Introduction
After months of rumours and speculation, the Budget was finally delivered last Wednesday.
As expected, the chancellor announced measures to increase tax revenue for the Treasury, although in many ways, it could have been much worse. There has been much ‘tinkering’ with rates, allowances and thresholds, so there’s actually more than might have met the eye to ponder over. I have, as usual, spent a long time trawling through all relevant information to compile the following analysis, so I ho0pe you find it useful.
As always, if you have any questions, please don’t hesitate to ask.
Corporation tax
The corporation tax rates and thresholds remain unchanged. Taxable profits up to £50k will continue to pay 19%, with profits of between £50k and £250k taxed at 26.5%. A flat rate of 25% continues to apply to profits in excess of £250k. The chancellor announced her intention to leave these rates and thresholds unchanged until 2030/31.
The £100 penalty for late filing of a company tax return will double to £200. This will apply to all company tax returns with due filing dates of 1st April 2026 onwards, so it will apply to companies with year-ends of 30th April 2025 and beyond.
Pensions
With the exception of employees paying into pensions using salary sacrifice schemes (which I’ll cover later), there have been no changes. The annual cap of £60k for payments into pensions still applies and the 25% tax-free lump sum remains in place for those looking to extract monies from their pension fund. The ‘lump sum allowance’ remains at £268,275. That’s the maximum amount that you can take out as your 25% tax-free lump sum. If you think it seems an odd figure, it’s because it is 25% of the old ‘lifetime cap’ which was abolished a couple of years ago. The lifetime cap used to be £1,073,100.
A fear that national insurance may have been introduced where companies pay into directors’ pensions did not materialise at this Budget, although it must be a possibility in the remaining Budgets under this government.
Dividend tax increases
The chancellor announced increases in the tax rates for dividend income, as suspected. It was something I speculated on in a recent blog post. From 6 April 2026, the basic rate will increase from 8.75% to 10.75% and the higher rate will increase from 33.75% to 35.75%. There will be no change to the 39.35% paid by additional rate taxpayers.
For a typical director-shareholder taking a £12,570 salary and dividends of £37,700, their self-assessment liability will increase as result of this from £3,255 a year to £3,999 – an increase of £744.
I usually advise clients to declare as much dividend, each tax year, as the company’s reserves allow, subject to (where possible) not taking the individual client into the higher rate band. This strategy will be even more important as we approach the end of the 2025/26 tax year. In other words, get as much dividend on your tax return at 8.75% as you can – even if you don’t need to take the cash out of the company. Let the dividend sit in your director’s loan account and take the cash next year.
On a slightly brighter note, the £500 dividend allowance (making the first £500 of dividends tax-free) remains in place. I had expected that to go.
Property income tax increases
Income tax rates will also increase for those with property income, again by 2%. However, these rate increases won’t kick in until 2027/28.
From 6 April 2027, the basic rate will increase from 20% to 22%, the higher rate will increase from 40% to 42% and the additional rate will increase from 45% to 47%. Tax relief for finance costs (mortgage interest) for landlords will be given at the new 22% rate, rather than 20%.
Savings income tax increases
Savers are in the same boat as landlords in that they will suffer the same increased rates of income tax, although, again, this only kicks in from 2027/28. The basic, higher and additional tax rates for savings will be 22%, 42% and 47% respectively from 6 April 2027.
Allowances and thresholds frozen for longer
The government plans to maintain the income tax personal allowance at £12,570 and the higher rate threshold at £50,270 until (wait for it) April 2031. Before this week’s Budget, all thresholds were supposed to be frozen only until April 2028, with them starting to increase by inflation from tax year 2028/29. The freeze has been extended for a further three years, which will drag many people into paying higher rate tax for the first time as their incomes increase. The additional rate threshold will also remain at £125,140, as will the £100,000 threshold at which the personal allowance starts to diminish.
