On 26 November 2025, the Labour government delivered its Autumn Budget, covering everything from tax and pensions to business costs and electric vehicles, this budget outlines a wide range of policy shifts that will impact you.
At Orenda Collective, we know budgets can feel overwhelming, especially when you’re trying to focus on running your business or managing personal finances. That’s why we’ve summarised the most relevant updates for small business owners, sole traders, and individuals.
For a full view of all areas of the budget please refer to the budget document here.
The ‘reaction’ sections in this guide aren’t intended to be political. I’m not here to champion any party, truthfully, none are exactly winning me over right now. These are simply my honest reflections on how specific policies could affect us as small business owners, based on the realities we’re facing day to day.
What You Need to Know: Budget Highlights
Personal Tax Changes:
Threshold freeze extended: National Insurance and income tax thresholds will remain frozen for an additional three years, until 2031. This means more people may gradually fall into higher tax bands over time (known as ‘fiscal drag’).
Cash ISA cap introduced: From April 2027, under-65s will be able to contribute up to £12,000 per year into cash ISAs. The remainder of the £20,000 annual ISA allowance will need to go into stocks, shares, or other investments.
Dividend and savings tax increase: From April 2026, dividend tax rates will rise by 2%, with savings income tax rates also increasing from April 2027.
Wages, Benefits and Pensions:
Two child cap lifted: The two-child limit for child tax credit and Universal Credit will be removed from April 2026, offering increased support for larger families.
Minimum wage boost: From April 2026, the National Living Wage for those aged 21+ will increase by 4.1%, from £12.21 to £12.71 per hour. Younger workers aged 18–20 will see a rise from £10 to £10.85.
State pension increase: Both the basic and new state pensions will rise by 4.8%, outpacing current inflation, thanks to the ongoing “triple lock” guarantee.
Salary sacrifice cap introduced: From 2029, the amount you can contribute to your pension via salary sacrifice (without paying National Insurance) will be capped at £2,000 per year.
Help to Save extended: The scheme offering bonus savings to those on Universal Credit will be extended and expanded beyond 2027.
Housing and Property:
Council tax surcharge: Properties in England valued at over £2 million will be subject to a new annual council tax surcharge of £2,500 to £7,500, depending on the band.
Higher tax on rental income: From April 2027, rental income will face a 2 percentage point increase in tax.
Electric and Hybrid cars:
New mileage tax: From 2028, electric and plug-in hybrid car owners will begin paying a mileage-based tax, marking a shift toward broader road taxation as EV adoption grows.
Business Taxes:
Employer NI threshold freeze: The National Insurance thresholds for employers will be frozen until 2031, which may gradually increase costs for businesses as wages rise.
Corporation tax rates: Rates are retained at current levels, no changes to profit limits.
Capital allowances: New permanent 40% first year allowance on main pool expenditure, to include assets used for leasing, not cars or second hand assets. £1m annual investment allowance remains. But reducing writing down allowance on the main pool to 14% from April 2026.
Late filing penalties: All late filing penalties on corporation tax are set to double after 1 April 2026, late return new penalty £200, return more than 3 months late, £400, third successive late return £1,000 and third successive late return more than 3 months late £2,000.
Self-Employed NIC: Small profits limits increased £7,105, class 2 NI rate increased to £3.65 per week, and you are no longer able to pay voluntary class 2 when non resident.
Household Bills:
Green levies removed from bills: These will now be funded via general taxation, saving the average household £88 per year.
Insulation scheme change: A separate scheme that helped low-income households insulate their homes will be scrapped, with estimated household savings of £59 per year.
UK growth, inflation and Debt:
GDP growth revised up for 2025: The Office for Budget Responsibility (OBR) now expects the UK economy to grow by 1.5% in 2025 (up from the previous 1% forecast).
Longer-term growth trimmed: Between 2026 and 2029, growth is now forecast to average 1.5%, down from earlier estimates of 1.8%.
Inflation trends: Inflation is predicted to fall from 3.5% in 2025 to 2.5% in 2026, before reaching the government’s 2% target by 2027.
A little more depth:
Savings Tax
From April 2027, the basic and higher rates of savings income tax will each rise by 2 percentage points, for example, from 20% to 22% for the basic rate and 40% to 42% for higher rate tax payers.
What does that mean in real terms?
If you earn £2,000 in interest over the year, you’ll pay an extra £40 in tax. For £10,000 in interest income, the additional tax would be £200. These costs can add up quickly, especially if you’re holding large cash balances outside of tax-efficient accounts.
Reaction: The current policy direction appears to place a greater burden on those who save and build wealth through earnings, rather than those who spend. By increasing taxes on interest and investment income while leaving other areas relatively untouched, the budget signals a shift that could discourage saving over time.
Tip: Make sure you’re using your ISA allowance before relying on general savings accounts. Interest earned within an ISA is tax-free, so it’s often the most efficient place to hold your savings. (More on this below.)
Dividend Tax
From April 2026, dividend tax rates will increase by 2 percentage points across all bands:
- Basic rate will rise to 10.75%
- Higher rate will rise to 35.75%
What does this mean in real terms?
If you’re a small business owner extracting income via salary and dividends, here’s how the changes could affect you:
- If you take a salary of £12,570 and dividends of £37,700, your personal tax bill will increase by approximately £744
- If you take a salary of £12,570 and dividends of £87,430, your personal tax bill will increase by around £1,748.60
Reaction: This feels like a blow to small business owners operating through limited companies. Despite earlier promises not to raise taxes on “working people,” this increase disproportionately affects those who rely on dividends for income, many of whom are freelancers and small company directors. While dividend tax rates are still lower than income tax rates, it’s worth remembering that these profits have already been taxed at the company level (19–25% corporation tax), making this feel like a double hit.
