What’s at stake for small business owners in the run-up to the 26 November 2025 Budget?
As the Autumn Budget draws closer, small business owners across the UK are feeling more than a little uneasy. With economic growth sluggish and government borrowing stubbornly high, ministers have been dropping hints that “tough choices” are coming. That phrase usually means only one thing: tax rises or reductions in reliefs. Analysts estimate that the Chancellor may need to fill a fiscal gap of £20-30 billion, and many business owners naturally worry that SMEs could end up shouldering more than their fair share of the load.
If you run a small business, this Budget could influence everything from your tax bill to your recruitment plans. Rising costs, tightening regulation and squeezed margins have been familiar pressures for years, and threats of rising taxes have been around for a few years now. But this time, the threat feels bigger. There’s a growing sense that the government may look more closely at the SME sector as a source of much-needed revenue. Understanding the rumours now puts you in a better position to plan for whatever the Budget brings.
Everything discussed below can only be speculation at this point. But I have tried to summarise what has been circulating in the press over the last few weeks. EBA’s Budget Breakfast Seminar will cover the Budget and its implications in depth on 2nd December. I look forward to seeing the fifty clients that have booked on this – although I’m not so sure I’m looking forward quite so much to the news I’ll be delivering.
Lowering the VAT registration threshold
One rumour that’s gathering momentum is the possibility of the VAT registration threshold being reduced from its current £90,000. That may sound like a technical tweak, but its implications are enormous. Thousands of small businesses currently operate below the threshold to avoid the cost and administrative burden of VAT. If the threshold drops, more of them will be pulled into the system sooner than expected.
That means extra paperwork, new pricing decisions, adjustments to contracts, and potentially an unwelcome hit to cash flow. Small firms that have built their business model around staying below the threshold may need to rethink their entire approach. What remains unclear is how far the threshold might fall or whether any transitional support might soften the blow.
For growing businesses, especially those edging close to the threshold, this is one rumour worth planning for.
Dividend tax rises and enhanced reporting
Another rumour causing great anxiety relates to dividend tax. Many small business owners rely on dividends as part of their remuneration strategy, and speculation suggested the chancellor could push up dividend tax rates by around four percentage points across the board.
However, news hot off the press this morning has suggested that the chancellor has ditched plans to increase the main rate of income tax. The 20% rate was widely expected to rise to 22%, the 40% rate to 42% and the 45% rate to 47%.
However, these rates apply to all forms of income other than dividends, which have their own (lower) rates. Speculation had been for a four-point increase across the board for dividends, which would have taken the rate of tax on dividends from 8.75% to 12.75% for basic rate taxpayers, from 33.75% to 37.75% for higher rate and from 39.35% to 43.35% for those paying at the additional rate. Given what we’ve just learned this morning, the current rates may not change; or they may increase slightly, but by much less than the four percentage points previously mooted.
Some sources suggest the government may tighten reporting requirements – meaning directors might have to submit additional information each time they draw a dividend. That would add yet another layer of admin at a time when many business owners already feel swamped.
To plug the hole that would be left by leaving income tax rates unchanged, the chancellor may look at increasing tax on gambling and at levying a form of tax, the mechanics of which is as yet unknown, on expensive properties. She could also look at reducing the personal allowance and at (wait for it!) reducing the higher rate threshold from its current level of £50,270.
Salary sacrifice and employer NICs under scrutiny
Another area said to be in the chancellor’s sights is salary sacrifice. This scheme, popular among both employers and employees, allows individuals to exchange part of their salary for benefits such as pension contributions, in a tax-efficient way. Rumours suggest the government may restrict or cap these arrangements, particularly around pensions, as part of its wider plan to raise revenue. Reports that salary sacrifice for pension contributions will be limited to £2,000 per annum have been doing the rounds. How this might impact directors of small businesses, who often look to make large annual pension contributions in order to reduce their company’s corporation tax liability, is not yet known.
If that happens, the cost of employing people could rise. Businesses that rely on enhanced pension contributions or other salary-sacrifice benefits to attract and retain staff may need to rethink their offering. It’s still unclear whether the changes would apply only to new arrangements or also to existing ones but, either way, now is a sensible time to revisit your employee benefit strategy.
New National Insurance rules for partnerships and landlords
Partnerships and landlords may also be nervous. Some reports have suggested that rental income could be subject to an 8% national insurance charge, while partners in businesses could face employer-style NIC on their drawings. However, (and this is hot off the press this morning), I have learned that, apparently, the plan to introduce national insurance on partnership profits has been ditched following uproar from many legal and accountancy practices that operate as limited liability partnerships and whose partners would have been severely impacted.
