The Chancellor’s Autumn Budget is tilted towards raising revenues while protecting headline stability. For SMEs the Budget delivers a short-term window of capital-allowance generosity but also a range of tax increases and freezing of thresholds that will raise the effective tax burden on many owner-managers. Below we set out the key measures that matter to SMEs, why they matter and practical next steps.
Business taxes — capital allowances and timing of investment
What changed
- A new First-Year Allowance (FYA) of 40% will be available for main-rate plant & machinery expenditure. This FYA has fewer restrictions than some previous FYAs and is available to companies and unincorporated businesses for eligible main-rate expenditure. GOV.UK
- The main-pool writing-down allowance (WDA) for plant & machinery will be reduced from 18% to 14% (so the ongoing annual relief on the main pool is lower). GOV.UK
Why it matters
- The 40% FYA creates a real tax incentive to accelerate qualifying capital expenditure into the qualifying period — it increases first-year tax relief on many items of plant, machinery and certain fixtures. By contrast, delaying would mean only the smaller 14% yearly WDA applies from April 2026 (or 6 April 2026 for income-taxed businesses). GOV.UK
Practical action
- Identify planned capex (machinery, equipment, qualifying fixtures) for the next 12–18 months.
- Run simple cash-flow vs tax tests: the FYA reduces taxable profit faster — multiply planned spend by 40% to estimate first-year relief; compare that to the slower relief under WDAs (14% pa main pool).
- Procurement timing: where commercially sensible, accelerate purchases so contracts are entered and assets delivered in time to qualify (seek definitive timing advice on the precise qualifying date for each asset).
- Document: keep clear invoices, delivery and installation evidence to support FYA claims at submission.
Personal taxes that affect owner-managers — dividends, savings and property income
What changed
- Dividend tax rates (basic and higher bands) rise by 2 percentage points from 6 April 2026: basic-rate dividend tax becomes 10.75% (was 8.75%) and higher-rate dividend tax becomes 35.75% (was 33.75%). The additional dividend rate remains unchanged.
- Income tax on property and savings income will increase by 2 percentage points on the basic, higher and additional rates from 6 April 2027. (Savings: basic 22%, higher 42%, additional 47% in due course.)
- Personal tax thresholds (Personal Allowance, higher-rate etc.) are being frozen for several years — the Budget extends previous freezes (the practical result is fiscal drag).
Why it matters
- Most owner-managers extract profit via salary + dividends. A higher dividend rate directly increases the personal tax on distributed profit. Freezing thresholds pushes more income into higher bands over time (fiscal drag).
Practical action
- Revisit dividend timing. Distributing planned dividends in the 2025/26 tax year (before 6 April 2026) can lock in current rates for that tranche where timing and cash allow.
- Model tax outcomes for owner-directors: compare leaving profits in company (corporation tax + later extraction) vs extracting now. Consider company cash, investment plans and NIC-efficient remuneration.
- Consider retention for growth: with higher personal extraction tax, retaining profits for reinvestment may be more attractive.
Employment taxes & remuneration — salary sacrifice changes
What changed
- From April 2029 the government will cap the National Insurance (NIC)-exempt portion of pension contributions made by salary sacrifice at £2,000 pa. Amounts above £2,000 made via salary sacrifice will be subject to employer and employee NICs.
Why it matters
- Many SME employers operate salary-sacrifice schemes (pensions and benefits) to reduce employees’ NICs. From 2029 such NIC savings are limited — this will affect payroll costs and the appeal of salary-sacrifice packages for higher contributions.
Practical action
- Communicate: flag the future change to staff who use salary sacrifice and the timing (April 2029) so they can plan.
- Review remuneration packages now and plan for employer cost and employee take-home effects from 2029.
- Payroll readiness: update payroll processes and total reward statements ahead of the change.