National insurance thresholds and rates
For national insurance (NI), the threshold at which employees start paying 8% NI will be held at £12,570. Beyond £50,270, the NI payable by employees continues to be 2%.
Employer’s NI will continue to be paid at 15% on all salaries in excess of £5,000.
Again, all of this stays the same through until April 2031.
National insurance on veterans’ salaries
Also worth noting is that employer’s NI relief for veterans has been extended until at least April 2028. There is no employer’s NI for a company to pay on the first £50,270 of salary for a veteran during the first year of their employment. That means that, if you recruit a veteran on a salary of £50,270, your company pays no employer’s NI compared with the £6,791 your company would pay in employer’s NI for other employees on that salary.
Employment allowance
The employment allowance for 2026/27 will continue to be £10,500. This has not been locked in until 2031, however. The employment allowance exempts qualifying employers from having to pay the first £10,500 of employer’s NI each year.
Self-employed national insurance
Until April 2031, the self-employed will continue to pay 6% NI on profits in excess of £12,570 and 2% on profits over £50,270.
Student loans
The threshold at which student loans under Plan 2 are repaid will remain frozen for three years from 6th April 2027.
National minimum wage (NMW)
From April 2026, over-21s will see an increase of 4.1% in the NMW, taking it to £12.71 per hour. Those aged 18020 will get an 85p increase (8.5%) to £10.85 per hour. Under 18s and those on apprenticeships will see a 6% increase, up by 45p an hour to £8.00.
Electric and hybrid cars
As widely speculated over recent weeks, the chancellor announced the introduction of Electric Vehicle Excise Duty (“eVED”) to be charged at 3p per mile for electric cars and at 1.5p per mile for plug-in hybrids, increasing annually with the consumer price index. eVED will be paid based on estimated mileage, with an adjustment for actual mileage being made, presumably when the car is three years old and requires an MOT. Mild hybrids (which don’t need to be charged from an external charging point) will escape the new charge.
A couple of other points are worth noting. Firstly, the 100% first-year tax allowance for brand new, fully electric cars has been extended to (at least) 31st March 2027. This allows companies to write off, as a tax-deductible expense, the entire cost of a new electric car in the year of purchase.
Secondly, for hybrid cars, the 100% first-year relief is no, and has never been available. Instead, as long as the CO2 emission rate is less than 50g/km, the company has been able to claim tax relief of 18% of the cost of the vehicle each year, on a reducing balance basis. That rate drops to 14% from April 2026, meaning that the tax relief on hybrids will be ‘drip-fed’ over a slightly longer period.
Company car benefit in kind
Although the increase to company car benefits have been known for some time, and were not ‘new’ to this Budget, it’s worth remembering that the charge for electric, zero-emission cars rises from 3% to 4% of the car’s list price when new (plus any ‘extras’) as from April 2026. The benefit in kind charge for other cars with emissions below 75g/km also increases by 1%. These benefit in kind rates will increase gradually over the next few tax years, up to an including 2029/30.
Hybrid drivers will be particularly badly hit by the rising charges, so the government has announced a temporary easement to help drivers cope with the additional tax costs. We’ll let you have more detail on this when we have it.
Reporting benefits in kind
From April 2027, benefits in kind must be reported in real time through payroll. This means that it will be imperative that you tell us if someone starts driving a company vehicle (or stops, or changes vehicle), as well as letting us know immediately of any changes to payments made for each member of staff for private medical insurance.
Fuel duty
The government intends to extend the temporary 5p fuel duty cut first introduced in the Spring Statement 2022 for a further five months. The cut will be reversed as follows: 1p on 1st September 2026, 2p on 1st December 2026 and 2p on 1st March 2027, meaning a full return to rates at pre-March 2022 levels.
Electronic invoicing
From April 2029, all VAT invoices for business-to-business transactions will have to to be issued in a specified electronic format. An implementation programme for e-invoicing will be published at next year’s Budget.
Research & development (R&D) tax relief
There have been no changes announced to the tax relief rates for R&D.