Business rates reform and pressures on commercial property
Business rates have long been a source of frustration for SMEs, especially those on the high street. Rumours suggest that changes could be coming to reliefs currently available to retail, hospitality and leisure sectors. There is talk of rateable values shifting again, meaning some businesses might face higher bills.
For firms occupying commercial premises, this could translate directly into higher overheads. For businesses servicing landlords, such as maintenance firms and property contractors, the effect might be indirect but still significant. If landlords face higher costs, they may pass them down the chain or delay essential works. Small businesses operating on tight margins may feel the squeeze almost immediately.
Potential tightening of capital gains tax (CGT) reliefs, business asset rules and inheritance planning
On the longer-term planning side, speculation continues around possible changes to capital gains tax and inheritance tax rules. Some sources suggest that business asset disposal relief (formerly known as entrepreneur relief) might be tightened, or that CGT rates could rise. Others believe the chancellor may introduce a lifetime cap on tax-free gifts, which would affect family-owned businesses and succession plans. Others expect the long-standing seven-year rule on gifts to be extended to ten years, meaning that you’d need to make gifts more than ten years prior to your death to avoid a potential inheritance tax charge on the value of the gift.
For business owners thinking about selling, handing over the business to family members, or restructuring shares, any change in these areas could be significant. The uncertainty makes it a good idea to review exit strategies sooner rather than later, even if only to understand the potential scenarios.
Stealth taxes through threshold freezes
While the big rumoured changes grab attention, there’s also the quieter, less dramatic (but highly impactful) issue of frozen tax thresholds. When thresholds remain the same, but incomes rise with inflation, individuals pay more tax without any explicit rise in rates. It’s known as fiscal drag, and it’s surprisingly powerful.
For small business owners whose income has crept up in recent years, the freeze could already be eroding disposable income. If the freeze extends beyond 2028, as some expect, the effect may become even more noticeable. Even without new tax announcements, your tax bill could climb. We already know that thresholds like the £12,570 personal allowance and the £50,270 higher rate threshold are remaining frozen until 2028, but rumour has it that this “big freeze” will now be extended until 2030.
As mentioned earlier, the stealth effect could actually be a lot worse than this, with whispers circulating that the thresholds could actually be reduced, now that the chancellor has apparently decided not to raise the main rates of income tax.
Other rumoured changes
A few additional whispers are circulating, too. Some involve VAT potentially being extended to private-hire transport bookings. Others relate to the next stage of Making Tax Digital, which will add new reporting obligations for sole traders and landlords from 2026. There are also predictions of further increases to the National Minimum Wage, which would raise payroll costs for employers.
As I said earlier, none of these changes is confirmed, but together they paint a picture of an environment where operating costs seem more likely to rise than fall.
Hopes versus fears
Most small business owners have a clear wish-list for the Budget: stability, simplicity, and fewer administrative burdens. Unfortunately, the rumours suggest the opposite may be more likely. Many fear a combination of higher taxes, tighter reporting rules, shrinking reliefs and rising employment costs.
The biggest worry, however, is uncertainty. Businesses don’t just need fair policy; they need time to plan for it.
What this means for your business
Although these rumours may or may not materialise, it’s worth spending a little time preparing. Scenario planning can help you anticipate how changes might affect your tax bills, staffing costs or cash flow. You might want to review your remuneration strategy, especially if you rely heavily on dividends. Getting the right mix of salary and dividend is something that, as you’ll know, EBA advises closely on. The current “rulebook” may be torn up after this Budget, with the advice being to take a bigger salary and less in dividends. It’s impossible to say what that advice will be until we have a clear picture of the new tax landscape.
If you’re close to the VAT threshold, consider how a lower limit might affect pricing or turnover.
If you’re planning an exit, restructure or succession, it may be wise to review those plans now, while the current rules still apply. And with the possibility of rising costs across various areas, carrying out a cash-flow stress test is always sound practice.
Above all, stay informed. Read my post-Budget newsletter in depth. Come to our Budget Breakfast Seminar and learn about what it all means for you.
Final thoughts
While none of these rumours is guaranteed to become reality, the direction of travel seems clear: the Government needs revenue, and SMEs (and their owners) may be part of the solution. That doesn’t mean panic, but it does mean preparation. The more proactive you can be now, the less disruptive any changes will feel later.
