Summary of Budget 2026 for UK SMEs
- Corporation tax, dividend tax, employer National Insurance and the VAT threshold are all unchanged for 2027 to 2028.
- Business Asset Disposal Relief is halved. The lifetime limit falls from £1 million to £500,000 for sales from 6 April 2027. In the example, an £800,000 gain costs £18,000 more.
- Tax on savings and property income rises two points to 24%, 44% and 49% from April 2027. A director with a buy-to-let and savings pays £524 more in the example.
- The main rate writing down allowance drops to 12%, while the first-year allowance rises to 50% for spending from 1 January 2027.
- Small Business Rates Relief in England widens to £18,000 for retail, hospitality and leisure. A shop with a rateable value of £16,000 could go from about £6,100 a year to nothing.
- From April 2029, Self Assessment payments become more frequent and VAT and PAYE must be paid by Direct Debit.
Most Budget coverage is written for households. This page is written for the owner of a UK SME with a few staff, a van or two, some money in the bank and a plan to sell or hand over one day. Every rate and date below comes from the Treasury's own Budget documents on GOV.UK, linked at the end. The worked examples use made-up figures so you can see the method and put your own numbers in.
The Chancellor did not touch the three main taxes. The changes that do cost money mainly affect owners who hold savings or property in their own name, or who plan to sell up, and almost all of them start in April 2027, so there is time to plan.
The main changes and when they start
| Measure | Change | From |
|---|---|---|
| Corporation tax | No change. 19% small profits rate, 25% main rate | Confirmed for 2027 to 2028 |
| Dividend tax | No change. 10.75%, 35.75%, 39.35%, £500 allowance | Confirmed for 2027 to 2028 |
| Employer National Insurance | No change. 15% above £96 a week, £10,500 Employment Allowance | Confirmed for 2027 to 2028 |
| VAT registration threshold | No change. £90,000 | Confirmed |
| Income tax thresholds | No change. Frozen, personal allowance £12,570 | Confirmed for 2027 to 2028 |
| Business Asset Disposal Relief | Lifetime limit halved from £1m to £500,000 | 6 April 2027 |
| Savings and property income tax | Up two points to 24%, 44% and 49% | 6 April 2027 |
| Main rate writing down allowance | Cut from 14% to 12% | 1 April 2027 (companies), 6 April 2027 (sole traders) |
| Main rate first-year allowance | Up from 40% to 50% | Spending from 1 January 2027 |
| Small Business Rates Relief (England, retail, hospitality, leisure) | 100% relief up to £18,000 rateable value, taper to £21,000 | 1 April 2027 |
| Business mileage above 10,000 miles | Up from 25p to 35p a mile | 6 April 2027 |
| Trading allowance | Up from £1,000 to £3,000 | 6 April 2027 |
| National Living Wage | Up 3.9% to £13.21 an hour | 1 April 2027 |
| Self Assessment payments on account | More regular in-year payments | April 2029 |
| VAT and PAYE payment | Direct Debit required, with exceptions | April 2029 |
These are announcements, not yet law. Most need the Finance Bill to pass, and the detail can change on the way through. Business rates are devolved, so the rates measures apply in England only.
The taxes that have not changed
Nothing in this Budget changes how much tax you pay on your profit next year.
For an owner-managed company, the tax bill is set by three rates. Corporation tax on profit, dividend tax on what you take out, and employer National Insurance on what you pay staff. GOV.UK's rates annex confirms all three for 2027 to 2028 at their current levels. Corporation tax stays at 19% up to £50,000 of profit and 25% above £250,000, with marginal relief in between. Dividends stay at 10.75% in the basic band and 35.75% in the higher band, with a £500 allowance. Employer National Insurance stays at 15% above £96 a week, with the £10,500 Employment Allowance. The VAT registration threshold stays at £90,000.
The rises came earlier. The dividend rates went up two points in April 2026 and the employer rate went to 15% in April 2025, so the bills most owners are paying now already include those rises. Income tax thresholds stay frozen, so each pay rise you give pushes a little more of it into a higher band. Our article on what this government has done to small business tax tracks the whole run of changes since 2024.
If you worked out last spring whether to take salary, dividends or pension from your company, that answer has not changed. Our company cash article walks through that choice.
