Autumn Budget 2025

Dividend Taxes up

2% rise in dividend tax from April 2026

• £754 more tax for clients taking £12,500 salary & £37,500 dividends (to Higher Rate)
• £1,750 more tax for clients taking £12,500 salary & £87,500 dividends (to Retain Personal Allowance)

This was unexpected. When assessing sole trader vs limited company for tax reasons, sole traders look attractive. The marginal tax rate for a higher rate tax payer, with a company earning over £50,000 goes up to 52.8%, from 51.3% including all taxes. Oddly the Additional Rate of dividend tax paid by earners over £125,570 does not rise. Further discussion in Appendix 4.

Pension Changes

Widely trailed changes to Employer’s pension contributions from April 2029

1. Salary sacrifice capped to just £2,000 per person
2. Further pension would need to be deducted from wages or paid by employee

The implications of this are complex.

What was a brilliant tax break is no more. In conjunction with the changes to dividend taxes, this makes Limited Companies seem much less appealing. We need to look at the numbers in detail, but this is bad news for anyone paying large sums into pension. Broadly instead of potentially turning a business profit of £1,000 into £850 post tax pension (after a 25% tax free drawdown) you would be left with £680. Albeit still better than £472 as a higher rate dividend.

What you can’t do is simply pay the pension personally. Pension tax relief requires “relevant earnings”, which don’t include dividends. So to get tax relief on £25,000 of pension – you need at least a £25,000 salary. This incurs Employee’s NI, and for many, Employer’s NI too. The only glimmer of good news is we have until April 2029 to come up with a new strategy for your company. We will have a long think about this one…..

Capital Allowances

The ‘pool’ rate is reduced from 18% to 14%

This will have limited impact for our clients, as most capital assets are fully expensed in the first year, but for those with (say) a second hand EV, your writing down allowance just got smaller.

Late Filing Penalties Double

Late filing fees for Companies House accounts double to £200 for one month, £400 for up-to 3 months

These have not been increased for some time and to be fair had become rather trivial.

Already Announced

Please see Appendix Two for details on the new Corporation Tax Regime which is still very relevant.

Companies House Changes

There are number of changes at Companies House which are ongoing, which I cover again here.

Hopefully all directors have now verified their identify

The next step, is to add this to your Confirmation Statement on your normal due date. This completes the link from your ID to your company.

Major shareholders (>25%) who are not a directors, are PSC’s,  “Persons of Significant Control” who also need to undertake checks.  There is a different deadline based on your month of birth.  So if you are born in December, your date to do this is in a narrow window of 1st to 14th December.

For those who have not supplied us with your ID codes, please email over to Kelvin or I for our records. We will need these eventually to file your accounts. For PCS, you can’t do this early, but if you miss the very peculiar deadline, please do it when you can.

Business Asset Taper Relief (old news)

Increase from 14% to 18% from April 2026

This is the tax that is paid on selling a trading business. The main use by our clients is distributing reserves on closing a business without declaring dividends.

Tax Planning for Directors PAYE

Employer’s NI now starts at £5,000  for single director companies.

Most clients have now appointed a second director / Company Secretary to mitigate this change and claim the Employment Allowance which can save you up to £1,135 in Employer’s NI payments. There is still time to put this into place before the end of the personal tax year, but the clock is ticking.

Higher Income Taxes for Landlords

2% rise in income tax for landlords from April 2027

This was a rather unexpected tax rise on rents and will be unwelcomed by many of our clients who are already paying penal rates of tax due to the mortgage interest relief being a ‘tax reducer’ and not a ‘business cost’. I would have hoped any increases in the headline rate of tax for landlords would be balanced by reform of interest rate rules. My hope seems somewhat misplaced.  Burried in the notes, a glimmer of good news as the “tax reducer” for interest goes up to 22%.

Worth reminding you of:

Landlord’s Quarterly Reporting (MTD)

I have added some notes in Appendix 3 about this topic.

My least favourite topic due to the time wasted, but the great news is penalties seem to have been suspended for the first year, which may (TBC) make this voluntary for another year.

Changes to Furnished Holiday Lettings Rules

Furnished Holiday Lettings status removed from April 2025.

