Marginal Gains, Marginal Pains 

The Chancellor, John Healey, billed the 2026 Budget as one that would not set the world alight and with fewer leaks than usual, we expected a dull one. What we got instead was a Budget of marginal gains and marginal pains. 

The government has boxed itself in. It’s manifesto rules out raising the big three taxes (Income Tax, National Insurance and VAT), so all that is left is tinkering at the edges to fund spending and nudge growth. 

The economy: still sluggish 

Growth has beaten earlier targets but remains modest. The OBR has nudged its 2026 forecast up to 1.2% but expects growth to slow to 1.0% in 2027, before recovering to 1.6% in 2028 and 1.8% in 2029. Many businesses will feel no growth at all, and some sectors may well be slowing. 

The Budget at a glance 

Change What it means From when? 
Business Asset Disposal Relief (BADR) lifetime limit cut from £1m to £500,000 Less tax relief when you sell your business April 2027 
New Capital Gains Tax Founders relief 10% CGT on up to £10m, but only for large, fast-growing businesses who meet strict criteria 6 April 2027 (design remains under consultation) 
Property and savings income tax up a further 2% 24% basic rate tax, 44% higher rate tax, 49% additional rate tax 6 April 2027 
Self-Assessment payments on account to be made at more regular intervals Smaller, more frequent self-assessment payments to be made throughout the year April 2029 
55p initial mileage rate made permanent; over 10,000 miles up from 25p to 35p Higher tax-free mileage claims 6 April 2027 
Trading allowance up from £1,000 to £3,000 Bigger deduction with no receipts needed for small side incomes, less people needing to declare anything  6 April 2027 
National Living Wage up 3.9% National Living Wage to £13.21 an hour, above inflation of 3.5% 1 April 2027 
Small business rates relief threshold up from £12,000 to £18,000 More retail, hospitality and leisure premises in England pay no rates 1 April 2027 
First year allowance up from 40% to 50% For assets outside the Annual Investment Allowance relief Spend from 1 January 2027 

What did not change: No U-turn on Inheritance Tax (IHT) for pensions, no significant changes to VAT rates and thresholds and only minor tweaks were made to Making Tax Digital (MTD). 

The big one: Business Asset Disposal Relief (BADR) allowance cut and the false hope of Founders Relief 

BADR halved to £500,000 

The real surprise was the cut to Business Asset Disposal Relief (BADR).  From 6 April 2027 the lifetime limit falls from £1m to £500,000. Under its old name, Entrepreneurs’ Relief, it was once £10m. 

BADR lets business owners pay a reduced rate of capital gains tax when they sell. Currently the first £1m of gain is taxed at 18% instead of the standard 24% higher rate. To qualify you must: 

  • own at least 5% of a trading company, or be a sole trader or partner of a trading business 
  • have run the business for at least two years and met the conditions for relief throughout this time period right up to the date of disposal 
  • for company shares, be an employee or office holder 

Any relief already used on a previous disposal counts towards the new, lower limit. Many of our clients now sell for well over £500,000 and this will impact a significant number of business owners. 

What to do: If a sale is on the horizon, plan now, don’t wait! If you don’t need all the proceeds straight away, other structures could save on CGT and also let you draw the money over time, almost like an informal pension. Speak to an A4G Principal Adviser before making changes. We can help you understand your options, assess the tax implications, and plan an exit strategy that supports what you want to achieve.   

Founders relief: Generous, but not relevant for most SME owners 

From 6 April 2027, a new Founders Relief will reduce tax payable on a business sale to just 10%, capped at £10m of lifetime gains. On paper, it initially looks like a return to the old Entrepreneurs’ Relief. The consultation published after the speech tells a different story. Whilst the final rules are still being developed, this looks to be exclusive to just a small number of larger businesses.  To be eligible they are proposing you would need to meet the following conditions, in addition to a number of others:  

  • at least 25% of the ordinary shares must be held at the point trading began 
  • those shares must be held for five years (or more) up to the point of sale 
  • the business must have a turnover of at least £10m a year and at least 15 full time staff 
  • £1.5m costs must have been claimed and approved via eligible Research & Development claims in the three years before sale 
  • 25% compound growth over a specified period (how this is measured is not yet clear) 

This is clearly aimed at large, fast growth businesses heading for a PLC or venture capital exit, not the typical owner managed business representing a lifetime of work. Likewise, shareholders who join along the way, including management buyout teams, are excluded too, although, they may still claim BADR, assuming BADR is not phased out altogether. 