Selling your business and Business Asset Disposal Relief
If you expect to make more than £500,000 when you sell your business, a sale completed after 5 April 2027 will cost you more tax. For a gain of £800,000 the difference is £18,000.
Business Asset Disposal Relief is the reduced rate of Capital Gains Tax you get when you sell your own trading company or sole trader business. You pay 18% instead of the usual 24% for a higher rate taxpayer. The relief has a lifetime cap on the gains it covers, and the Budget halves that cap. GOV.UK says it falls from £1 million to £500,000 for disposals from 6 April 2027, with transitional rules for certain contracts exchanged before that date.
Worked example
An owner sells the company for an £800,000 gain
Sale before 6 April 2027
- Gain within the £1m limit
- £800,000
- Tax at 18%
- £144,000
- Gain above the limit
- £0
£144,000 Capital Gains Tax
Sale from 6 April 2027
- Gain above the £500,000 limit
- £300,000
- Tax on £500,000 at 18%
- £90,000
- Tax on £300,000 at 24%
- £72,000
£162,000 Capital Gains Tax
£18,000 more tax for completing after the change. The £3,000 annual exempt amount is left out, and the owner is assumed to qualify for the relief in full and to be a higher rate taxpayer
The relief was already less generous than it used to be. GOV.UK shows the rate at 10% up to 5 April 2025, 14% for the year after, and 18% from 6 April 2026. Halving the cap is the third cut in three years. A sale that completes before 6 April 2027 is treated under the old cap, so if a sale is already in view it is worth getting advice on timing. Nobody should sell in a hurry over this, but it helps to know your own number before you talk to a buyer.
The Budget also announced a new Founders' Relief, a 10% rate on up to £10 million of lifetime gains for qualifying founders from 6 April 2027. The conditions are out for consultation until 30 November 2026, so do not assume an established company will qualify. A separate reform of how companies pay value out to shareholders, covering capital reductions, share buybacks and demergers, is planned for April 2028, with draft law due in 2027. If your exit plan involves any of those, keep an eye on it.
Capital allowances on equipment and cars
If you buy equipment and claim it in full through the Annual Investment Allowance, nothing changes. If you have older equipment still being written off, or you buy cars, you get your tax relief a little more slowly.
Capital allowances are how you get tax relief on things you buy for the business. Most SMEs use the Annual Investment Allowance, which gives 100% relief in the year of purchase on up to £1 million of plant and equipment. GOV.UK confirms that is unchanged, and full expensing for companies stays too. The Budget changes two smaller allowances. The main rate first-year allowance rises from 40% to 50% for spending from 1 January 2027. The main rate writing down allowance, the yearly percentage you claim on whatever is left in your capital allowances pool, falls from 14% to 12% from 1 April 2027 for companies and 6 April 2027 for sole traders.
The writing down cut affects balances already in the pool from earlier years, and cars, which the Annual Investment Allowance does not cover.
Worked example
A company with £50,000 left in its main capital allowances pool
Year to 31 March 2027, at 14%
- Pool balance
- £50,000
- Writing down allowance
- £7,000
- Tax relief at 25%
- £1,750
£1,750 corporation tax saved this year
Year to 31 March 2028, at 12%
- Pool balance
- £50,000
- Writing down allowance
- £6,000
- Tax relief at 25%
- £1,500
£1,500 corporation tax saved this year
£250 less relief in the year, on the same pool, for a company paying the 25% main rate. The relief is delayed rather than lost, because the balance carries forward. The same balance is used in both columns to show the rate effect
The total relief over the life of the asset is the same. It arrives more slowly. GOV.UK's guidance on business cars puts a car with CO2 emissions of 50g/km or less in the main pool, so one bought in 2027 is written down at the lower rate too. Cars above 50g/km are written down at 6%, which is unchanged. A new electric car still gets 100% relief in year one. If a big purchase is coming, the Annual Investment Allowance still gives 100% relief in year one on qualifying plant and equipment, so timing matters less than making sure the purchase qualifies.
Tax on savings interest and property income
Interest on savings and profit from property that you hold in your own name will be taxed at 24% if you are a basic rate taxpayer and 44% if you are a higher rate taxpayer from April 2027. Today those rates are 20% and 40%.
