Budget Update for Small Business 2026

A quick look at a thankfully uneventful budget.

For owners drawing a mixture of salary and dividends, this Budget leaves the familiar approach largely intact. Some of the more significant announcements concern money held outside the business and what happens when you eventually sell or pass it on.

Here are the main points from the Budget on 28 October, followed by a reminder of other changes coming up.

This article reflects announcements and guidance available on 30 October 2026. Some measures require legislation, and their effect will depend on individual circumstances.

There was no further dividend tax increase announced in this Budget. The rates already applying in 2026/27 remain:

• Basic rate: 10.75%
• Higher rate: 35.75%
• Additional rate: 39.35%

The annual dividend allowance remains £500.

The increases affecting basic and higher rate dividends took effect in April 2026. If you are still putting aside the same amount for tax as last year, it is worth checking that it covers your expected bill.

For most company owners, the sensible starting point remains an annual review of salary, dividends and pension contributions, taking account of company profits and personal spending needs.

From 6 April 2027, the lifetime limit for Business Asset Disposal Relief will fall from £1 million to £500,000 of qualifying gains. The relief’s tax rate remains 18%.

This matters if selling your business forms part of your retirement plans.

For example, assume you sell your shares with a qualifying gain of £1 million, have never used the relief before, and any gain outside the relief is taxed at 24%. Halving the limit would increase the tax by £30,000.

The limit applies to gains, rather than the sale price, and previous claims count towards it.

The government plans to reform the company distributions rules from April 2028, with draft legislation expected in 2027.

In plain English, these rules help determine whether money coming out of a company is taxed as income or as a capital gain. The reforms target arrangements that allow accumulated profits to be extracted at capital gains tax rates, including certain transactions involving holding companies.

The Treasury has confirmed that ordinary dividend payments will continue to be taxed as dividends. Genuine share sales will remain within the capital gains tax regime, and the reforms are intended to protect genuine family succession.

This is something to revisit if you are considering a restructuring, company share buyback or retirement arrangement. The detailed rules will need reviewing when announced.

If you use your own car or van for business journeys, the 55p rate for the first 10,000 business miles is being made permanent. That rate already applies for 2026/27.

From 6 April 2027, the rate above 10,000 business miles will rise from 25p to 35p.

For company owners, these rates allow the company to reimburse qualifying business mileage tax-free within the approved limits. They do not apply to ordinary commuting or to journeys in a company car.

From April 2027, savings and property income tax rates will increase by a further two percentage points on top of the increases previously announced.

The resulting basic, higher and additional rates will be 24%, 44% and 49%. 

This concerns personal savings interest and rental profits. Interest earned on money held by your limited company remains part of the company’s tax calculation.

For owners building savings or holding a rental property alongside the business, it is worth updating the expected after-tax return.

The cash ISA subscription limit is also being retained at £20,000 a year.

For most small companies buying equipment such as computers, office furniture or machinery, the available tax relief remains unchanged.

The Annual Investment Allowance still allows businesses to deduct the full cost of qualifying purchases from taxable profits, up to £1 million a year. Companies can also continue to claim 100% relief on qualifying new equipment through full expensing.

The Budget changes mainly affect expenditure that does not receive full upfront relief, and balances from earlier purchases where relief is still being claimed:

• The main annual writing-down allowance falls from 14% to 12% from April 2027, slowing the tax relief on affected balances.
• A separate first-year allowance rises from 40% to 50% for qualifying purchases from 1 January 2027. This is particularly relevant to some unincorporated businesses and businesses buying equipment to lease out.

For a typical small company buying everyday business equipment within the qualifying rules, there is therefore no reduction in the relief.

From April 2027, the National Living Wage for workers aged 21 and over rises by 3.9% to £13.21 an hour. Minimum rates for younger workers and eligible apprentices also rise.

When reviewing the increase in employment costs don't forget to include any employer National Insurance and pension contributions increases that result.

The individual trading allowance will increase from £1,000 to £3,000 from 6 April 2027.

This may be relevant to someone with a small amount of separate trading income. It is not an additional tax-free allowance for limited-company profits, salary or dividends.