Tip: We’ll be reviewing the numbers for all our clients to assess whether a different balance between salary and dividends could offer a more tax-efficient outcome. If we spot an opportunity to optimise your position, we’ll be in touch directly to discuss your options.
Cash ISA’s
From April 2027, individuals under the age of 65 will only be able to contribute up to £12,000 per year into a cash ISA. The overall ISA limit will remain at £20,000, but the remaining £8,000 can now only be directed towards a stocks and shares ISA or other qualifying investment products.
What does this mean in real terms?
Previously, you could place your entire £20,000 ISA allowance in a cash ISA to earn interest tax-free. Going forward, only £12,000 can be held in cash this way. The other £8,000 of your annual allowance has to be invested if you want to make full use of the ISA cap. You can still choose to invest the full £20,000 in stocks and shares ISAs if you wish.
Reaction
This shift isn’t necessarily negative. In fact, encouraging more people to explore investing could be a good thing, especially during times of high inflation, where the real value of cash savings can decline faster. However, it also highlights the urgent need for better financial education, so individuals feel empowered and confident to make informed investment decisions.
Tip
This isn’t investment advice, and we always recommend speaking to a qualified financial advisor before making any decisions. But it’s a great time to review your personal finances. As a general rule, it’s sensible to have at least six months of essential expenses saved in an accessible cash fund. Beyond that, consider whether you could make better use of your ISA allowance through long-term investments to support wealth growth.
Threshold Freezes Extended
The government has announced that National Insurance and income tax thresholds will remain frozen until 2031, extending the current freeze by another three years.
This may not look like a tax hike, but it will raise £23bn in total by 2030/31 by dragging more people into higher tax bands as their salaries grow. The number of higher-rate taxpayers has already jumped by 78% since 2020. A fifth of all people now pay either higher or additional-rate tax.
What does this mean in real terms?
Normally, tax thresholds rise each year in line with inflation. Freezing them means that as your income increases, whether due to pay rises, promotions, or inflation, you could find yourself:
- Pushed into a higher tax band
- Paying more tax on a greater portion of your income
- Seeing your overall take-home pay rise more slowly than expected
This effect is known as fiscal drag, and it can quietly increase your tax bill without any official rise in tax rates.
Reaction
This is what’s often referred to as a stealth tax. It creates the illusion that income tax isn’t going up, when in reality, more of your income is being taxed over time. While it may seem subtle, it can have a meaningful impact, especially for those whose earnings are steadily increasing year on year.
Tip
Pay attention to your total taxable income, especially if you’re close to the edge of a higher tax band. Strategic planning, such as making pension contributions, charitable donations, or adjusting how you draw income from your business, can help manage your effective tax rate.
Minimum Wage Increases
From April 2026, the National Living Wage for workers aged 21 and over will rise by 4.1%, increasing from £12.21 to £12.71 per hour. Workers aged 18 to 20 will also see their minimum hourly rate increase from £10.00 to £10.85.
What does this mean in real terms?
If you’re an employer, particularly in sectors like retail, hospitality or care, this increase will directly raise your staffing costs. For example:
- A full-time employee working 37.5 hours per week at the new rate will earn approximately £975 more per year.
- If you employ 5 such team members, that’s nearly £5,000 extra annually in wages, before factoring in National Insurance, pension contributions, and potential knock-on impacts on pay structures.
For employees, it’s a welcome increase, especially amid high living costs, but for small business owners, it may require careful planning to manage cash flow and profitability.
Reaction
While it’s positive to see wage growth that supports working people, especially younger earners, this change adds further pressure on small businesses already managing rising costs. For employers, this means taking a proactive approach to budgeting and potentially reviewing pricing, staffing structures, or operational efficiencies.
Tip
Now’s the time to revisit your payroll forecasts for the new financial year. Check how the increases will affect your bottom line and plan accordingly. Consider whether price adjustments, shift scheduling, or automation could help offset the rise. If you’re unsure how to navigate the change, we can help you run the numbers and explore your options.
Salary Sacrifice Cap Introduced
From April 2029, the government will limit the use of salary sacrifice for pension contributions to £2,000 per year. This move targets a long-standing tax-efficient mechanism that allows both employees and employers to reduce their National Insurance (NI) liabilities by redirecting salary into pension savings.
Currently, employees save 8% NI on earnings below £50,270 and 2% above that when using salary sacrifice, while employers benefit from a 15% NI saving on the amount sacrificed. These savings have made salary sacrifice a popular and effective tool for retirement planning.
What does this mean in real terms?
If you currently sacrifice £10,000 of your salary into your pension each year, you could be saving over £1,000 in NI contributions.From 2029, however, only £2,000 of those contributions will be eligible for this tax-saving structure, cutting your NI savings down to around £200 or less, depending on your income level.
This change is expected to generate £5 billion in extra tax revenue for the government by 2030. The delayed implementation likely reflects the administrative complexity and time needed for employers to adjust.
Reaction
Salary sacrifice has long been a valuable, legitimate way to encourage pension saving. This cap reduces an important incentive at a time when many are already under-saving for retirement. While pensions remain tax-advantaged overall, this feels like a step in the wrong direction when it comes to promoting long-term financial wellbeing.
Tip
If you currently use salary sacrifice or are considering it, speak with your advisor to understand how this cap may affect your long-term retirement plans. Other strategies, such as employer contributions outside of salary sacrifice or making use of carry-forward pension allowances, could still offer valuable tax benefits. As always, a tailored approach is best when planning for retirement.
Disclaimer:
The information in this blog is for general guidance only and does not constitute accounting, tax, or business advice. Every business is unique, and we recommend seeking personalised advice before making any financial or strategic decisions. If you need tailored support, feel free to contact us athttps://orendacollective.co.uk/contact/