What has the Labour government changed for small business owners?

Labour won the election in July 2024 on a promise not to raise taxes on working people. It kept the rates of income tax, employee National Insurance and VAT where they were. The money was raised elsewhere. Much of it came from the people who own and run companies.

This page sets out each change that touches an owner-managed business. Each one has the old figure, the new figure and the date. Every number is checked against GOV.UK. Where we show an effect in pounds it is arithmetic on the published rates. It is an illustration, and your own position will differ.

What changed between July 2024 and October 2026?

Ten figures moved against the owner of a small company. Two moved in their favour. Corporation tax stayed where it was.

How much more does it cost to employ someone?

Employer National Insurance is the largest single change. Until April 2025 a company paid 13.8% on each employee's pay above £9,100 a year. Since April 2025 it pays 15% on pay above £5,000. Both halves of that change push the bill up.

The extra cost grows with the salary. This table shows employer National Insurance for one employee at four common pay levels, before any Employment Allowance.

The old calculation was 13.8% of pay above £9,100. The new one is 15% of pay above £5,000. Figures are rounded to the nearest pound.

The Employment Allowance went the other way. It takes up to £10,500 a year off a company's employer National Insurance bill. It used to take off £5,000. The rule that stopped employers with a bill over £100,000 from claiming was removed at the same time.

For the smallest employers the larger allowance outweighs the higher rate. On the figures above, a company with six staff on £30,000 pays less employer National Insurance than it did in 2024. A company with seven pays more. A company whose only employee is its director cannot claim the allowance at all.

The minimum wage

The National Living Wage for workers aged 21 and over was £11.44 an hour in July 2024. It has been £12.71 since April 2026. For someone working 37.5 hours a week that is £2,476.50 more a year in pay. Employer National Insurance is due on top of that.

The rate for 18 to 20 year olds rose from £8.60 to £10.85 over the same period.

Sick pay and dismissal

Two changes to employment law carry a cost that is harder to put a number on.

Since 6 April 2026 Statutory Sick Pay is due from the first day of illness. Employees no longer need to earn a minimum amount to qualify. It is paid at £123.25 a week or 80% of average weekly earnings, whichever is lower. An employer cannot reclaim it from HMRC.

From 1 January 2027 an employee can claim unfair dismissal after six months in the job. The qualifying period has been two years. The cap on compensation for unfair dismissal is removed on the same date. Anyone you hired before July 2026 will already have the right on the day it starts.

How much more does it cost to take profit out of your company?

Your profit is taxed twice. The company pays corporation tax on what it makes. You then pay dividend tax on what is left when you take it out. Corporation tax has not changed since Labour took office. Dividend tax has.

On 6 April 2026 the basic rate of dividend tax rose from 8.75% to 10.75%. The higher rate rose from 33.75% to 35.75%. The additional rate stayed at 39.35%. The tax-free dividend allowance is still £500.

The table shows what an owner keeps from £100 of company profit once both taxes are paid.

The table leaves out the £500 dividend allowance and the personal allowance. Companies with profits between £50,000 and £250,000 pay a blended corporation tax rate between 19% and 25%.

A higher-rate owner of a company paying the main rate now keeps less than half of each extra pound of profit. You can put your own figures into the IQ Money tax calculators, and the Save tax page explains how the two taxes stack.

Frozen thresholds

The personal allowance is £12,570 and higher-rate income tax starts above £50,270. The November 2025 Budget extended the freeze on both figures, and on the matching National Insurance thresholds, to 5 April 2031. Each year of rising pay and prices moves more of an owner's income into the higher band, where dividends are taxed at 35.75%.

Pension contributions through salary sacrifice

From 6 April 2029 only the first £2,000 a year of pension contributions made through salary sacrifice will be free of National Insurance. Anything above that will carry employer and employee National Insurance. Companies that use salary sacrifice to keep their payroll cost down have until then to plan for it.

What has changed if you sell or pass on the business?

Selling

Business Asset Disposal Relief lets an owner pay a lower rate of Capital Gains Tax on the first £1 million of gains from selling a business in their lifetime. The rate was 10% when Labour took office. It rose to 14% on 6 April 2025 and to 18% on 6 April 2026.

The £1 million lifetime limit has not changed. Gains above it are taxed at the normal Capital Gains Tax rates. The higher rate is 24%.

Passing it on

Until April 2026 a trading business could usually pass to the next generation free of inheritance tax, whatever it was worth. Since 6 April 2026 the 100% relief covers the first £2.5 million of qualifying business and agricultural assets for each person. Above that the relief is 50%. Any unused part of the £2.5 million can pass to a husband, wife or civil partner. The limit was first announced as £1 million and was raised in December 2025 before it took effect.

From 6 April 2027 most unused pension funds will count as part of a person's estate for inheritance tax. Many owners have treated the pension as the one pot that sits outside the estate. That stops being true in April 2027.

What has stayed the same, and what got better?

• Corporation tax The small profits rate is 19% on profits up to £50,000. The main rate is 25% on profits over £250,000. The government has committed to capping the main rate at 25% for the duration of the parliament.
• Relief on equipment Full expensing and the £1 million Annual Investment Allowance are still in place. A company can usually deduct the full cost of new plant and machinery in the year it buys it.
• Income tax, employee National Insurance and VAT The rates are the same as in July 2024.
• Employment Allowance It has more than doubled to £10,500 and more employers can claim it.
• Mileage A business can now pay staff 55p a mile tax-free for the first 10,000 business miles in their own car. The rate had been 45p.

What is already scheduled?

These changes have been announced and carry a date. None of them depends on the Budget.

1. 28 October 2026 The Autumn Budget.
2. 1 January 2027 Unfair dismissal claims open to employees after six months. The cap on compensation is removed.
3. 6 April 2027 Unused pension funds come into inheritance tax. Tax rates on savings and property income rise by two points to 22%, 42% and 47%.
4. 6 April 2029 National Insurance relief on salary sacrifice pension contributions is capped at £2,000 a year.
5. April 2031 The freeze on income tax and National Insurance thresholds is due to end.

What could the 28 October Budget change?

Andy Burnham became Prime Minister in July 2026 and John Healey became Chancellor. The Budget on Wednesday 28 October 2026 is their first.

The government has said it will keep the 2024 manifesto commitment not to raise the rates of income tax, employee National Insurance or VAT. The government has also committed to capping the main rate of corporation tax at 25%. It has promised a wider reform of business rates at this Budget, including changes to Small Business Rates Relief.

Everything else being written about this Budget is a forecast. We do not report forecasts as fact. This page will be updated on Budget day with what is announced.

What can an owner do about it?

Ask your accountant these five questions before the tax year ends on 5 April 2027.

1. Are we claiming the Employment Allowance, and all £10,500 of it? It has to be claimed through payroll. It is not applied for you.
2. Is our mix of salary, dividends and pension still the right one? The mix that worked at 8.75% dividend tax may not be the best one at 10.75%. Employer pension contributions are normally a business expense and carry no dividend tax.
3. Does the equipment we plan to buy qualify for full expensing? The answer changes the corporation tax bill in the year you buy.
4. If we might sell in the next five years, what does 18% do to the figure we would walk away with? Run the sum now, while there is time to change the plan.
5. Have our wills and shareholder agreement been looked at since April 2026? The inheritance tax rules for business assets changed then, and the pension rules change in April 2027.

Tax is one half of what an owner keeps. The other half is how much profit the business makes before tax. You can judge that more easily when you can see how similar businesses near you are doing. Our free competitor report shows you. The Grow profit page covers that side of the sum.

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