Key Takeaways from the Autumn Budget 2025 for Small Businesses and Contractors

The Autumn Budget 2025 introduced several changes that will directly affect how small businesses and contractors manage tax, payroll, and cashflow in the year ahead. With higher dividend taxes, rising wage costs, and frozen tax thresholds, the financial landscape is shifting for anyone running a small business or working through a limited company.

This blog highlights the key updates that matter most to small businesses and contractors and what steps you should consider taking now to stay prepared.

Higher Taxes on Dividends

The Budget confirmed increases to dividend tax rates from 6 April 2026. For small business owners who operate through limited companies, this is one of the most impactful changes.

The increases are as follows:

The basic-rate dividend tax will rise from 8.75% to 10.75%
The higher-rate dividend tax will rise from 33.75% to 35.75%
The additional-rate dividend tax remains at 39.35%
The £500 Dividend Allowance remains unchanged

For contractors and small business owners who take most of their income as dividends, this will reduce take-home pay. Now is an ideal time to review your salary/dividend strategy to ensure it remains tax efficient heading into 2026/27.

National Insurance

The Autumn Budget did not introduce any increases to National Insurance (NI) rates.However, NI thresholds remain frozen until 2030–31, meaning that as wages rise over time, more income will naturally fall into NI-liable bands. This can have a gradual “stealth tax” effect for both employees and employers.

For most small businesses and contractors, this means NI costs will stay the same for now, but long-term planning should take threshold freezes into account.

Increased National Minimum Wage

The Autumn Budget introduces enhanced capital allowances to encourage investment in new equipment and technology. Small businesses can claim 130% first-year allowances on qualifying plant and machinery until March 2026. This incentive helps reduce taxable profits and supports business growth through reinvestment.

Additionally, the government is expanding the R&D tax credit scheme to include more small businesses and contractors engaged in innovative projects. If your business develops new products, processes, or services, you may be eligible for increased relief, which can significantly reduce your tax bill.

Increased National Minimum Wage

The Budget confirmed an increase in the National Minimum Wage from April 2026. The updated rates are:

For workers aged 21 and over: £12.21 to £12.71 per hour
For workers aged 18–20: £10.00 to £10.85 per hour
For 16–17-year-olds and apprentices: £7.55 to £8.00 per hour

For employers in sectors such as retail, hospitality, care, and trade-based work, this represents a notable increase in payroll costs. Contractors who rely on subcontracted labour may also see higher day-rate expectations, reflecting increased wage pressures across the workforce.

Additional Points Small Businesses and Contractors Should Be Aware Of

Increased HMRC Compliance Activity

The Budget provides more funding for HMRC to strengthen enforcement. Areas of focus include undeclared income, incorrect VAT claims, off-payroll working issues (IR35), and aggressive tax planning arrangements.For contractors and small businesses, this means keeping accurate digital records is more important than ever.

IR35 and Off-Payroll Working Enforcement

Although the Budget did not change the IR35 rules, enforcement is expected to increase. Contractors should ensure contracts, working practices, and status assessments are well-documented.Businesses engaging contractors should also review their compliance processes.

Expansion of Digital Tax Requirements

The ongoing rollout of Making Tax Digital (MTD) will require more businesses to keep digital records and submit updates quarterly. E-invoicing is expected to expand in future years.Businesses still relying on paper or spreadsheets should begin planning digital upgrades.

Rising Cost Pressures

Wage increases, higher dividend taxes, and frozen thresholds mean small businesses may face tighter margins. Reviewing pricing, reducing non-essential expenses, and improving cashflow management will help navigate the year ahead.

Public Sector Opportunities

Increased public spending may create contract opportunities for businesses operating in sectors such as construction, maintenance, care, consultancy, and technology.

What Small Businesses and Contractors Should Do Now

Review your dividend strategy in light of the increased tax rates from April 2026.
Update payroll budgets to include the national minimum wage rise.
Refresh cashflow forecasts, factoring in higher tax and employment costs.
Review all tax planning measures to ensure full compliance with new anti-avoidance rules.
Strengthen invoicing and payment collection processes to avoid cashflow gaps during periods of higher cost pressure.
Ensure contracts and working practices are IR35-compliant.
Begin preparing for expanded digital reporting requirements under MTD.

Final Thoughts

This Autumn Budget places greater emphasis on compliance, tax revenue, and wage increases—meaning small businesses and contractors will need stronger planning and forecasting to maintain profitability. While some measures increase financial pressure, understanding these changes early allows you to make informed decisions for the year ahead.

If you would like help reviewing your numbers, updating forecasts, or planning your remuneration strategy, Even Solutions Accountancy is here to support you.