I think I have spoken to all relevant clients about this, but if you had an action point around changing the default 50/50 profit share between married couples, and have not put it into place using a deed of trust, and Form 17 application to HMRC, then please be reminded that changes cannot be made retrospectively. Time is of the essence.

60 Day Report and Pay

If you sell your let property any Capital Gains Tax needs to be reported and paid within 60 days of the sale, unless you sell during February or March and we can file your 2025/26 tax return before the 60 day clock runs out.

I keep putting this in, as we still get the odd surprised client who has overlooked this.

Interest

Savings tax rates increase from  20/40/45%, from 22/42/47% from April 2027.

This was a another unexpected rise and is supposed to bridge the fact that these incomes do not suffer NI. No similar rise was added to pensions.

ISA Changes

As heavily trailed, cash element of ISA’s to be capped at £12,000 for under 65’s from April 2027

The ISA rate remains £20,000, therefore you can invest say £12,000 in cash and £8,000 on the stock market, or all £20,000 on the stock market, but not the full £20,000 in cash. This seems rather unfair given the current consumer choice in what to invest in.  Stock markets are not for everyone, and I suspect many savers will simply save in an ordinary account outside of an ISA, rather than have an unwanted investment choice forced upon them. Pensioners however get special treatment and retain the full allowance. Unimpressed.

Mansion Tax

For homes over £2 million, a council tax surcharge starting at £2,500

This has been debated for some time, and essentially adds a Council Tax surcharge. Valuing homes close to price boundaries will be interesting as larger properties can have rather wide margins on potential valuations, much more so than smaller properties.  Moreover for the valuers it would be tricky to take purchase price + indexation based on properties which have been owned a long time or subject to considerable renovations or dilapidations.  So expect quite a lot of haggling!  Oddly the home owner pays, rather than the occupier.

VCT Reliefs

the VCT tax relief for investors reduces from 30% to 20% for investments from April 2026

This is a bit of an oddity found deep in the hundreds of supporting pages as Reeves spent a big part of her speech stating enhancements to VCT relief.

Already Announced

Sole Trader’s Quarterly Reporting (MTD)

I have added some notes in Appendix 3 about this topic.

As noted above under the landlords section, the great news is penalties seem to have been suspended for the first year, which essentially make this voluntary for another year. A cautious “hurrah”.

Company Car Benefit in Kind

The BIK band for electric vehicles currently 3% rises to 4% from April 2026.

This is the same policy as previously. Starting low, and rising slowly. It impacts those driving an electric company car. The benefit in kind rate is applied to the list price of the vehicle, and you and your employer are taxed on the computed benefit. Electric cars are still however a brilliant tax break, as are some hybrids, and look to be for some years.

Personal Tax Bands

The current freeze continues, until April 2031.

I talk more about fiscal drag below, but this is still big news. This is now to be extended out to 2031 i.e. 11 years!

EV Mileage Tax

3pm a mile to drive your EV from April 2028

Right now it is pretty modest. If you drive an average 7,000 miles per annum, it’s just £210 per annum, but I would expect this to go up sharply in time. The *how* it’s collected will be key here and subject to a consultation. Hopefully in a simple way via the DVLA VED charge, based on MOT records rather than fitting trackers or any other complex method.

Below I list some major allowances, and in brackets [date of last change, what the rate would be if it kept pace with inflation to Oct-25, and % effective reduction]

• Personal allowance stays at £12,570 [Apr-21, £15,961, 27% reduction]
• Higher rate threshold stays at £50,270 [Apr-21, £63,831, 27% reduction]
• Corporation Tax main rate remains 25% for profits over £250,000 [Apr-23, £268,021, 7% reduction]
• Corporation Tax 19% for profits under £50,000 [Apr-17, £67,930, 36% reduction]
• VAT threshold stays at £90,000
• Mileage stays at 45p for business use of private car under 10,000 miles, and 25p for additional miles [Apr-11 & Apr-02, 67.5p & 47p, 50% & 88% reduction]
• IHT threshold remains at £325,000 [Apr-09, £528,314, 63% reduction]
• IHT threshold for a married couple with a home announced 2017 remains at £1,000,000 [Apr-17, £1,358,601, 36% reduction]
• £100,000 threshold for loss of Personal Allowance remains (frozen since 2010) [Apr-10, £156,726, 57% reduction]
• £100,000 threshold for loss of Tax Free Childcare for Working Parents (frozen since introduced in 2017) [Apr-17, £135,860, 36% reduction]

