The Autumn Budget delivered by Rachel Reeves includes several measures that directly affect how small business owners pay themselves, plan for tax and manage cash. The biggest shifts come through personal tax, dividend rates and the way income is taxed overall. This blog breaks down the changes that matter and gives you practical steps to stay ahead.
Income Tax and National Insurance: Understanding the Shift
The headline point is that personal tax thresholds remain frozen. Nothing changes on paper, but the effect is clear. As income rises over time, more of it is pulled into the next tax band, which increases your overall burden without any change in rates. National Insurance also stays broadly the same, but a new cap on salary sacrifice is coming. This will limit how much income can be exchanged for pension contributions and benefits before NI becomes due. It’s an important point for owners and employers who rely on salary sacrifice as part of their planning.
What this means in practice
If you give yourself or staff a pay rise, more of that rise could fall into a higher tax band. Payroll planning needs a closer look than before, particularly if you use salary sacrifice for pension contributions.
Dividend, Savings and Investment Income: A Clear Tax Rise
From April 2026, the tax rate on dividends will rise by two percentage points. Taxes on savings interest, rental profits and other investment income rise by the same margin. For many small business owners, dividends and investment income form a significant part of overall take-home pay. With these increases, after-tax income will reduce unless plans are adjusted.
Practical scenarios
A director relying on dividends will see a higher tax bill even if their income stays the same. A landlord with rental profits will pay more tax on property income, even without increasing rents. Owners with savings outside ISAs will feel the impact directly.
Why Your £12,570 Salary Matters More Than Ever
The combination of frozen thresholds and rising dividend tax makes the £12,570 tax-free salary more valuable this year. Many directors prefer a low salary and higher dividends. That approach is still viable, but the balance has shifted. With dividend tax increasing by two percentage points, the gap between salary tax and dividend tax narrows, so leaving part of your personal allowance unused is now more expensive. Taking a salary of £12,570 through PAYE gives you income taxed at 0%, builds a qualifying year for your state pension and reduces reliance on dividends at a time when they are becoming more costly. It is one of the simplest ways to protect your overall tax position.
Practical example
A director taking no salary and £30,000 in dividends will now pay in the region of £600 more tax than before. If that same director takes £12,570 as salary and reduces their dividends by the same amount, the outcome is more efficient because the salary is tax-free. The net effect is a saving of at least £2,500 per year!
Action point
Make sure you process a £12,570 salary through PAYE during the year. If you’ve relied on dividends only in the past, this is the year to revisit that structure.
Planning point
It’s worth re-running your personal forecasts for 2025/26 to understand how these changes affect your net income and whether your current mix of salary, dividends and pension contributions still works.
Business Taxes: Profit, Investment and Corporation Tax
Corporation tax remains at 25%, which means no additional pressure on business profits this year. Full expensing continues, so businesses investing in qualifying equipment can still deduct the full cost against profits. The wider Budget raises revenue predominantly through personal taxation rather than business taxation. For owners, the impact is therefore felt more in personal finances than in company-level tax.
Planning point
If you’re considering capital investment, timing still matters. Full expensing helps reduce taxable profits, and forecasting the combined effect with dividend changes is useful before making large purchases.
VAT, ISAs and Other Measures Affecting Cash Flow
Despite plenty of speculation, there are no immediate changes to VAT thresholds, so registration points remain the same for now. Any administrative reforms are likely to come later. ISA allowances however will fall from £20,000 to £12,000 for under-65s from 2027. For business owners who use ISAs as part of their personal planning, this reduces how much can be sheltered from tax each year. With investment taxes rising, allowances have become more valuable. Property-related measures could also introduce surcharges on high-value residential property, which will affect some owners but not day-to-day trading.
What Small Business Owners Should Do Now
A few simple steps will help you stay ahead of the changes:
- Use the £12,570 salary through PAYE - Work with your accountant to re-run salary versus dividend calculations for future planning.
- Review pension contributions in light of the salary sacrifice cap.
- Update your cash flow forecast to reflect the higher tax on work and investment income.
- Revisit savings and investment plans, especially if outside ISA or pension wrappers.
- Watch for any follow-up announcements on VAT reforms later in the fiscal year.
Final Thought
This Budget raises more revenue through personal taxation than business taxation. For small business owners, the key is adjusting the way you pay yourself, making full use of available allowances and getting ahead of the dividend tax rise. With some early planning, you can manage the impact smoothly and keep your finances predictable over the year ahead.
If you’d like to review how these changes affect your own setup, book a free discovery call. We’ll look at your numbers together so you can plan with clarity and confidence.
