The November 2025 Budget: Clarity, Challenge, and Crucial Changes for UK SMEs

James Dunford
2 days ago
4 min read

The Chancellor’s Autumn Budget arrived with the ambitious tagline of being a "Budget for working people," promising to tackle national debt, cut NHS waiting lists, and ease the cost of living. Yet, for the nation's entrepreneurs, scale-up leaders, and SME owners, the real story lies in the detail.

The overall message is one of rising costs, a challenging exit landscape, and a tax system that is becoming more complex. The government is leaning on a mix of ‘stealth taxes’ and reduced reliefs to raise revenue.

Below is a detailed, fact-checked breakdown of the changes that matter most to your business and how you should plan your strategy for the coming years.

Part 1: Increased Costs and Payroll Pressures

For businesses heavily reliant on staff, the most immediate and tangible impact of this Budget will be a sharp increase in payroll costs and greater pressure on employee retention.

1. The National Living Wage Hike

As expected, the National Living Wage (NLW) for those aged 21 and over is set for a substantial increase from April 2026. This is a direct boost for low-paid workers but will place immediate strain on labour-intensive sectors like care, retail, and hospitality.

2. The Salary Sacrifice Squeeze

In a major move to raise revenue, the tax advantage of pension salary sacrifice schemes has been significantly curtailed. This will affect both employers' and employees' National Insurance Contribution (NICs) bill for high earners.

Key Payroll and Cost Changes

Measure	Previous Rule	New Rule	Effective From
National Living Wage (NLW) (Age 21+)	£12.21 per hour	£12.71 per hour	April 2026
Income Tax & NICs Thresholds	Subject to annual indexation	Frozen until April 2031	Extended Freeze
Pension Salary Sacrifice NICs Relief Cap	Full NICs exemption on all contributions	Relief capped at the first £2,000 contribution per employee	April 2029

3. Extended Freeze on Tax Thresholds

The "stealth tax" of freezing Income Tax and National Insurance thresholds has been extended for a further three years, now running until April 2031. As wages rise with inflation, this will pull millions more workers into paying tax, or push them into higher rate tax bands. For SMEs, this creates:

Hiring Challenges: Companies must budget for higher gross wages to maintain the same level of attractive take-home pay for staff.
Talent Retention: Employee dissatisfaction from reduced real-terms income will make it harder to retain key talent.

Part 2: Radical Shifts in Exit Strategy and Capital Taxes

Business owners considering selling or passing on their company must urgently review their exit plans, as the Budget delivered two key, immediate changes to capital tax reliefs.

1. Reduced Employee Ownership Trust (EOT) Relief

The most popular tax-free exit route of recent years has been dramatically scaled back.

The 100% Capital Gains Tax (CGT) exemption previously available on a qualifying sale to an EOT has been reduced to 50%.
This means half of the capital gain will now be subject to CGT (effectively an 18% rate on the total gain, assuming the new BADR rate is applied).

2. Business Asset Disposal Relief (BADR) Rate Rises

The original blog post incorrectly stated there were no significant updates to BADR. The Budget, however, announced a substantial increase to the rate, making qualifying sales of an entire or part of a business more expensive.

Changes to Exit and Capital Taxes

Measure	Previous Rule (Current)	New Rule (Announced)	Effective From
Employee Ownership Trust (EOT) CGT Relief	100% CGT Exemption on qualifying sales	Reduced to 50% CGT Exemption	November 26, 2025
Business Asset Disposal Relief (BADR) Rate	10% on gains up to a lifetime limit of £1M	Increased to 18% on gains up to a lifetime limit of £1M	April 2026
CGT Rates for Property/Savings Income	Varies by taxpayer band	Basic: 22%, Higher: 42%, Additional: 47%	April 2027

Part 3: Investment and Growth Incentives

The Chancellor reiterated support for scale-ups and investment, primarily through a mix of enhanced and reformed existing schemes.

Key Investment Incentive Updates

Scheme/Measure	The Change Announced	Effective From	Business Focus
Venture Capital Trusts (VCT)	The VCT income tax relief rate is reduced from 30% to 20%.	April 2026	Investors in smaller, high-growth companies.
Enterprise Investment Scheme (EIS)	Limits on investment and company size are increasing.	April 2026	Companies raising seed and growth capital.
Enterprise Management Incentives (EMI)	The scheme is being expanded to cover more businesses.	April 2026	SMEs seeking to recruit and retain key employees via share options.
UK Listing Relief	New London Stock Exchange listings will be exempt from Stamp Duty Reserve Tax (SDRT).	Three-year 'holiday' from November 27, 2025	Businesses planning to raise capital via public markets.

Recommendations for SME Owners

This Budget delivers two things: higher costs and greater clarity. By acting decisively now, you can mitigate the rising tax burden and turn policy stability into a competitive advantage.

Reassess Exit Planning: If an EOT was your preferred route, the reduction of the tax relief is a game-changer. You must re-run the numbers immediately and explore other options, including the newly expensive Business Asset Disposal Relief (now 18%).
Budget for Higher Costs: Factor the £12.71 NLW and the ongoing impact of frozen tax thresholds into your two-year financial forecast. A comprehensive pay and benefits review is essential for retention.
Review Remuneration: The cap on NICs relief for salary sacrifice pensions (from 2029) means schemes that benefit high earners will cost more. Consider alternative reward strategies that offer better value.
Decisive Action: The clarity on tax bands and reliefs for the next few years means there is no advantage in delaying major investment, restructuring, or exit decisions. Consult your accountant or financial advisor today and lock in your strategy now.