The UK Autumn Budget delivered a sharp reality shock to many business owners. The announcement included a series of measures including tax increases that are expected to raise £26 billion by 2030. The changes impacting consumers disposable income may have a knock-on effect on businesses as reduced spending means a reduction in business income. Business leaders up and down the country are now working out what it means for them and how they need to adapt to not only how they operate but how they manage their finances and investment plans as they look forward to 2026.
The Chancellors rationale for the budget changes is that the result will be Government borrowing is projected to fall from £138.3bn (2025-26) to £67.2bn by 2031, with an additional £21.7bn of fiscal headroom providing greater long-term stability. But for business owners trying to navigate a slowing economy with increased costs and taxes hitting their firms, it’s a very real challenge.
What was announced in the budget
The Chancellor announced a raft of changes but for business this is what the Chancellors budget means in practice:
- Minimum wage increases – The national living wage will rise to £12.71 from April 2026 (a 4.1% increase). Pay to 18–20-year-olds will rise to £10.85 (an increase of 8.5%), raising labour cost across service driven sectors putting further strain on operating margins. In addition to this Employer National Insurance contributions rise due to the lower secondary threshold, increasing overall payroll costs
- Pension and salary sacrifice reforms – From April 2029, employer and employee pension contributions above £2k per annum will no longer receive National Insurance relief, affecting workforce planning and employee benefits strategies.
- Business rates revaluation and multiplier changes – High-value commercial and industrial properties with a rateable value above £500k will face higher multipliers, increasing overheads for logistics, manufacturing and large-scale operational facilities. However, retail, hospitality and leisure businesses will benefit from permanently lower business rates which is expected to offer relief worth almost £900m a year.
- Fuel duty freeze– For transport-reliant firms, welcome news in that fuel duty remains frozen providing some short-term stability.
- EV road-use tax – For those firms that have already invested in Electric Vehicles change is afoot. They will continue to benefit from zero Vehicle Excise Duty until 2026, when a new per-mile EV road-use tax starting from April 2028 will be introduced. Battery electric vehicles will be charged 3p per mile and plug-in hybrids 1.5p per mile. This shift will particularly affect fleets, logistic operators and businesses as running costs for electric vehicles will rise over the long term. This move brings electric vehicles in line with petrol and diesel vehicles and is designed to make up the loss in fuel duty revenue.
- Tax changes for Dividends, capital gains and rental income – Each will increase by 2 percentage points from April 2026, impacting SMEs, company directors, landlords and investors. Directors who extract profit via dividends, landlords operating property portfolios and business owners with investment assets will feel this tightening. For SMEs, this may influence decisions on remuneration, investment and long-term tax planning. Capital Gains tax escaped with no change there – 18% (basic rate) and 24% (higher rate)
- Investment incentives – A positive move. New UK listing relief on stamp duty to reduce costs for companies raising capital and the reformed R&D relief regime aim to support growth-focussed businesses, technology-led firms and scale ups looking to innovate or secure investment. These incentives may help offset some of the broader UK budget constraints for businesses who are considering scaling or commercialising new technologies.
- Energy support – There is some immediate relief for small businesses with energy bills reducing by about £150 from April 2026 funded by Government support.
- Support for tech, AI and capital market – Government backing for R&D, the modern industrial strategy, and incentives for UK listings are designed to boost innovation and strengthen the UK’s technology and capital markets landscape.
Businesses are now facing higher operating costs, shrinking margins and the need to absorb rising taxes. Planning ahead and understanding the impact and how business owners mitigate them is essential.
Practical tips to mitigate the impact of Budget pressures
It is essential that businesses adapt to the changes introduced and not ignore them. Detailed below are our practical strategies to help UK businesses protect the financial health of their businesses.
- Employee Costs:Be aware of and budget for rising National Living Wage (NLW) impacts on payroll, potential employer charges for pension support and rises in Employer national insurance. Consider who and how you employ resources more effectively. Consider apprenticeship schemes to grow talent from within. Employers using enhanced pension schemes as part of retention strategies will need to reassess benefits packages and cost implications.
- Business Rates: You should review your rateable value and eligibility for reliefs. Understanding any rise in rates on current property or property that you have earmarked in expansion or relocation plans need to be considered as larger premises may face revaluations.
- Renegotiate premises costs before April 2026 – With business rates being revalued you may find these costs are reflected in the cost of your premises. Negotiate fixed-rate lease amendments now to avoid unexpected increases.
- Fleet management – For businesses operating company cars and delivery fleets the changes to EV charges will need to be factored into costings and fleet strategies moving forward. Working out a cost analysis of all types of vehicles may prove beneficial.
- Dividend Tax: The higher tax rates on dividends, needs planning accordingly for director/shareholder income. Revisit the salary vs dividend mix, pension contributions, and possible share-option planning.
- Revisit supplier contracts – Research volume discounts or early payment to negotiate better terms. A small reduction in supplier costs can materially offset wage and operational cost increases.
- Claim all relevant tax relief – Small businesses often overlook incentives available to them. Tax advisers can help with this. Available relief can come in the form of Capital allowances on equipment and machinery purchases, R&D relief for eligible innovation projects and Enterprise Management Incentives (EMI) which brings employees into share ownership which can reduce payroll costs.
- Automate processes – investigate if you can automate processes to reduce operating costs.
- Review your funding solution – freed cash can support cashflow when tax, employee and operating costs are rising but can also fund growth. Invoice Finance can release funds from unpaid invoices within 24 hours providing a flexible and continuous source of funding to support cashflow gaps. If you are buying stock upfront against confirmed orders, trade finance may be a viable solution.
- Optimise stock holdings – if your business is reliant on holding stock, investigate effective inventory management tools which can provide real time visibility on demand and stock levels perhaps helping reduce stock holding freeing up cash.
Smaller firms feel the impact of these changes more than larger businesses which could have the ability to shoulder the financial impact because they work on tighter margins and less financial flexibility. By acting now, they can plan for and protect their businesses from these cost increases.
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How UK SMEs can protect their cashflow
