On 26 November, Chancellor Rachel Reeves delivered the Autumn 2025 budget (“Budget”), which introduced a mix of anticipated changes and some surprising reforms that businesses will need to carefully consider when planning for the future.
The Budget marks a pivotal moment in the UK’s economic strategy, with new policies aimed at driving investment, supporting growth, and tightening regulatory controls. Whilst some measures will provide much-needed relief to specific sectors, others signal a shift towards higher tax burdens and stricter compliance for companies and shareholders.
For business owners, directors, and investors, the Budget brings both opportunities and challenges.
Whether it’s the increased tax rates on dividends, the extension of investment incentives, or changes to business rates for key sectors like retail and hospitality, each reform requires careful attention and strategic planning.
Our Corporate Lawyers offer an overview of the key tax and regulatory changes introduced in the Budget and provide practical considerations for long-term business planning in light of these new developments based on the information we have been provided with to date.
Tax implications
As widely anticipated, Rachel Reeves announced a three-year extension of the freeze on income tax and national insurance thresholds, meaning the current thresholds will remain in place until 2030/2031. The rates of income tax, national insurance and VAT have not been increased.
Dividend Tax Increases
The basic and higher rates of dividend tax will rise by 2 percentage points, increasing to 10.75% and 35.75%, respectively, starting in April 2026.
This change means that shareholders will face a higher personal tax liability on dividend income, making dividends less "tax-efficient" than before.
As a result of this, business owners may rethink their approach to profit extraction, with a greater incentive to reinvest profits back into the business rather than drawing them as dividends.
This shift in tax treatment could lead to changes in shareholder behaviour, with potential impacts on dividend policies and long-term financial planning. Notably, the £500 dividend allowance remains unchanged.
Savings Income Tax Rise
Additionally, from April 2027, the tax rate on savings income will also increase by 2 percentage points across all income bands, further raising the overall tax burden for shareholders and investors. This growing tax burden on income from investments will be an important consideration for both business owners and shareholders when planning for the future.
Corporation Tax and Compliance Penalties
The Government has reaffirmed that the corporation tax rate will remain capped at 25%. However, a significant change to note is that the penalty for late submission of corporation tax returns will double from 1 April 2026.
This increase in penalties underscores the growing importance of timely and accurate tax reporting for businesses. Companies will need to ensure that their compliance procedures are robust to avoid additional financial penalties and reputational risks.
Business Rates Relief for Retail, Hospitality and Leisure
From April 2026, business tax rates will be permanently lowered for over 750,000 retail, hospitality, and leisure properties, a measure that is expected to save businesses nearly £900 million annually in reduced business rates.
This change will provide significant relief to property-heavy businesses in these sectors, improving their cash flow and strengthening their overall viability.
The reform specifically targets smaller properties with a rateable value below £500,000, which could influence future property strategies and expansion decisions.
For businesses in these industries, this relief could make a real difference in managing operational costs and could potentially encourage investment in property or new locations.
40% First Year Allowance
The Government has introduced a 40% first-year allowance for businesses investing in qualifying plant and machinery. This measure enables companies to write off 40% of the cost of eligible assets in the first year, offering immediate tax relief.
The aim is to encourage investment by reducing the upfront tax burden, particularly for businesses in sectors reliant on machinery, technology, or capital-intensive assets.
By improving cash flow and incentivising capital expenditure, this allowance supports long-term growth strategies and encourages businesses to reinvest in their operations.
However, companies must ensure they meet the eligibility criteria and properly integrate this tax incentive into their financial and investment planning.
Enterprise Management Incentives (EMIs)
It was announced that the company's eligibility limits for EMIs will be increased with effect from 6 April 2026, which will expand the pool of employees who can receive tax-advantaged share options granted after this date.
Measures include improving the limit on company options from £3 million to £6 million, increasing the limit on gross assets from £30 million to £120 million and increasing the limit on the number of employees from 250 to 500.
The aim of these measures is to incentivise employees in larger companies and scale-ups, as well as start-up companies and to aid the continued scale-up and growth of companies.
UK Listing Relief and ISA reform
The Government has introduced a three-year stamp duty reserve tax exemption for newly listed firms with the aim of boosting liquidity and driving more overseas investment to the UK markets.
In addition to the £20,000 annual tax-free allowance for ISAs for the under-65s, the amount that can be put into cash ISAS shall be capped at £12,000 a year, with the remaining £8,000 a year reserved for investments.
This aims to incentivise greater investment in UK-listed companies and to make UK stock exchanges more competitive.
Summary
For business owners, the key to navigating these changes will lie in strategic planning, by ensuring compliance with new tax rules, taking advantage of investment incentives, and revisiting profit extraction strategies in light of higher dividend tax liabilities.
Shareholders will need to consider the implications of these reforms on their personal tax affairs and the future value of their investments.
Ultimately, understanding and adapting to the shifting tax landscape will be crucial for businesses looking to thrive in the years ahead.
By staying informed and proactively addressing the budget's impact, companies can ensure they remain competitive and sustainable in the long term.
Contact Our Corporate Team
If you would like tailored advice on how the Autumn 2025 Budget may impact your business, our Corporate and Commercial team is here to help.
Contact us today to discuss your tax planning, compliance obligations, or strategic options.
0161 941 4000
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Katie Bartley
Trainee Solicitor
Katie joined Myerson as a Trainee Solicitor in 2024 and is currently in her third seat with the Corporate department.
Prior to this, Katie graduated from the University of Liverpool in 2022 with a 2:1 in BA Politics, before studying MA Law at the University of Law in 2023 and achieving a Commendation.
Katie completed SQE1 before starting with the firm and will complete the remainder of the SQE qualification with BPP University.
About Katie Bartley