Extension to the availability of EMI share option plans, and the EIS / VCT regimes
What changed
Expansion of Enterprise Management Incentive (EMI)
- From 6 April 2026 the qualifying thresholds for EMI schemes increase significantly: the number of employees eligible rises from 250 to 500; the gross assets test jumps from £30 million to £120 million; and the total value of shares that can be granted under EMI doubles from £3 million to £6 million.
- The maximum exercise/holding period for EMI options will increase from 10 years to 15 years — and this extension can apply even to existing EMI contracts (so long as they’re still outstanding and unexercised).
- From April 2027 the formal requirement to notify HM Revenue & Customs (HMRC) about EMI grants will be removed — simplifying administrative compliance for companies using EMI.
Changes to Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT)
- From 6 April 2026, the company‑level limits for EIS and VCT are significantly increased: annual company investment limit goes from £5 million to £10 million (or up to £20 million for Knowledge‑Intensive Companies — KICs); lifetime company‑investment limit from £12 million to £24 million (or £40 million for KICs).
- The gross‑assets threshold for a company to qualify increases from £15 million pre-share issue (£16 million post‑issue) to £30 million before share issue and £35 million after.
- However, for VCT investors, the upfront Income Tax relief rate is reduced — from 30% to 20%.
Why it matters
These changes substantially expand the range of companies — including growing or scaling firms — that can use EMI and attract EIS/VCT capital. For many fast‑growing businesses, this means increased flexibility in offering share options and raising equity, making these schemes more accessible and relevant beyond the typical early‑stage start‑up phase.
Practical action
- If you run a growing company: Review whether your business now qualifies for EMI under the new thresholds (employee count, gross assets, share value) — especially if you had previously outgrown EMI. Consider granting or revising share options to attract or retain talent under favourable tax treatment.
- If you are raising finance via EIS or VCT: Re‑evaluate your fundraising strategy. The increased company limits mean larger raises are possible under EIS/VCT, making them more attractive for scaling companies. But bear in mind the lower upfront relief for VCT investors — this may shift investor preference toward EIS, or at least affect how you pitch VCT‑backed rounds.
Changes to tax compliance / tax adviser requirements
What changed
- From May 2026, advisers (i.e. those who interact with HMRC on behalf of clients) will be legally required to register with HMRC and meet minimum standards before they can act.
- The government has introduced enhanced powers for HM Revenue & Customs (HMRC) to tackle tax‑adviser‑facilitated non‑compliance. This includes the ability to request information from advisers, impose penalties tied to tax loss, and publish details of advisers who are sanctioned.
- The government confirms that it will not regulate tax advisers as a profession (i.e. no new licensing or statutory regulator), but wants to raise standards in the advice market through registration and enforcement measures.
What action is needed
- If you use a tax adviser: Check that they are registered (or plan to register) with HMRC. From May 2026 you should only use registered advisers to ensure any submissions on your behalf are valid and compliant.
- If you advise others or provide tax services: Prepare to register and meet HMRC’s minimum standards. Ensure compliance procedures are robust, especially around anti‑fraud / anti‑avoidance, documentation, and disclosures.
- For all taxpayers/businesses: Be diligent about compliance. The threshold for HMRC action is lower — mistakes or aggressive planning could attract scrutiny or penalties, especially where advisers are involved.
Indirect taxes and property levies — what to watch
What changed
- No headline VAT-rate change was announced for SMEs in the Budget. However, the Budget does increase taxation of property and savings income (see above) and it introduces or signals extra levies on high-value property (e.g. surcharges that affect very high-value residential property).
Why it matters
- Small companies holding investment or commercial property should model the after-tax yield impact of any new property levies or changing treatment of property income.
Practical action
- If your business holds property: stress-test rental yields against a 2pp rise in property income taxation (from 2027) and review holding/ownership structures with a tax adviser.
Final thought — planning beats panic
The Budget gives SMEs a clear window of opportunity on capital allowances and a clear warning on extracting profit and holding property. The practical question for each business and its shareholders is a cash-flow/corporate-strategy one: does accelerating capex or distributing profit today produce a net benefit when corporation tax, expected future tax increases, and investment needs are all taken into account?