Over the past few years, more and more companies submitting R&D claims have been subjected to HMRC enquiries, which has put many businesses off submitting a claim. A pilot scheme will be launched in Spring 2026, aimed at providing SMEs with advance assurance that their claim will be successful.
Employee Ownership Trusts (EOTs)
Company owners, looking to take large sums of money out of their companies by selling their company to an EOT have been able to do so without paying capital gains tax (CGT) on the transfer of the shares to the EOT. Instead, they take cash out of the company in lieu of payment for their shares, tax-free.
However, with immediate effect 9from 26th November 2025), the chancellor announced that this rate of relief will reduce to 50%. So, 50% of the transfer value of the business will be treated as a taxable gain for CGT purposes.
However, the exiting shareholder will not have to pay the CGT due on this 50%. Instead, the gain (i.e. the 50% value) will be rolled over and deducted from the trustees’ acquisition cost, leaving them to pick up the CGT bill if they subsequently sell the shares.
Capital gains tax (CGT)
No further changes to CGT were announced. The £3,000 annual exemption stays in place, meaning that you can dispose of assets and pay no CGT on the first £3,000 of gains. The amount of CGT payable on gains in excess of this depends on whether the gains, when placed on top of all your other income for the tax year, takes you over the £50,270 higher rate threshold. Any gains sitting within the basic rate band will be taxed at 18%, with gains lying above the £50,270 higher rate threshold attracting a 24% rate.
Business asset disposal relief (BADR), previously known as entrepreneur relief, is available when you sell your business. There’s a lifetime cap for BADR of £1m, but let’s assume you haven’t used any of that yet. If you were to sell your business currently, for say £1.5m, then BADR covers the first £1m and you’d pay 14% CGT on that first £1m. The remaining £500k would be taxed at normal CGT rates, so 24%. The total CGT payable would therefore be £1m x 14% plus £500k x 24% = £260k.
Whilst this Budget contained nothing new, the chancellor had already announced (at her first Budget in Autumn of 2024) that the 14% rate applying to BADR would increase, from 6th April 2026 to 18%. So, from 2026/27, the same £1.5m gain on disposal of your business will have a total CGT cost of £1m x 18% plus £500k x 24% = £300k.
So, if you are in the process of agreeing a sale of your business, make sure it happens before the end of the current tax year. There is no plan to increase the 18% BADR rate any further, by the way.
Stamp duty
Stamp duty relief is being introduced for UK listings. The relief will run for 3 years following the listing. The initial shareholders and subsequent shareholders won’t have to pay the usual 0.5% stamp duty on the purchase of their shares for three years after the initial listing of the company. This applies to all listings from 27th November 2025.
High Value Council Tax Surcharge (HVCTS)
Lots of speculation existed prior to the Budget of a ‘mansion tax’. Well, this is it.
A new HVCTS comes into force from 6th April 2028 for residential properties valued at £2m and above.
For residential property with values between £2m and £2.5m the HVCTS will be £2,500 per year, with graduated rates increasing to a maximum rate of £7,500 per year for residential property with values above £5m. The government will increase these charges in line with the CPI each year from 2029/30 onwards. It will be payable by the owners of the properties (not necessarily the occupiers) alongside normal council tax.
The government expects that fewer than 1% of properties in England will be above that £2m threshold and intends to revalue properties every five years.
Venture capital trusts (VCTs)
Currently, it’s possible to reduce your income tax liability by 30% of the amount you invest in VCT shares. From 2026/27 that drops to 20%.
For example, let’s suppose your income tax liability for 2025/26 is going to be £20k. By purchasing shares in a VCT by 5th April 2026 costing £10k, you’d get a £3k (30%) credit against your income tax liability, meaning it would reduce from £20k to £17k.
For the following tax year, that credit would only be £2k (20%).
Inheritance tax (IHT)
There had been murmurings of radical changes to IHT, including amending the 7-year rule for gifts, by extending it to 10 years. This didn’t happen.