One key background story which links into my notes about frozen allowances remains “fiscal drag”, that is to say not putting up key rates and allowance in line with inflation. What started as a way to flatter forecasts and defer political decisions, now seems to have been entrenched with most allowances frozen since 2019/20, which will be 7 years by the end of 2026/2027, in a period of around 35% inflation, and is now set to run to April 2031.

I have been discussing this topic for some time, but it is really affecting the ‘money in the pocket’ of many. It is not universal however. For basic rate tax payers who are employees, they have benefited from falls in National Insurance over the same period, neutralising the effect. However for those on professional level earnings it is significant. Take a middle manager earning £48,000 in 2020, still plodding away in the same job but with an inflation linked salary, they now earn £65,000. They are  pushed into the higher rate tax band by some margin, and will pay on average £200 a month more in taxes (after allowing for lower NI) than they would have if allowances had tracked inflation. The same pain is shared by all higher rate tax employees. It is no wonder many people are feeling the squeeze.

The loss of personal allowance at £100,000 which used to be fairly uncommon amongst our client base, is now a regular feature, an inflation linked band would now be approaching £160,000 now. It was only introduced as a temporary measure following the 2009 crash.

From an individual point of view, this actively stifles behaviour and spending. So clients facing a 60% marginal rate of tax will tend to  push more cash into pension than they would like, and forgoing day to day spends.  The same happens with the ceiling in Tax Free Childcare which was set at £100,000 in 2017 and would now be £136,000 if inflation linked.

To me, this is a major issue in terms of economic growth and GDP. If people have less in their pockets, they cant spend it.

The last 6 months have felt like the longest budget build up I can recall, with the papers speculating wildly on what might happen, aided and abetted by  various ‘leaks’ aimed at gauging the political fall out of various policy options.  Culminating in an apparent U-turn on policies which have not in theory been announced. This was already beyond parody before it was topped off by an early release of the OBR’s report an hour before the speech.

The deputy speaker read the riot act and said she “expected better”, not least for new announcements to only happen in the House as per the rules rather than leaks over months. Quite frankly so do I. The constant speculation is a time drain for everyone and is surely an overall negative to the economy. Talking of time drains, this speach lasted a whopping 70 minutes.

So where is Reeves?  Standing in an unsurprisingly rowdy House, after nearly 18 months in office, she is closing on Hunt’s 22 months and if still here in a year will have surpassed Rishi’s 29 month stint which is the longest serving out of the previous 6 and heading towards Hammond and Darling, with 3 years a piece back in more stable times. If. I will stress the “If”. Reeves was noticeably louder, stronger and more forceful than 12 months ago in her first budget. Clearly she is learning how to deal with the childish atmosphere of the House. The speech was quite hard to hear above the shouting (which is the loudest I have heard for many years), but it seems to be the same ‘blame the Tories’ game and trying to talk up growth. I have listened to far too many of these for much to register.

As for the economy, whilst there is no recession, neither is there any meaningful growth, or indeed any reasons why there might be some in the future. It is not automatic. Growth is important as public sector debt becomes more manageable with a larger overall economy.  Whilst debt is stable it sits at just below 95% of GDP, with the debt from past shocks such as Covid debts never repaid (and I am not just talking about that syphoned off to the Tory’s mates.) This matters as the interest repayments are huge and amount to around 9-10% of spending just servicing the debt. It’s over £100 billion per annum, or about half the annual VAT takings. Give the bond markets the jitters about the UK’s ability to pay – and the rates go up making everything much harder – good news however, rates fell slightly on the speech.

Usually the Shadow Chancellor responds to the Chancellor, instead we had Kemi launching a bizarre pre-prepared rant which amounted to a personal attack on Reeves, almost devoid of any reference to what had just been announced. One of the poorest responses I can recall, on what is a fairly low bar.