This is the measure most likely to affect an owner personally. GOV.UK's rates annex shows savings income taxed at 20%, 40% and 45% for 2026 to 2027 and at 24%, 44% and 49% for 2027 to 2028. Property income moves the same way. Property rates apply in England, Wales and Northern Ireland. Savings rates apply across the UK.
The rise applies to income taxed on you personally. It does not touch interest your company earns, which is taxed at corporation tax rates. So where you hold spare cash matters a bit more than it did. Our articles on business savings accounts for a limited company and savings interest tax for sole traders set out the comparison.
Worked example
A higher rate director with a buy-to-let and £40,000 of personal savings
2026 to 2027, at 40%
- Rental profit
- £12,000
- Taxable interest after £500 allowance
- £1,100
- Tax on both at 40%
- £5,240
£5,240 income tax on savings and rent
2027 to 2028, at 44%
- Rental profit
- £12,000
- Taxable interest after £500 allowance
- £1,100
- Tax on both at 44%
- £5,764
£5,764 income tax on savings and rent
£524 more a year from April 2027 with no change in the income. Interest is £40,000 at an assumed 4%. The rental figure is profit after allowable costs
The Personal Savings Allowance of £1,000 for basic rate and £500 for higher rate taxpayers is unchanged. GOV.UK says the government has decided not to reduce the cash ISA limit, so it stays at £20,000. Interest earned inside an ISA is not taxed at all, which makes the ISA allowance worth more from April 2027 than it is today.
Business rates and wages
If you run a shop, café, salon, pub, gym or anything else that counts as retail, hospitality or leisure in England, and your rateable value is under £21,000, your business rates bill falls or disappears from April 2027.
This is the largest saving in the Budget for SMEs. The Treasury's letter to councils sets out the detail. From 1 April 2027 the 100% Small Business Rates Relief threshold for these properties rises from £12,000 of rateable value to £18,000, with a taper to nothing at £21,000, in place until 31 March 2029. GOV.UK says around 70,000 more businesses will pay no rates at all. Other retail, hospitality and leisure properties have their bill increases capped at inflation for two years. The relief for pubs, social clubs and live music venues rises from 15% to 35%. The higher thresholds do not apply to vape shops, and other kinds of business stay on the existing £12,000 and £15,000 thresholds.
Your rateable value is on your rates bill, or you can look it up on GOV.UK. A shop with a rateable value of £16,000 gets no Small Business Rates Relief today, because the threshold is £12,000 with a taper to £15,000. At the 2026 to 2027 small business retail multiplier of 38.2p, its bill is about £6,100 a year. From April 2027 it would pay nothing. For a small shop that is a bigger saving than anything else in this Budget. Councils apply it, so check your April 2027 bill shows it.
Two costs go the other way. The multipliers, the pence in the pound used to work out a rates bill, rise for 2027 to 2028 to 49.7p standard and 44.7p small business, so a property outside those sectors and above the threshold pays a little more. And the National Living Wage rises 3.9% to £13.21 an hour from 1 April 2027. For one full-time employee on 37.5 hours, the 50p rise adds £975 a year in pay, about £146 in employer National Insurance and about £29 in minimum pension contributions. That is roughly £1,150 in total. Multiply by the number of staff on or near the minimum and set it against the rates saving.
Mileage, the trading allowance and MTD for sole traders
If you drive a lot for work, your mileage claim goes up. If you have a small side income, more of it is tax free.
The mileage rate for business miles above 10,000 a year rises from 25p to 35p from 6 April 2027. The 55p rate for the first 10,000 miles, which was raised from 45p in April 2026, is made permanent. A sole trader driving 20,000 business miles claims £8,000 today and £9,000 from April 2027. At 20% income tax plus 6% Class 4 National Insurance, the extra £1,000 of deduction is worth about £260 a year. The same rates apply when a company pays a director or employee for using their own car.
The trading allowance triples from £1,000 to £3,000 from 6 April 2027, with the Self Assessment reporting threshold moving to match. That matters if you or a family member has small side income alongside the main business. And if you are joining Making Tax Digital for Income Tax in April 2027, which applies at £30,000 of qualifying income, GOV.UK confirms that late submission penalty points will not apply to quarterly updates in 2027 to 2028. You still have to send them.
