Budget 2025 – What does it mean for small business?

Over the past few months, our small business customers have told us that they need stability and certainty in order to invest and grow their business. 

Funding Circle CEO Lisa Jacobs said: 

“SMEs don’t need perfect conditions, but they do need consistency. Stability gives business owners the confidence to invest, hire, and look beyond the next few months, driving growth in the economy.”

It’s been a tumultuous few months, with speculation rife about what the Budget might hold. Many small business owners have been waiting to hear what Rachel Reeves announced before making any decisions.  

On Wednesday 26th November the Chancellor delivered a Budget that focused on cutting the cost of living and driving down the UK’s levels of borrowing and debt. For business, measures were announced that will particularly impact the high street, scale-ups and firms investing in infrastructure or listing in the UK. 

Laying the foundations for stability 

This Budget has started to lay the foundations for the stability small business owners are craving. Notably, the commitment to only hold one Budget per year, which will give businesses more visibility over the future.

Here’s everything small business owners need to know about the 2025 Budget. 

Business rates reform

The government is introducing permanent lower tax rates for over 750,000 retail, hospitality and leisure (RHL) properties. RHL multipliers will be 5p below their national equivalents, making the small business RHL multiplier 38.2p and the standard RHL multiplier 43p in 2026-27.

This is supported by a £3.2 billion Transitional Relief scheme and an expanded Supporting Small Business scheme.

Taxation

Dividend and savings tax

From April 2026, the dividend tax rate will increase by 2%: to 10.75% for basic rate and 35.75% for higher rate. The dividend additional rate remains unchanged.

The tax rate on savings income will also increase by 2% across all bands from April 2027.

This means everyone will pay more tax on any savings income, and business owners will pay more on any dividends received.

Income tax and National Insurance thresholds

Both income tax and National Insurance thresholds have been frozen for an additional three years, from April 2028 to April 2031. Income tax thresholds will continue to be:

• Basic rate: £12,570 (20% tax)

• Higher rate: £50,270 (40% tax)

• Additional rate: £125,140 (45% tax)

This will put more people in a higher tax band, meaning less money in the pockets of employees and business owners.

Capital Gains Tax applied to Employee Ownership Trusts 

Effective immediately, the amount of Capital Gains Tax relief on disposals to Employee Ownership Trusts has been restricted from 100% to 50%.

This will particularly affect anyone planning to dispose of their business in the near future, with Capital Gains Tax relief available halved. 

Staffing costs

Minimum wage increase

Once again, the National Living Wage and National Minimum Wage will both be increased from 1st April 2026:

• National Living Wage for workers over the age of 21 will rise by 4.1% to £12.71 per hour 

• National Minimum Wage for 18-20 year olds will rise by 8.5% to £10.85 per hour

• For apprentices and 16-17-year-olds the rate will rise by 6% to £8 per hour

This will mean higher wage bills for employers. 

Salary sacrifice pension contributions

Effective from April 2029, salary sacrificed pension contributions above a £2,000 threshold will no longer be exempt from National Insurance.

This will mean higher payroll costs for business owners, who will be required to pay employer National Insurance Contributions on pension contributions made through salary sacrifice that exceed this new £2,000 cap.  

Fully funded apprenticeships

A change to the Growth and Skills Levy means SME apprenticeships for eligible people under 25 will now be fully funded.

This will help businesses access the talent they need to grow.

Investment and growth 

Supporting scale-ups

The government is increasing eligibility limits for the Enterprise Management Incentives scheme.

This allows scale-ups to join start-ups in offering tax-advantaged shares to attract top talent.

UK listing relief

To support capital markets, transfers of a company’s securities will be relieved from the 0.5% Stamp Duty Reserve Tax charge for three years post-listing, effective from 27th November 2025.

This will support small business who want to list their companies. 

ISA reforms

The £20,000 tax-free ISA allowance is maintained. However, effective April 2027, £8,000 of this will be designated exclusively to Stocks & Shares ISAs, while over-65s retain the full Cash ISA allowance.

It is predicted that this will drive approximately £3 billion of retail investment towards UK-listed companies.

Duty

Fuel duty 

The temporary 5p cut on fuel duty has been extended until the end of August 2026, which the Chancellor said will keep van and lorry journeys affordable. 

After that date, the cut will be gradually reversed to March 2022 levels. Then, from April 2027, it will be uprated annually by RPI.

Low-value customs duty exemption

By March 2029, customs duty relief for goods valued at £135 or less will be removed. 

This will impact small businesses who trade internationally. Business owners who rely on low value imports will now be subject to customs duty, resulting in increased costs.

Capital allowances

40% First Year Allowance 

From January 2026, there will be a new 40% First Year Allowance for main rate expenditure, including most expenditure on assets for leasing and expenditure by unincorporated businesses.   

This is designed to encourage investment.

Writing down allowances 

The main writing down allowance will reduce from 18% to 14% in 2026: from 1st April 2026 for Corporation Tax, and 6th April for Income Tax.

This will affect how businesses recover the cost of their capital investments and could lead to higher Corporation Tax bills.

100% first year allowances for electric vehicles

First year 100% allowances for zero emission vehicles and chargepoints are extended for a further year. These will be in place until 31st March 2027 for Corporation Tax purposes, and 5th April 2027 for income tax purposes.

Small business owners will continue to benefit from tax relief on electric vehicles.

Operational changes 

E-invoicing

The government plans to introduce mandatory e-invoicing for VAT for businesses from April 2029 to modernise tax processes.

This could help small businesses get paid quicker and reduce incidents of late payment. 

Penalties for late tax filing 

Penalties for submitting a Corporation Tax return late will double from 1st April 2026. 

Penalties for late payment of Income Tax Self Assessment and VAT will increase from 1st April 2027. 

If your business is looking for finance to help you grow or adapt to these changes, you can apply for a loan or line of credit in minutes. Check if you’re eligible today on our website.

27/11/25: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.