Autumn Budget 2025: Impact on Owner Managed Businesses 

Overall, the budget was not as painful as many feared, but there are still areas that will leave some business owners and investors smarting. 

So many taxes were threatened, and so many threats were then not actioned, that we have ended up with a strange mix of tax changes where you can still see the shadows of proposals that were planned but later dropped. You can also see the legacy of twenty years or more of previous budgets, which restrict the Chancellor and prevent what might otherwise appear to be more logical decisions. 

Politics always makes tax complicated. 

Are Limited Companies dead? Dividends vs Salary vs Self Employment 

Dividend rates for company owners are increasing by 2% for amounts in the basic and higher rate tax bands. From April 2026, these will rise to 10.75% (basic rate) and 35.75% (higher rate).

This raises two questions:

• Is it now more tax efficient to draw all your income as salary?
• Is it still tax efficient to structure your business as a limited company?   

Despite an increase in the dividend tax rates, for a small business owner with a limited company, taking a small salary and the rest of your income as dividends continues to be more tax efficient than drawing salary alone. 

It is about £805 more tax efficient each month if you earn £100,000 a year. We will, however, see an increase in the effective rate of tax for a limited company owner of around 1.5 percent for drawings within the basic and higher rate bands. 

Dividends vs Salary 

Based on our initial calculations, a limited company owner paid £50,000 through a mix of salary and dividends is likely to have net income of about £3,840 per month. Someone earning the same amount entirely through salary would receive about £3,293 after Income Tax and National Insurance (NI). Over the course of a year, someone being paid via dividends and a small salary would be more than £6,500 better off. 

For a limited company owner paid £100,000 before tax, the saving increases to more than £9,665 a year. 

The net impact of Employer NI charges and Corporation Tax savings on a salary does not outweigh the improved net income achieved through dividends. There are, however, situations where salary-based remuneration for a company owner becomes more viable. For example, where profits are too low to pay dividends or where the company benefits from reliefs such as R&D tax credits. 

Limited Company vs Self Employment or LLPs 

Many of our clients will know that we have always been fans of LLPs, being structured as one ourselves, and the increased dividend rates do mean that in some circumstances something other than a limited company may offer better tax outcomes. 

Dividends are paid after Corporation Tax, meaning company profits are taxed at the Corporation Tax rate before dividends are considered. Profit extracted from a company through dividends is therefore effectively taxed twice: Corporation Tax is charged first, with the remaining profit drawn by the individual being taxed at dividend rates.  

With the increase in dividend rates, the combined rate of Corporation Tax and dividend tax can, in some cases, exceed the tax paid by self-employed individuals. The drawback of self-employment is that any profit you do not draw is still taxed at your highest Income Tax band. This means that businesses generating profit beyond the owner’s personal spending needs may still be better structured as limited companies. 

Below is a comparison of effective tax rates for companies paying 25% Corporation Tax, compared to self-employment: 

Effective Rate of Tax – Ltd vs Self-Employment / LLP  

In conclusion, if you run a business without employees and you intend to draw all profits for personal use rather than invest or contribute to pensions, self-employment or an LLP may be more tax beneficial. 

If you expect profit to be tied up in working capital or to exceed your personal living needs, a limited company may remain the better option. 

Making Tax Digital: Quarterly reporting for the Self-Employed  

There are also changes coming in from April 2026 where self-employed individuals (but not partnerships or LLPs) will need to submit digital income and expenditure reports to HMRC every quarter under the Making Tax Digital regime. Any self-employed person who does not already operate a digital bookkeeping system will need to get one! We will be updating our guidance on this in the coming weeks. 

Forecasting your individual personal requirements and the business performance remains essential to getting this right. We can help with forecasting, personal tax planning, and breakeven analysis for our clients. 

What does National Insurance applying to Salary Sacrifice Pension contributions mean? 

The announced changes to pension contributions for those using salary sacrifice appear to be a targeted change to the structure of some auto-enrolment schemes. 

From what we have seen so far, this does not affect how shareholder directors contribute to pensions through employer contributions. Many clients can therefore continue to make company-funded pension contributions of up to £60,000 a year. 

The change appears to target businesses whose auto-enrolment schemes use salary sacrifice for employee contributions, or those where the employee’s contract includes such an arrangement, which is often promoted as ideal for Employer National Insurance savings. 

