If you’re a business owner still reeling from this week’s Budget announcements, you’re not alone. After two difficult budgets in a row, this one may go down as the most business-owner-unfriendly budget we’ve ever seen. But beneath the headlines (and Wednesday’s brief moment of relief for anyone using employer pension contributions), there’s a lot to unpack—and even more to prepare for.
This article breaks down the key measures affecting small business owners, explains the planning opportunities that still exist, and highlights some risks policymakers may not have fully understood.
1. Salary Sacrifice: Relief Today, Trouble Tomorrow
Wednesday’s update gave many limited company directors a moment of cautious optimism:
Employer pension contributions won’t be subject to the new salary sacrifice restrictions.
For most owner-managed businesses—where pension contributions are paid by the company rather than out of personal salary—this means no immediate change.
But here’s the catch:
From April 2029, the government will cap the amount you can contribute via salary sacrifice at £2,000 per year before National Insurance becomes payable on the excess.
For employees this is fixable with a contract change—reducing salary and increasing employer contributions.
For owners, however, the wider picture is worrying.
I have every expectation that not restricting employer contributions was an oversight which will be fixed before the introduction date for this measure.
The unintended consequence: growth takes a back seat
Because the 2029 cap creates a cliff edge, business owners are now financially incentivised to push as much cash as possible into their pensions before the rules change. In practical terms:
- You currently have up to £60,000 per year in annual allowance
- You can carry this back three further years although some previous years had a lower allowance
- Combine this with the remaining 3.5 years until the rule change and it’s possible for some people to shelter £400,000+ into pensions before April 2029
That’s great for retirement… but terrible for business growth.
When owners prioritise pensions over reinvestment, spending on staff, equipment and long-term growth naturally falls. Whether intended or not, this could slow productivity and make the UK’s small-business sector even more fragile.
2. Dividend Tax: Another Blow to Business Owners
Dividend tax continues its upward crawl, with the basic rate now rising to 10.75%.
What makes this painful is that:
- Dividend tax rates are up
- Thresholds remain frozen
- And unlike employees, business owners are hit twice—once through corporation tax, and again through dividend tax
This flips a long-held assumption: “dividends are always better.”
Going forward, some owners may genuinely be better off taking more salary—especially if they qualify for the Employment Allowance.
For others, a more radical option may need consideration…
3. Should Some Businesses Switch to Sole-Trader?
This won’t apply to everyone—but for sole traders who incorporated for tax reasons (especially those on modest profits), 2025–26 may be the first time in years where operating outside a limited company is cheaper.
Of course:
- If you have staff
- If you need limited liability
- Or if you have a valuable trading history
… then a limited company still makes sense. But a small group of service-based businesses may now find sole-trader status more efficient.
4. Capital Allowances: A Small Rule Change With Limited Impact
The writing-down allowance for certain assets is dropping from 18% → 14%.
The good news?
Most small-business expenditure qualifies for Annual Investment Allowance, meaning you still get a 100% deduction upfront.
The only group meaningfully affected will be:
- Businesses buying second-hand electric cars
Brand-new EVs remain fully deductible, but second-hand models will now depreciate more slowly for tax purposes.
5. Electric Vehicles Hit With New Mileage Charges
Business owners disproportionately use EVs because they’re exceptionally tax-efficient.
From next year, they receive a new cost:
3p per mile surcharge to compensate for lower road tax revenue.
For low-mileage drivers this is minor, but for those doing big mileage, it may tilt the decision back toward petrol/diesel—undoing years of policy encouraging environmental adoption.
6. Minimum Wage Rises: Higher Than Inflation Again
The adult rate increase of roughly 4.5% is manageable.
The under-21 increase of around 9% is not.
This creates serious pressure for businesses that rely on junior staff, trainees or job-starters. The government has partially cushioned the blow by making apprenticeship training free, but that saving is nowhere near enough to offset the increase.
If you employ staff, now is the time to:
- Review your cost base
- Understand your profit margins accurately
- Increase prices early—not after your profit disappears
This is one area where inaction is extremely costly.
7. Cash ISAs vs Stocks & Shares ISAs: A Quick Clarification
Cash ISA allowances are being cut from £20,000 to £12,000, but the combined limit remains intact because you can still put £8,000 into a Stocks & Shares ISA.
For anyone not close to retirement, the Stocks & Shares ISA remains the more sensible long-term growth vehicle.
(And as always—speak to a financial adviser for personalised advice.)
8. Regulation of Tax Advisors: A Curious U-Turn
October’s Budget introduced plans for compulsory regulation of tax advisors—something long overdue in an industry where unqualified advisers often cause real harm.
This week, the government did a full reversal, stating it will not pursue mandatory regulation.
In an amusing twist, HMRC released a statement the same day saying mandatory regulation will arrive in 2026.
Someone somewhere is out of the loop—but the inconsistency illustrates a wider theme of this Budget: unclear strategy and muddled communication.
The Bigger Picture: A Budget That Discourages Growth
Individually, each change is frustrating.
Together, they form a pattern:
- Harder to invest
- Harder to extract profits
- Harder to hire
- Harder to grow
Small business owners already shoulder the highest risk in the economy. This Budget increases those risks while reducing long-term rewards.
But the bright spot is this:
You still have time to plan.
- The pension cap doesn’t hit until 2029
- Dividend tax changes start next tax year
- Capital allowances and EV charges have predictable timelines
With good planning, careful sequencing of pension contributions, and a serious review of remuneration and pricing strategies, business owners can still optimise their position—and in some cases, even benefit from acting early.
Final Thoughts
This Budget may be one of the toughest we’ve seen for limited company owners, but it’s not the end of good tax planning—it simply means the strategy shifts.
As always, N-Accounting will continue analysing the details as they evolve and guiding clients through the most efficient options available.
If you’re a client, rest assured:
you don’t need to make any sudden changes.
Over the coming months we’ll help you review:
- Your pension allowances and carry-forward opportunities
- Your optimal mix of salary vs dividends
- Whether your structure still suits your goals
- Cashflow pressures from minimum wage and tax changes
- The best way to invest and grow in spite of the new rules
And if you’re not yet a client but want proactive planning—not last-minute firefighting—this is exactly the kind of environment where we can help.