The Chancellor spoke of backing small businesses for the risks they take, but this relief does the opposite, not something we are in favour of! 

Income tax and National Insurance 

Salary and dividends: no change 

Tax bands are unchanged, so our recommended approach for limited company owners stays the same: a salary of £1,047 a month, with the rest taken as dividends. Welcome news was that, for once, a Chancellor acknowledged that small business owners are paid in dividends and left those rates alone! 

We have a separate page dedicated to this fundamental bit of tax planning here. 

Mileage 

The temporary 55p per mile rate on the first 10,000 business miles, announced in May, is now permanent. Claims for mileage in excess of 10,000 rises from 25p to 35p. A bit of pocket money for owners, but remember: 

  • you do not have to pay employees this rate; you can agree your own rate  
  • if you pay less, employees can claim the difference on their tax return 
  • if you pay more, you may have a benefit in kind to report 

Trading Allowance tripled 

From 6 April 2027, the Trading Allowance rises from £1,000 to £3,000. This is either the amount of income you can receive for a small ‘sideline’ without needing to declare the income to HMRC, or if income exceeds this, you can claim it as a flat deduction from income with no receipts needed. Even if your actual costs are only £500, you can claim the full deduction.  

We estimate the annual saving rises from £200 to £400 to between £600 and £1,200. Handy for small self-employed businesses, or where you have a small amount of income on the sideline. The documentation states that this covers “trading and miscellaneous income only”, which may indicate that this increase will not be mirrored for rental income, as it has its own similar, but separate, “property allowance”.  We are awaiting further clarity from HMRC to confirm. 

Property and savings income: another squeeze 

Tax rates on rental income and savings interest were already due to rise by 2 percentage points from 6 April 2027. The Budget confirms a further 2 percentage point increase, taking the rates to 24% for basic-rate taxpayers, 44% for higher-rate taxpayers, and 49% for additional-rate taxpayers. 

This means landlords and savers could face an even bigger tax bill, reducing the income they keep from rental properties and savings. It is another squeeze on landlords and an unwelcome development for savers who have been encouraged to put money aside.  

Payments on account to become more regular 

From April 2029, anyone who makes payments on account will instead be required to make smaller, more regular payments throughout the year. The Budget does give full details yet of what will be implemented. Monthly payments seem likely, but details are currently sparse and the decisions are subject to further consultation. We expect the first payment under the new system to fall either in January 2030 or January 2031. 

More frequent payments will suit some people, but they bring risks: 

  • fluctuating profits: you could overpay based on prior year estimates 
  • Year-end decisions: a late investment that reduces profit may come too late 
  • seasonal businesses: fixed regular payments could strain cash flow 

As with the current Payments on Account system, payments are expected to lag behind the period in which the income is earned. This means you would pay tax throughout the year, but generally after earning the income it relates to, rather than waiting until the end of the tax year. 

Capital Gains Tax, Inheritance Tax and Making Tax Digital 

60-day property reporting: softer penalties 

When you sell a property with a gain to pay (often a former rental or second home), you must report it to HMRC within 60 days of completion. Many conveyancers don’t tell their clients, so we often hear about it well after the deadline and end up appealing penalties. 

In a quiet admission that the system is not working, HMRC will now reduce late filing penalties if the gain is reported on your tax return and the tax paid on time. Interest on late payments will still apply but this is a small yet sensible improvement.  

Inheritance Tax (IHT): silence on pensions  

There was no mention of inheritance tax in the speech. We are still reading the small print, but there is clear indication that the government will not be reversing its plan to bring pensions into the remit of IHT. This significant change goes ahead from April 2027.  