So how did she do?  Well Reeves seemed to treat pensioners as “untouchable” whilst hitting small business, savers and landlords, as well as continuing the squeeze on working people with fiscal drag. None of this will help with growing the economy. The push now on small business is very significant. We have gone from limited company structures being actively encouraged for the last 25 years to being actively punished. Marginal rates of tax of well over 52% for higher rate tax payers taking a dividend vs 42% for sole traders. Moreover it’s quite hard to ‘get out’ of a company and switch back to a sole trader. The hit to larger employers on pension will be significant as they expect to raise £5billion from this measure.

What didn’t happen is also of interest. There was a lot of fear about changes to pension draw downs and lower maximum contribution levels, but these did not come to pass. Pensioners are it would appear immune. Great if you are there, not so great if that’s still a long way off.

Overall I am not impressed with this budget.  Whilst special treatment for small businesses is not required, I do at least ask we are not pusished for having the guts to give it a go.  The only small glimmer of hope is “making tax digital” is now effectively voluntary for 2026/27 as there will be no penalties. A small hurrah for that, but as for everything else……….we are going to have to do a lot of planning with clients in the next couple of years.

James Smith

6pm 26th November 2025

The following gives some “ready reckoners” on what money to take from your small limited company, and how much your personal tax will be

Broad Strategies

Your gross income from the company (dividend+salary+other income) should be:

£50,270 if you want to stay basic rate

£60,000 if you want to keep all your child benefit

£100,000 if you want to preserve all your personal allowance

£125,140 if you want to avoid the additional (45%) rate of tax

You can then use the following rules of thumb for how much tax to keep back:

I have historically published tables to give typical extraction strategies undertaken by small Limited Companies and how they change as the tax bands change, however this has got so complex with the various bands of Corporation Taxes, salary strategies and other ‘noise’ there are now very few “normal” cases.

The interactions between company taxes, payroll taxes and personal taxes are so complex now we are having to plan each client on their own merits to optimise profit extraction and tax policy.

I enclose however some general pointers for those looking at their tax efficiency.

Things to Consider

The following costs are “no brainers” for most (but not all) clients, regardless of income.

• Having two directors and paying salaries to £12,570 for at least one of them
• Gross Company Pension Contributions vs payments out of net pay.  Well not from April 2029
• Company phones for each director (private use permitted)
• Take an “annual event” at £150/per employee (plus a guest)
• Electric vehicle as a company car [25 to 40% saving, reducing over time due to tax change and initial age of vehicle]
• Hybrid vehicle as a company car [5 to 20% saving again benefits reduce over time, and initial age of vehicle]
• For those working from home, a home office rental agreement

**Not updated today, there seems to be a 12 month suspension to penalties which may make this optional for the first phase**

Long term readers of these circulars will have noted my commentary on this for the past 10 years. This project requires quarterly reporting for sole traders and landlords in addition to a final tax return using a new (and yet unseen) tax return.

HMRC seem to be determined to finally launch this in April 2026 “ready or not”, (and they are still not) so you will be seeing a lot about this in the press and in particularly heavy advertising from software companies who are doing their best to pretend it’s compulsory to use their products.

I have contacted clients who we think will be in the first wave recently with more information, for you the strategy is the same:

• Don’t sign up for anything
• Don’t buy any software unless you want it anyway
• Wait for us to either instruct you to sign up or seek an exemption

We plan in general to deal with this with your next tax return on a case by case basis. You can officially miss the first two deadlines (5th August & 5th November 2026) without penalty, and we suspect if you are not signed up the ‘missed deadline’ clock won’t start, so there is little incentive to sign up by the end of March, no matter how many times HMRC contact you.

Overview

Criteria and start dates:

Total turnover (rental business PLUS sole trader incomes)

• More than £50,000, April 2026  [Based on your file 24/25 tax return]
• More than £30,000, April 2027
• More than £20,000, April 2028

File What?

• Landlords               Rents only (One total figure a quarter)
• Sole Traders           Sales, and total expenses (two total figures a quarter)

File When?