Traditionally, an employee contribution is taken from net pay, meaning the employee pays tax and NI on that amount and the employer pays NI as well. Where pension advisers have recommended exchanging this element of pay for salary sacrifice, the payment is made from gross pay instead, i.e., before any tax or NI is charged, thus providing savings for both employer and employee, although not for HMRC, hence the new rules. 

This change is not due to apply until April 2029, so there is time to plan.  

We recommend employers contact their financial adviser to review their pension setup and confirm if it remains efficient. This is also a good time to highlight that shareholder director pensions should be reviewed separately from staff auto-enrolment, as there are often better products and growth options in private pension arrangements. 

Rental Income tax hike 

Before we get into the tax rises, there is something potentially more costly to mention that wasn’t referred to in the Budget at all.  

From April 2026, landlords who had rental income of £50,000 or more in the tax year to 5th April 2025 will need to submit quarterly “Making Tax Digital” submissions to HMRC declaring the income and expenses for the year to date. This is effectively the same set of rules mentioned above regarding self-employed people, and practically, landlords will need to maintain formal electronic bookkeeping and incur the cost of software, plus potentially the cost of employing someone to update the books each quarter.  

From April 2027, the threshold will be reduced to £30,000 of income, and then £20,000 from April 2028. We are sure the implementation of this will not be without hiccups! More guidance will follow on this. 

Back to actual taxes:  

The Income Tax rates for rental income, which will also apply to savings, will increase by 2 percent from April 2026: 

• Basic rate increases from 20 to 22 percent 

• Higher rate increases from 40 to 42 percent 

• Additional rate increases from 45 to 47 percent 

This feels like a leftover from the original plan to increase all income tax rates. Although the general rise was cancelled, this remains. Increasing tax on savings, dividends, and rental income is, however, technically not classed as increasing tax on working people, because HMRC views this as investment income. 

The original proposal to raise income tax generally would have increased tax on pension income as well; this adaptation avoids that outcome, so that pensioners are protected. 

Where a property has no mortgage and you rely on drawing all of the rental income for personal spending, owning the property personally remains more tax efficient than holding it through a company. 

Effective Rate of Tax – Rental: 

Mortgage interest on residential lettings remains restricted to a basic rate credit, meaning it will relieve tax at 22 percent from April 2026. 

While it was popular to incorporate property portfolios to obtain full interest relief, a company only pays 25% tax, so the savings difference is minor. Once dividend tax on withdrawals is factored in, the benefit can disappear, especially if you later sell a property and draw capital out of the company (all of which might then be taxed at the additional rate of tax on dividends).  

It should also be noted that if the tax savings were your only motivation for incorporation, HMRC may in any case look to deny any potential tax savings achieved. 

Companies certainly have their uses for managing property portfolios, but the right structure depends on your individual circumstances and goals. Increasingly, since the 2024 Budget, the focus of planning has shifted towards inheritance tax planning for property owners.  

If you would like to explore this kind of planning, please contact your Principal Adviser. 

Other items 

Employee Ownership Trusts (EOTs) 

The Capital Gains Tax (CGT) relief available when creating an Employee Ownership Trust (EOT) is being reduced, effective immediately.  

Business owners selling shares into an EOT will now get 50% relief rather than 100%. A tax benefit is still achieved, and it may remain more efficient than Business Asset Disposal Relief (BADR) on a direct disposal of the shares to your employees; it is, however, no longer as generous. 

Capital Allowances 

The main rate writing down allowance for Capital Allowances is set to reduce from 18% to 14% from April 2026, meaning it may take longer to realise the benefit from the cost of your asset.  

For most small business owners, this makes little difference because the Annual Investment Allowance (AIA) is often available, giving up-front relief for up to £1 million of qualifying expenditure. 

Businesses buying second-hand electric cars or other non-qualifying assets, or those that do not qualify for the AIA, will see a slight reduction in tax-deductible allowances. 

Child Benefit Adjustments 

Child Benefit has also been adjusted. The two-child cap will be removed from April 2026, which means some households will receive more support.  

There has been no change to the regressive structure where a household with one person earning over £60,000 must repay all Child Benefit. The threshold has not risen in more than ten years, so fiscal drag continues to reduce the number of families who benefit. 

2026/27 Tax Rates table 

We’re still waiting on the final figures from HMRC. As soon as these are published, we’ll update our 2026/27 tax rates table to make sure it’s completely accurate and reflects the latest information, and we’ll update our website accordingly.