From April 2029, self-employed fathers, partners and adopters in Great Britain will be able to claim parental pay for the first time. And from April 2027 the VAT reverse charge on services bought from overseas applies only where the UK business is VAT registered. If you are not registered, the overseas supplier charges UK VAT instead. That removes a trap where buying software or services from abroad counted towards the £90,000 registration threshold.
How and when you pay HMRC
From 2029 you will pay the same tax, earlier and in smaller amounts, and HMRC will collect VAT and PAYE by Direct Debit.
From April 2029, Self Assessment taxpayers who make payments on account will make more regular payments during the year rather than two large ones in January and July. GOV.UK says payments will be automated and eligible taxpayers can choose to pay through PAYE. A business used to holding its tax money until January will need to smooth it.
From the same date, VAT and PAYE return liabilities must be paid by Direct Debit, subject to exceptions still to be set out. You can still pay another way before a cut-off date, and the Direct Debit collects whatever is left. VAT e-invoicing is also pencilled in for April 2029. From 2029 to 2030, HMRC plans a power to recover smaller established debts through regular deductions from bank accounts where people repeatedly fail to engage. And from 1 April 2028 a new Customer Correction Notice lets HMRC require you to correct or explain a suspected inaccuracy in a return.
None of this changes what you owe. It does make late or missed payments harder to put off and more expensive. HMRC's late payment interest already runs at Bank Rate plus 4%, and our article on which business debt to pay first explains why a tax debt usually belongs near the top of the list.
The economic forecast
The Budget documents carry the Office for Budget Responsibility's forecasts. Growth is put at 1.2% for 2026 and 1.0% for 2027, then 1.6%, 1.8% and 1.7% in the three years after. Inflation is forecast at 3.4% for 2027, peaking at 3.8% in the first quarter, before falling back to around 2% from 2028. The government says it meets its stability rule with £15 billion of headroom in 2029 to 2030, down from £24 billion in March.
For an SME that means another year of slow growth and high costs before inflation comes back down. The 5p fuel duty cut runs to 1 July 2027. Energy-intensive businesses can get up to 25% off electricity from April 2027 under the British Industrial Competitiveness Scheme. The surcharge on bank profits doubles to 6% for fifteen months, and banks may pass some of that on through lending rates. Our Bank Rate article covers what a higher inflation path means for borrowing costs, and our cash reserve article covers how many months of cover to hold through a slow year.
What should an owner do before April 2027?
- Work out your gain if you sold. If it is above £500,000 and a sale is in view, get advice on timing before 6 April 2027.
- Check your rateable value. If you are in retail, hospitality or leisure in England and under £21,000, you should see a lower or zero bill from April 2027.
- Look at savings and property you hold personally. Interest and rent will be taxed at 24% or 44% from April 2027. Check your ISA allowance is used.
- Time big purchases around the Annual Investment Allowance. It still gives 100% relief in year one. Cars do not qualify.
- Budget for the wage rise. Roughly £1,150 a year for each full-time employee on the minimum, including National Insurance and pension.
- Start smoothing your tax cash flow now. The 2029 payment changes reward businesses that already put tax money aside monthly.
The Budget did not change how much of your profit the government takes. It changed a number of smaller rules, and each one has a figure attached that you can work out for your own business. The IQ Money calculators let you put your own figures into the sums.
A word from the IQ Money Editorial Team
Our reading of this Budget is that the Chancellor has left SMEs alone on the headline rates because there was little room left to raise them. The big increases came in 2024 and 2025. Employer National Insurance at 15%, dividend tax up two points, the lower thresholds and the frozen bands are all still there, and this Budget builds on them rather than adding to them. That is what the Treasury means by breathing space. The rises have not been reversed. They have been left where they are.
Where the Budget does bite is on the choices an owner makes. Keep spare cash in your own name and it is taxed at 44% rather than at the company's rate. Sell after April 2027 and the reduced rate covers half as much. Hold your tax money until January and from 2029 HMRC will take it earlier. In each case there is still another way to do it, and the difference between the two has grown.