Making Tax Digital (MTD): minor tweaks 

Only minor changes were announced. Anyone joining in April 2027 will not receive penalty points for late submission of their first four quarterly updates in 2027/28, and the rollout to several other groups has been deferred until further notice. For most, the timetable stands: 

  • Since April 2026: sole traders and landlords with combined qualifying income over £50,000 must send quarterly updates to HMRC, with penalties and interest applying from the start of the new tax year. 
  • From April 2027: the threshold drops to £30,000 bringing further businesses into MTD. 

For our MTD guidance see our detailed article here. 

For businesses 

National Living Wage up 3.9% 

From 1 April 2027 the National Living Wage rises to £13.21 an hour. The increase is a flat 3.9% across the board, with a similar jump for younger workers, who have already been priced out of many entry level jobs. It still beats current inflation of 3.5%, and the OBR expects inflation to peak at 3.8% early next year as higher energy costs feed through. Higher wages will add to that pressure. 

Don’t wait until April to work out what this means for your business. Read our article on the steps you can take now to manage rising employment costs and protect your profit margins. 

Business rates relief 

One clear win for small businesses! From 1 April 2027, for retail, hospitality and leisure premises in England the threshold for 100% small business rates relief rises from £12,000 to £18,000 of rateable value, and for tapered relief from £15,000 to £21,000. The government expects around 70,000 more high street businesses to pay no rates. Vape shops lose the relief altogether, and adult gaming centres lose their retail, hospitality and leisure discount. Whether it is enough to save the high street remains to be seen. 

Companies House: full accounts publishing plan scrapped 

Announced ahead of the Budget, the plan to make small companies publish their full profit and loss account at Companies House has been dropped. Large companies can currently bury sensitive detail in their figures; a single shop cannot.  Publishing full detail would have handed competitors your margins and shown employees exactly what the owners earn so this is a welcome retraction.  

Capital allowances 

First year allowances rise from 40% to 50% for spending from 1 January 2027 on assets that do not qualify for the Annual Investment Allowance (AIA). The sting in the tail: the main writing down allowance falls by two points to 12% from April 2027. Most of our clients will be unaffected though, as the AIA already gives full relief on spending of up to £1m on plant and machinery each year. 

Grants and energy costs 

  • Grants: There was plenty of talk about backing fast growth firms, and several grants are currently available. If you are planning a project, talk to us about what might be available to help fund it. Remember, grants are taxable, so the money needs to be spent to avoid an extra tax bill. We will have more advice to share on this soon.  
  • Energy: from April 2027, the British Industrial Competitiveness Scheme will cut electricity bills by up to 25% for over 10,000 eligible manufacturers in Great Britain, with an extra payment in 2027 to reflect support they would have had sooner. Applications are now open. If this affects you, watch for updates. 

Our verdict 

This Budget tinkered at the edges of the taxes, but two changes stand out: the BADR cut with the false hope of founders’ relief, and the further squeeze on landlords and savers. The tax system seems to be tilting further towards larger businesses after all. 

While we, like you I’m sure, receive the announcements with some trepidation, there are many who look at the UK with much more optimism. Despite modest growth forecasts, overseas investors remain keen to buy into UK small businesses, whether to enter the UK market or to strengthen their current position within it. Your business may be worth more than you think, and that makes the BADR cut all the more important to plan for! 

Depending on what you want to use the proceeds of the sale of your business for, there are many different options for structuring the business now to maximise your returns. We will share more on this in the coming weeks. 

We are still working through the small print and will report back on anything significant. In the meantime, don’t leave it to chance that you’re making the right decisions for your business. Whether you’re considering an eventual sale, reviewing your tax position, or looking for ways to protect your profits and plan for growth, now is the time to understand your options. 

Speak to your A4G Principal Adviser or send an enquiry via our contact us page to discuss what the Budget means for you and identify the steps you can take now to put your business in the strongest possible position.  

Other pages of interest…

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