support workforce planning and upskilling. SMEs benefit from full funding for under-25 apprentices, which could ease recruitment challenges. However, implementation details will matter - monitor guidance closely and plan for April 2026.
Income tax and National Insurance thresholds have been frozen until 2031, three years beyond the original planned deadline of 2028-29 and therefore breaking Labour's manifesto pledge. By freezing thresholds, as salaries increase over time, more people will reach an income level at which they start paying tax and National Insurance, with some moving into higher tax brackets as a result.
Extending the freeze on thresholds until 2031 will increase the impact of fiscal drag, pushing more employees into higher tax bands over time. Employers should anticipate questions during pay reviews and consider how this affects retention and reward strategies. Clear communication will help manage expectations.
For the duration of the current Parliament, Corporation Tax will remain capped at 25%, providing stability for those who pay it. In addition, from April 2026, the basic and higher rates of dividend tax will each increase by 2%, rising to 10.75% and 35.75% respectively.
The freeze on Corporation Tax provides certainty for those who pay it, maintaining the current headline rate and avoiding further increases during this parliamentary term. However, the planned rise in dividend tax rates from April 2026 will increase the tax burden on shareholders, particularly those in higher income brackets.
This may influence decisions on profit extraction strategies, with some businesses considering accelerated dividend payments before the rate change takes effect.
The latest budget introduces changes that will impact unincorporated businesses both at start-up and during later transitions.
Incorporated businesses can benefit from full expensing which provides for unlimited tax relief on qualifying purchases of new and unused plant and machinery, however, this incentive does not extend to unincorporated businesses. From 1 January 2026, a new 40% first year allowance will apply to main rate assets (excluding cars and second-hand items) which unincorporated businesses will be entitled to. In addition, for those businesses investing in zero-emission cars and electric vehicle charging points, the current 100% tax relief (previously due to end next spring) has been extended until 5 April 2027.
Furthermore, the current £1 million relief limit for business or agricultural property will become transferable between spouses and civil partners, offering greater flexibility when planning for the future.
These changes signal a clear push towards investment in sustainable assets and greater flexibility in succession planning for unincorporated businesses. The extended relief for zero-emission vehicles and charging infrastructure aligns with the Government’s wider net-zero objectives, while the transferable property relief offers practical benefits for family-owned enterprises.
Businesses should review their capital expenditure plans and succession strategies now to take full advantage of these measures.
The £135 low value parcel threshold for customs duty on imports will be abolished by March 2029.
This change aligns the UK with international trends, as the United States has already removed its de minimis limit and the European Union will do so from early 2026. The measure aims to address the growing influx of low value e-commerce goods from overseas suppliers.
Removing the low value threshold is expected to level the playing field for domestic suppliers and traditional retailers, who have faced competitive pressure from overseas sellers benefiting from duty exemptions.
While this may increase costs for consumers purchasing low value goods from abroad, it could encourage greater support for UK-based businesses. Businesses engaged in cross-border e-commerce should prepare for additional compliance requirements and potential cost implications as the implementation date approaches.
The chancellor’s Budget has the stated ambition of making the UK a leading hub for innovation and growth. Key measures affecting start-ups and scale-ups include:
Enterprise management incentives (EMI)
From 1 April 2026, the Enterprise Management Incentives (EMI) scheme will expand to include scale-ups, not just start-ups. The employee cap will rise to 500, the gross assets limit to £120 million, and the option holding period to 15 years. Companies can also amend EMI and CSOP agreements to allow option exercises at PISCES trading events, improving liquidity for employees.
Enterprise Investment Scheme (EIS) and venture capital trusts (VCT)
From 6 April 2026, the EIS and VCT will see significant changes. Annual company investment limits rise from £5 million to £10 million and from £10 million to £20 million for knowledge-intensive companies (KICs). Lifetime limits will increase to £24 million and £40 million for KICs. The gross assets threshold increases to £30 million before a share issue and £35 million after. Investor limits remain unchanged at £1 million for EIS (£2 million for KICs) and £200,000 for VCTs. However, VCT income tax relief will fall from 30% to 20%, while EIS relief remains at 30%.
Relief on sales to employee ownership trust (EOT)
Qualifying shareholders could sell a controlling interest in a qualifying company to the trustees of an EOT free of capital gains tax. This very generous relief has now been restricted to providing relief on 50% of the chargeable gain as opposed to 100% of the chargeable gain.
Selling shareholders subject to the availability of business assets disposal relief (BADR) will now pay capital gains tax at the rate of 24% on half of the chargeable gain they make when they sell their shares to an EOT.
Despite this change this still remains a very valuable and tax efficient relief.
Other notable measures include introducing a three-year Stamp Duty Reserve Tax exemption for newly listed companies from 27 November 2025, while the capital gains tax rate for BADR and Investors’ Relief will rise from 10% to 18% from April 2026. The British Business Bank gains £25.6bn in capacity, including £5bn for growth-stage funds, alongside a new Venture Link initiative to channel pension investment into venture capital. Pension reforms aim to unlock £160bn of defined benefit surpluses for UK innovation, and regulatory changes pledge to cut £5.6bn in administrative burdens by the end of parliament.
These measures tackle two critical pain points: talent retention and access to scale-up capital. Expanding EMI eligibility will help high-growth businesses compete for skilled employees, though the delayed start until April 2026 may blunt immediate impact.
Similarly, higher EIS and VCT limits should unlock more follow-on funding, but without deeper liquidity and more attractive UK listings, later-stage capital may still flow overseas. Pension fund unlocking is promising, but success will hinge on execution.
For more information, please contact the corporate, commercial or employment team.
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