I am sure that I wasn’t the only person watching the budget somewhat disappointed with the playground-style antics of our politicians hurling abuse at each other across the House of Commons whilst the Budget was being delivered.
There are some big changes which we are still digesting but what does it all mean for your business?
The Headlines
There are a lot of changes so we will look at the initial headlines to consider:
- An increase in national minimum wage from April 2026
- Changes to dividend tax and savings income tax from April 2026 and April 2027 respectively
- Salary sacrifice changes for pension contributions from April 2029
- Business Rates changes
- Mileage charge on Electric Vehicles
- Potential changes around EMI, EIS and VCT schemes
- Changes on tax rules for Employee Ownership Trusts
- Transfer pricing for international companies
Some of the provisions will still require clarity and we only have headline concepts.
Minimum Wage Increase
Minimum wage is set to increase by 4.1% to £12.71 per hour for adults over 21 years old and there is an increase of 8.5% to £10.85 per hour for 18-20 year olds.
There is an indication that the Government will move to abolishing the different rates for 18-20 year olds and adults above 21 years old in the coming years.
This means that a full time adult employee, working 35 hours per week, will have an annual salary of £23,132.20. By the time you add Employers National Insurance plus Employer pension contributions, the cost to the employer will be approximately £27,296 per annum from April 2026.
It needs to be kept in mind that the national minimum wage on 31 March 2025 was £11.82 per hour and the rate of Employers National Insurance Contributions was 13.8% before the increase. Consequently, the cost of a full time minimum wage employee on 31 March 2025 would have been approximately £25,126 per annum including employers pension and NI contributions.
Overall the cost of minimum wage employees has increased by approximately 8.6% in just over a year (as between 31 March 2025 and the same cost base on 1 April 2026).
Inevitably this is a challenge for businesses who will probably need to look at wide pay reviews across the workforce. Businesses ought to be considering their pricing structure at this stage.
If you are in a sector, such as care services, where you are subject to local authority or similar government contracts, these will probably include provisions for periodic, normal annual, review of rates. You need to check the deadline for these now to ensure that applications are made in time to increase your rates in line with your increasing cost base.
Dividend Tax and Savings Tax Increases
Tax on dividends will increase by 2% from April 2026 and similarly tax on savings will increase by 2% from April 2027.
For those business owners who take the majority of their income as dividends, consideration may need to be given as to whether this is still the most economic manner to take income bearing in mind that the Company will have paid an elevated amount of corporation tax compared with owners were paid via a PAYE salary.
Tax on savings is also increasing by 2%. This also appears to fall in line with the reduction in the allowances for Cash ISAs to £12,000. In my view, the encouragement from the Government is to compel savers to invest more in stocks and shares ISAs (which will still benefit from the £20,000 annual allowance) with a focus on UK companies. This may be beneficial for listed businesses but is unlikely to assist the SME market.
Salary Sacrifice Pension Schemes
In recent years, many companies have moved to salary sacrifice schemes as a means on decreasing national insurance contributions.
The Government have announced that this relief will be reduced from April 2029 so that only the first £2,000 of the contributions, per person, are exempt from national insurance.
This will need to be factored into future cash flow forecasts. Fortunately, there is plenty time to plan for this.
Business Rates Changes
We await more details on this but the initial announcement indicates that there will be more preferential treatment of business rates for retail premises but that this preferential treatment will be funded by an elevated charge of Business Rates on commercial premises with a value over £500,000.
I am sure more information will follow on this but if you are a business operating from a large warehouse-type premises, it appears that your underlying cost base will increase.
The changes may however be good news for retail units and associated landlords, particularly given the indicative import duty to be applied to online retailers who don’t have the cost of premises currently.
Mileage Charges on Electric Vehicles
It has been announced that there will be a 3p per mile charge for owners of electric vehicles. There are continuing relief on the costs of installing EV charge points for businesses so there is still an encouragement to transfer business fleets to electric vehicles.
However, consideration will need to be given to the increased costs of operating electric vehicles, particularly if the vehicles are being taken out on 3-4 years leases as the latter part of the leases will be subject to the additional charges set out above.
There may well be a practical issue as to who is liable for this charge depending on the nature of the lease and who is deemed to be liable for the charge, for instance whether it is the owner (who would be the leasing company), the company taking out the lease (i.e. the business) or the actual user of the vehicle (being the employee).
This will need some thought sooner rather than later as it may mean changes to employment contracts or lease agreements to factor in the cost.
Changes to EMI, EIS and VCT provisions
Rachel Reeves announced at the outset of the Budget that she intended to change rules concerning EIS schemes and VCT schemes so as to encourage investment in UK companies.
We haven’t yet seen the details on this but theoretically this may be a positive opportunity for businesses seeking investment if the scope or reliefs available from such incentives are expanded. Currently these schemes offer tax incentives to invest in UK businesses but the schemes are subject to limitations in terms of the types of business eligible and amount which can be raised.
This may also be beneficial for investors and we await more information on this.
An EMI scheme is a tax advantageous scheme to allow employees an opportunity to acquire shares in companies on favourable terms. It remains to be seen as to how this scheme may be amended. Currently there are limitations, such as a limitation of the scheme to 10 years, which may be reviewed.
Changes on Employee Ownership Trusts
Disappointingly, the Government have changed the tax relief available for business owners looking to transition to an EOT. Previously, business owners could transition to an EOT and this was exempt from capital gains tax.
The announcement today has confirmed that owners selling to an EOT will now only qualify for a 50% relief against normal CGT rates. This change comes into effect immediately.
EOTs continue to benefit from significant tax advantages and business owners will still receive significant tax benefits of transitioning to an EOT but further thought will need to be given to the repayment structure on EOTs given that there will be a tax burden for sellers to pay.
For those who are currently mid-transaction, planning will need to be undertaken to plan for this additional tax.
Transfer Pricing
Whilst not within my field of expertise, there appears to be changes relating to transfer pricing which will impact businesses with international structures and expert tax advice should be taken on this.
As ever when there is a budget, businesses will need to adjust to the changes. Many of the changes do not come into effect for some time so there is time to plan for this.
If you need further advice, please contact Richard Coulthard on 0113 284 5000 or email Richard.coulthard@isonharrison.co.uk