• Quarter End                       Deadline
• Jun 2026                            7^th Aug 2026
• Sep 2026                           7^th Nov 2026
• Dec 2026                           7^th Feb 2027
• Mar 2027                           7^th May 2027
• Final Return                     31^st January 2028

File How?

• From bookkeeping software, or
• From excel with a plug in (which you will need to pay for), or
• Via a third party, or
• Via your accountant

File Why?

Because HMRC say so. To be clear this is not “five tax returns” as the quarterly data has no tax function at HMRC’s end. It’s proper old fashioned “busy work”

Do’s and Don’ts

These remain the same:

• Don’t buy software unless you actively want to use it for your record keeping
• Do use a dedicated business account
• Don’t sign up for the pilot, or the real thing

On a basic level the key questions right now are:

1. Is a limited company still right for my business?
2. If not, how do we go about closing it?

It is not possible to give a one size fits all answer, so let us look at some key factors of why companies are helpful, and when they are not. I am talking to all our relevant clients about any decisions to close, largely with your company year end work.

The following looks at “business profits”, so before director’s salaries. Payment of pensions will suppress business profits but this as I note above wont be an option from April 2029.

Headline Rates

The headline marginal rates of tax for Companies vs Sole Traders from April 2026 are:

Basic Rate Tax Payers, 28% vs 26% (from 26% vs 26%)

Higher Rate  Tax Payers 53% vs 42% (from 51% vs 42%)

The only sweet spot is profits of around £55k-£70k. The reason this point is good is that a sole trader would be entering higher rate tax at £50,270 of profit, but those working through a company remain basic rate tax payers as dividends are paid “post corporation tax”, and remains favourable despite the higher tax on dividends.  Something similar happens at the £100,000 band, where personal allowances are withdrawn, but sole traders still pay less in most cases I can quickly model.

Other tax Reasons

• Flexibility. One of the key strengths in having a limited company is the ability to “duck under” tax bands. A sole trader or partnership pays tax on an “arising” basis and has no flexibility about when you pay tax. If your income is sometimes below £50,000 profit, and sometimes much higher, then this will save you tax simply by smoothing your profit over all periods.
• Perks. There are a number of tax perks and quirks in having a company which can outweigh any headline rate differences. The biggest is an electric car.  At the smaller end is a perk phone (sole traders would be prorated for business use). Pension tax relief is also enhanced with a company, as there is no National Insurance if made via a gross company contribution.

Non-tax reasons to have a company

• Limited liability. If a sole trader fails, then you would be personally liable for the business debts. Similarly you are responsible personally if there was a claim against you for say negligence. This may not really be significant if you mainly sell your time and all business risks are comprehensively insured. If this is important a Limited Liability Partnership might be an option.
• Commercial Reasons. Will this affect your sales? For contractors, it may not be possible to even contract to an end client as a sole trader. For some businesses, you may not be able to get access to trade accounts. There may also be a perception about how “serious” your business is, but this is often more in the business owner’s mind.
• Reporting. You may end up having to deal with the “making tax digital” program and quarterly reporting if your turnover exceeds £30,000.  This is not on the cards for small limited companies but  make the costs of being a sole trader not much less than being a limited company. LLP’s compliance costs are about the same as a limited company.

Disincorporation Blues

Moving from a limited company to a sole trader can be problematic, some of the issues include:

Goodwill

The key issue for many business is they have inherent “goodwill” that is to say the value of the business which exceeds its balance sheet. A solvent business seeking to move from a limited company to a sole trade, would need to consider this, value it, and pay corporation tax on the value as part of the disincorporation process.

Disincorporation relief used to exist up until 2018, but does not seem to have been put back on the statute:

In short, this can get expensive if you are a “proper” business which could be sold to a third party. If it’s just a personal service business, then you are probably OK.

Banking and Practical Matters

• You will need to open new business accounts as a sole trader, including payment processors
• Any loans and debts in the company will need to be repaid or refinanced
• Contracts etc will need to be updated and resigned
• Payment details will change with customers for the new bank account

Reserves

If you have reserves built up in the company, you will need to (generally) declare those as a dividends which would generally give rise to a large tax bill.