The current nil-rate band of £325,000 and the residence nil-rate band of £175,000 will remain frozen until April 2031.
The £1m combined allowance for agricultural property relief (APR) and business property relief (BPR) will also remain frozen until 5 April 2031. This means that the first £1m of value in your business can be passed on to the next generation tax-free. The remaining value will, from 6th April 2026, be subject to 20% IHT (half the usual 40% rate). This was announced a year ago but only comes into effect in 2026/27.
On a positive note, there has been a concession from the chancellor – possibly due to pressure exerted by the farming community over the past year. She announced that any unused APR or BPR can, from 6th April 2026, be transferred to your spouse. So, if your spouse dies first, without using any BPR, for example (because they didn’t own business assets), then you would pick up their £1m BPR allowance, meaning you could leave a business worth £2m to the next generation without any IHT being payable on it. The 20% IHT rate would kick in beyond that. This transferability, from 6th April 2026, will apply even if the spouse died prior to 6th April 2026. So, this is quite a big concession in favour of business and farm owners.
However, also announced last year, we know that, a year later, from 6th April 2027, unused pension funds will drop into your estate for IHT purposes, burdening your beneficiaries with a 40% IHT hit on the pension’s value.
Business rates
The business rates multipliers that will be applicable for the April 2026 rating list following the recent revaluation have been announced, with the aim of supporting the retail, hospitality and leisure sectors with lower multipliers.
In order to fund this, the government is introducing a higher rate on the most valuable properties (those with rateable values of £500,000 and above).
Following the 2026 revaluation, both the small business and standard multipliers will fall, so even properties on the higher multiplier will pay a lower tax rate than they do now on the standard multiplier.
Transitional relief programmes will help make any upward changes in business rates liabilities more manageable, in the event that they have seen their rateable values increase as a result of the 2026 revaluation.
Salary sacrifice and pensions
Currently, employer contributions to registered pension schemes are exempt from employer’s and employee’s NI.
From April 2029 (so this is some way off yet), salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from NI from. After the change, salary-sacrificed pension contributions above £2,000 will be treated as ordinary employee pension contributions and be subject to both employer and employee NICs.
As this is almost three and a half years away, start planning for it now with your recruitment strategy. Instead of offering a new starter a £60k salary, for example (which takes them into higher rate tax) and then allowing them to ‘salary-sacrifice’ some of it, offer them a salary of say £50k (all at basic rate) plus an employer pension contribution of £10k. Because that was the original offer, the £10k pension contributions will not be caught under salary-sacrifice arrangements. Equally, think about offering employer contributions to existing staff now, rather than giving them pay increases.
VAT
There were threats that the VAT registration threshold might drop – quite dramatically. This didn’t happen. It remains at £90k, with the deregistration threshold staying put at £88k.
Making Tax Digital (MTD)
Whilst this is not technically Budget news (we’ve known about this for ages), changes come into effect from April 2026 under HMRC’s MTD scheme. If you have self-employed income and/or property rental income (combined) of more than £50k in 2026/27, you’re going to have to file quarterly reports with HMRC. In 2027/28 the limit drops to £30k, capturing even more people, and then to just £20k in 2028/29.
Very few of EBA’s clients are impacted by this, but we know who you are and will be discussing MTD with you soon!
It was announced in this Budget that HMRC will not be proceeding with plans to introduce MTD (and quarterly profit reporting) for limited companies, so there’s a sigh of relief from us for that!
ISAs
The Chancellor announced that the maximum amount that can be annually invested into a cash ISA will be reduced from £20k to £12k from 6th April 2027. This will only apply to investors aged 65 and under; from age 66, it will still be possible to put £20k per year into a cash ISA. The chancellor’s aim is to get more people putting cash into stocks and shares ISAs.
The annual investment limits for the junior ISA and child trust fund accounts are frozen at £9k until April 2031.