Autumn Budget 2025 – The impact on SMEs, directors and the self employed
Written by Sach
Chancellor Rachel Reeves’ Autumn Budget 2025 confirms a non-negotiable path of high taxation to stabilise public finances against a backdrop of ongoing low growth forecasts. The strategy avoids headline rate increases (VAT, NI, Income Tax rates) but strategically burdens the entrepreneurial class through an extended fiscal drag and new taxes on assets and capital.
This is Pennyhills’ detailed breakdown of the measures that will fundamentally change financial planning for SMEs, Limited Company Directors, and the self-employed.
The Income Squeeze: Frozen Thresholds and Pension Caps 💰
The Chancellor’s commitment to “no increase” in major tax rates is offset by increases in tax yield via freezes and targeted adjustments:
- Frozen Taxes: All Income Tax and equivalent National Insurance Contributions (NICs) thresholds are now frozen for a further three years until 2030-31. The OBR analysis confirms that this policy is the single largest tax riser of the period.
Impact: Any increase in staff or director wages, whether inflationary or merit-based, will push a higher proportion of that income into higher tax brackets, effectively serving as a major stealth tax on earned income growth. - Direct Hit on Owner Remuneration: From April 2027, tax rates on Dividend, Property, and Savings income will all rise by 2% across the Basic, Higher, and Additional Rate bands.
Impact: This targets limited company directors who draw profits via dividends, narrowing the tax advantage over PAYE workers and increasing the effective tax rate on passive business income. - Salary Sacrifice Cap (2029): High earners utilising salary sacrifice pension schemes will face a new £2,000 annual cap on the NICs exemption for contributions. Contributions above this cap will be subject to NICs.
Impact: This will affect the retirement planning efficiency for many long-term business owners and high-paid employees who use this mechanism for large, tax-efficient contributions.
Capital and Asset Revisions: Exit Plans Redrawn 📉
The Chancellor directly targeted tax reliefs previously popular for capital investment and business exit.
- Employee Ownership Trust (EOT) Relief Halved: The Capital Gains Tax (CGT) relief for owners selling their company to an EOT is reduced from 100% to 50% from November 2025.
- Impact: This is an immediate and critical change for founders structuring their exit. While the incentive remains strong, the tax-free status for founders has been removed, making pre-sale planning vital.
- Wealth Surcharge on High-Value Property: From 2028, a new High Value Council Tax Surcharge will be introduced on the UK’s top 1% of properties. The annual charge is £2,500 for properties valued over £2 million and £7,500 for those over £5 million.
- Capital Allowances Trade-off: A new 40% First-Year Allowance (FYA) is introduced for expenditure on fixed assets, increasing immediate tax relief. This is offset by a reduction in the standard Written Down Allowance (WDA) rate.
Impact: This helps small firms with short-term cash flow on new assets but slows down the recovery of capital investment costs over the medium term.
Operational Environment: Costs, Competition, and Staff 🏘️
The Budget introduced structural changes affecting everything from operating expenses to recruitment subsidies.
- Permanent Business Rates Relief: The Chancellor is introducing permanently lower Business Rates multipliers for over 750,000 Retail, Hospitality, and Leisure (RHL) properties. This is notably funded by applying higher rates to warehouses and other properties valued over £500,000, targeting online retail giants.
Impact: A major cost reduction for bricks-and-mortar SMEs, addressing the long-standing inequity with large online competitors. - Customs Duty for Fair Play: Customs Duty will now be applied to parcels of all values, removing a major loophole that allowed online firms to undercut high street businesses.
- EV Fleet Tax: Businesses running electric vehicle (EV) fleets must account for the new EV Excise Duty of 3p per mile (1.5p for hybrids) starting in April 2028. The era of zero road tax cost for EVs is ending.
- Apprenticeship Funding Boost: The government is making the full cost of apprenticeship training for under 25s completely free for SMEs.
Impact: A huge incentive and cost saving for small firms looking to build their workforce and skills base.
Pennyhills Action Points 🎯
The Budget is a clear call for professional tax advice, especially for asset-owning directors.
Investment Timing: Plan all major qualifying capital expenditures around the 40% FYA availability.
Remuneration Review: Model your dividend vs. salary structure for 2027 to mitigate the 2% tax increase.
Exit Strategy Audit: If an EOT was your plan, you must now revise projections based on the new 50% CGT relief.
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