That is why we think the useful response to this Budget is to go through the ways you already have of reducing your tax bill and check which ones you are using. Pension contributions from the company, the £20,000 ISA allowance, the timing of dividends across tax years, the Annual Investment Allowance, claiming the right mileage, and in retail, hospitality or leisure, the rates relief that your council should apply from April 2027. None of these is new, and most SMEs already use some of them. We would be surprised if many used all of them.
Our Save tax page sets out the main ways an owner-managed company can keep more of what it makes, and our free guide, Ways to save tax, goes through each one in turn so you can check them against your own position. It is worth taking to your accountant before April 2027.
Questions owners ask
Did Budget 2026 change corporation tax?
No. GOV.UK's rates annex shows the main rate at 25% and the small profits rate at 19% for 2027 to 2028, with the £50,000 and £250,000 thresholds unchanged. The government says it is keeping to its corporate tax roadmap.
Did dividend tax or employer National Insurance change?
No. Dividend rates stay at 10.75%, 35.75% and 39.35% with a £500 allowance, and employer National Insurance stays at 15% above £96 a week with the Employment Allowance at £10,500. The dividend rates rose in April 2026, so most owners have already felt that change.
What happened to Business Asset Disposal Relief?
The lifetime limit falls from £1 million to £500,000 for disposals from 6 April 2027. The rate stays at 18%. Gains above the limit are taxed at the normal 24% higher rate. Transitional rules apply to certain contracts signed before that date.
What is Founders' Relief?
A new 10% Capital Gains Tax rate on up to £10 million of lifetime gains for qualifying founders, planned for disposals from 6 April 2027. The conditions are still under consultation until 30 November 2026, so the detail is not yet fixed.
What changed on capital allowances?
The main rate first-year allowance rises from 40% to 50% for spending from 1 January 2027. The main rate writing down allowance falls from 14% to 12% from 1 April 2027 for companies and 6 April 2027 for sole traders. Full expensing and the £1 million Annual Investment Allowance are unchanged.
Who gets the business rates cut?
In England, retail, hospitality and leisure properties with a rateable value up to £18,000 get 100% Small Business Rates Relief from April 2027, up from £12,000, with a taper to £21,000, until 31 March 2029. The government says a further 70,000 businesses will pay no rates. Other properties in those sectors have bills held flat in real terms for two years.
Does the savings tax rise affect my company?
Not directly. The new 24%, 44% and 49% rates from 6 April 2027 apply to savings and property income taxed on individuals. A director with personal savings or a buy-to-let pays more. Interest a company earns is still taxed at corporation tax rates.
When do the payment changes start?
From April 2029. Self Assessment taxpayers who make payments on account will pay more regularly during the year, and VAT and PAYE liabilities must be paid by Direct Debit, subject to exceptions. From 2029 to 2030 HMRC also plans to recover smaller established debts directly from bank accounts where people repeatedly fail to engage.
Keep reading
Sources
- Budget 2026, Overview of tax legislation and rates (GOV.UK). Each measure, with rates and effective dates.
- Budget 2026, Annex A rates and allowances (GOV.UK). The 2026 to 2027 and 2027 to 2028 rates and thresholds.
- Budget 2026 (HM Treasury, GOV.UK). The full Budget document, including the OBR forecasts.
- Budget 2026 press notice (HM Treasury, GOV.UK). The headline measures and the 70,000 businesses figure.
- Business rates letter 8/2026 (GOV.UK). The £18,000 and £21,000 thresholds, the pubs relief and the 2027 to 2028 multipliers.
- Small business rate relief (GOV.UK). The current £12,000 and £15,000 thresholds.
- Business Asset Disposal Relief (GOV.UK). The 10%, 14% and 18% rates by date.
- Mileage and fuel rates (GOV.UK). The 55p and 25p rates for 2026 to 2027.
- Capital allowances rates and pools (GOV.UK). The 14% main rate and 6% special rate.
- Capital allowances on business cars (GOV.UK). Which pool a car goes in and why cars miss the Annual Investment Allowance.
This article is general information for owners of UK businesses, based on the Budget documents published on 28 October 2026. Measures are announcements and may change before they become law. The figures in the worked examples are assumptions chosen to show the method, and your own will differ. It is not tax, legal or financial advice. Speak to a qualified adviser about your own circumstances.
