Chancellor Rachel Reeves has delivered her second Budget, and there are significant implications for small and medium-sized businesses across the UK. At Capify, we understand the pressures SME owners face, so we’ve cut through the noise to bring you the five biggest announcements that will directly impact you and your business.
Dividend tax increases hit business owners hard
The Announcement: From April 2026, dividend tax rates will increase by two percentage points across ordinary and upper rate bands, with no change to the additional rate. Here’s the detail:
- Ordinary Rate (Basic): Increasing from 8.75% to 10.75%
- Upper Rate (Higher): Increasing from 33.75% to 35.75%
- Additional Rate: Remaining unchanged at 39.35%
The Impact: This is perhaps the most significant blow to SME directors and business owners who take income through dividends.
Business owners who’ve structured their remuneration through dividends to optimise tax efficiency will see their take-home income substantially reduced. For example, an owner-director who takes a £12,750 salary (covered by the personal allowance) and £37,700 dividends will pay an extra £744 in tax from April.
Now may be the time to reconsider your remuneration strategy and cash flow planning for the year ahead.
Income tax and NI threshold freeze extended to 2031
The Announcement: The government will maintain income tax thresholds and National Insurance thresholds at current levels from April 2028 through April 2031 – an additional three-year freeze.
The Impact: While this isn’t a direct tax rate increase, the freeze means more of your employees (and you, if you take a salary) will drift into higher tax brackets as wages rise with inflation. This phenomenon, known as fiscal drag, effectively raises the tax burden without changing the headline rates.
For SMEs, this translates to employees feeling squeezed even when you grant pay rises, potentially making recruitment and retention more challenging. You may need to offer higher wage increases to maintain employee satisfaction, which could increase payroll costs.
Maintaining full expensing and corporation tax stability
The Announcement: The government confirmed it will maintain full expensing for plant and machinery and keep the corporation tax rate at 25% for the duration of this parliament, as promised in the 2024 Corporate Tax Roadmap.
The Impact: This provides crucial certainty for capital investment planning. Full expensing allows you to deduct the full cost of qualifying plant and machinery from taxable profits in the year of purchase, rather than spreading deductions over several years. While the main rate of writing down allowances will decrease from 18% to 14% from April 2026, a new 40% first-year allowance for main-rate assets will be introduced from January 2026, preserving investment incentives.
For businesses considering significant equipment purchases or expansions, this stability is invaluable. You can confidently invest in growth-enhancing assets knowing the tax treatment won’t suddenly change, and the immediate tax relief improves cash flow in the year you need it most – right after making a major capital outlay.
The government has also committed to holding just one major fiscal event per year (the Budget), providing further stability and reducing the uncertainty that has made business planning difficult in recent years.
Permanent lower business rates for retail and hospitality
The Announcement: The government has introduced permanent lower business rates for approximately 750,000 retail and hospitality businesses, funded by higher rates on properties valued over £500,000.
The Impact: If you operate in retail, hospitality, or leisure, this reform represents a significant, long-term cost reduction. Unlike temporary reliefs that create uncertainty, this permanent change allows you to plan with confidence. The government says this shift will redistribute the burden away from high-street businesses toward large warehouses and distribution centres used by online retailers, levelling the playing field for traditional brick-and-mortar operations.
Additionally, a £4.3 billion business rates support package will cap bill increases for sectors hit hardest by revaluations from April 2026.
Free SME apprenticeships and increased minimum wages
The Announcement: The government will make apprenticeship training completely free for SMEs hiring workers under 25, with over £1.5 billion invested in the Youth Guarantee and Growth and Skills Levy over the spending review period.
The Impact: This is good news. Previously, businesses had to contribute to apprenticeship costs, creating a barrier for many SMEs. Now, you can invest in developing young talent without the financial burden of co-funding their training.
This could be transformative for businesses looking to build their workforce with skilled employees who understand your company culture from the ground up. With youth unemployment at 15.3%, there’s a substantial talent pool available.
Rachel Reeves also confirmed ahead of the Budget that the national minimum wage (NMW) and living wage (NLW) will rise.
From 1 April 2026, the rate for over-21s will increase by 50p, a 4.1% uplift, to £12.71 per hour. Workers aged 18 to 20 will see an 85p rise – an 8.5% jump – to £10.85 an hour. Those under 18, along with apprentices, will receive a 45p increase, taking their minimum rate to £8 per hour, up 6%.
What does that mean in real terms? Full-time employees under 21 will earn around £1,500 more a year. Anyone aged 21 or over will see roughly £900 added to their annual salary.
Want to discuss how these Budget changes affect your business?
We’re here to help your business thrive, and while this budget undoubtedly creates investment opportunities for some, it will also add to cashflow challenges for many SMEs.
Capify specialises in fast funding solutions tailored to your needs. You can check your eligibility for finance in less than a minute, or follow us on LinkedIn for more financial insight created for small and medium-sized businesses.
This analysis is based on the official Budget 2025 document published by HM Treasury on November 26, 2025, and reactions from Capify experts and trusted business sources. While we strive for accuracy, tax and policy details may be subject to further clarification. Always consult your accountant or tax advisor regarding your specific circumstances.
