The Budget on 28 October 2026 leaves the headline rates of income tax, National Insurance and VAT unchanged. The rises are targeted instead: higher tax on rental and savings income, a halved lifetime limit for Business Asset Disposal Relief, and slower tax relief on some equipment.
There is good news too. Tax-free mileage rates go up, the trading allowance triples, energy bill support is extended and there are new reliefs for growing companies. Most of the changes start on 6 April 2027, which gives owner-managed businesses and their owners a window to plan.
Directors and shareholders
Company distributions. The rules on how money taken out of a company is taxed will be reformed from April 2028. The aim is to tax distributions consistently, whatever the legal route. The government says capital treatment will be protected for genuine changes of ownership, including passing a business to the next generation. Draft legislation follows in 2027. If you are considering a share buyback, a solvent liquidation or a demerger, talk to us early.
Mileage. The tax-free rate for using your own car or van for business rises to 55p a mile for the first 10,000 miles, applying from 6 April 2026. The rate above 10,000 miles rises to 35p from 6 April 2027. Directors who use a personal car can claim more from their company tax-free.
Share options. From 6 April 2027 the Company Share Option Plan is renamed EMI2. The individual limit doubles to £120,000, the exercise period extends to 15 years, and it no longer counts against the EMI limit. EMI option grants will no longer need a separate notification to HMRC.
Founders' Relief. A new 10 percent Capital Gains Tax rate on up to £10 million of lifetime gains for founders of qualifying high-growth, innovative companies, from 6 April 2027. The detailed rules are out for consultation.
Company cars. Mandatory payrolling of company cars, vans, fuel and medical benefits is delayed to 6 April 2027, with other benefits from April 2028. Company car tax rates for 2030-31 rise by one percentage point, with electric cars at 10 percent.
Selling a business
The lifetime limit for Business Asset Disposal Relief halves from £1 million to £500,000 for disposals made on or after 6 April 2027. The relief gives an 18 percent Capital Gains Tax rate on qualifying gains, against 24 percent at the higher rate.
On a gain of £1 million, the extra £500,000 taxed at 24 percent instead of 18 percent costs £30,000 more in tax.
If you are planning to sell, retire, close your company or bring in a buyer in the next year or two, the timing of the disposal now matters. Contracts exchanged before 6 April 2027 may still benefit from the £1 million limit, but the detail needs checking case by case.
Employers
Minimum wage rates rise by 3.9 percent from 1 April 2027:
- National Living Wage (21 and over): £13.21 an hour.
- 18 to 20: £11.27 an hour.
- 16 to 17 and apprentices: £8.31 an hour.
- Accommodation offset: £11.53 a day.
Employer National Insurance is unchanged at this Budget. Where an employer pays an Immigration Skills Charge or Certificate of Sponsorship fee, it will no longer be a taxable benefit for payments from 28 October 2026.
From April 2029, employers will have to pay PAYE by direct debit. Construction businesses should note a new requirement for at least 3 percent of the workforce on large government construction and infrastructure projects to be apprentices.
Investment
Two changes to capital allowances on plant and machinery:
- The main rate first-year allowance rises to 50 percent for expenditure from 1 January 2027.
- The main rate writing-down allowance falls to 12 percent from 1 April 2027 for companies and 6 April 2027 for unincorporated businesses.
The Annual Investment Allowance, which gives 100 percent relief on most equipment and vans, is not changed by this Budget. For most owner-managed businesses it will still cover their spending in full. Businesses with larger capital programmes, or spending on assets outside the allowance, should review timing.
For research and development claims, the Claim Notification Form is removed from 1 April 2027 and the Additional Information Form will be simplified from autumn 2027.
VAT and online sales
Online marketplaces. From October 2027, marketplaces will collect VAT on sales by UK businesses that are VAT registered, or that sell £90,000 or more a year on that platform. It does not apply to personal sales, second-hand goods or business-to-business sales. E-commerce sellers will need to check how this affects their pricing, cash flow and VAT returns.
Services from overseas. From April 2027, the reverse charge on services bought from overseas suppliers will apply only to VAT-registered businesses. Overseas suppliers will charge UK VAT to businesses that are not registered.
Coming later. VAT invoices must be issued in a set electronic format from 1 April 2029, and VAT will have to be paid by direct debit from the same date.
Business rates
From 1 April 2027 in England, Small Business Rate Relief for retail, hospitality and leisure properties extends to a rateable value of £18,000 for full relief and £21,000 for tapered relief. Other properties in these sectors have bills capped at inflation for two years. Pubs, social clubs and live music venues get 35 percent relief, up from 15 percent.
Landlords and savers
From 6 April 2027, income tax on property and savings income rises by 2 percentage points at every rate, to 24 percent at the basic rate, 44 percent at the higher rate and 49 percent at the additional rate. The property rates apply in England, Wales and Northern Ireland; the savings rates apply UK-wide.
A higher-rate landlord with £20,000 of taxable rental profit will pay £400 more a year than under the rates previously announced. Landlords who own property personally may want to review whether ownership, financing or the timing of expenses still suits them. HMRC is also consulting on collecting more rental income data from third parties.
The cash ISA limit stays at £20,000, reversing a planned cut, so ISAs become more valuable as savings tax rises.
Sole traders and HMRC
Trading allowance. From 6 April 2027 the trading allowance rises from £1,000 to £3,000. Side income such as small online sales or occasional freelance work up to £3,000 a year will be tax-free.
Making Tax Digital. Those joining Making Tax Digital for income tax in April 2027 will not get penalty points for late submission of their first four quarterly updates in 2027-28. The rollout to some other groups is deferred until further notice.
Paying tax. From 2029, self assessment taxpayers will have to pay more of their tax during the year. The £2,500 limit on claiming employment expenses through self assessment is removed from April 2028.
Compliance. HMRC is recruiting 670 more compliance officers. From 1 April 2028 there will be new rules requiring taxpayers to correct returns once an error is found. Self-employed fathers and partners will be able to claim a new parental allowance from April 2029.
Pensions, estates and households
Pension death benefits. From 28 October 2026, beneficiaries are no longer taxed simply because tax-free pension death benefits are paid more than two years after the member's death.
Pensioners. A new Pension Tax Allowance from 6 April 2027 to 5 April 2030 means pensioners whose total income is no more than the full new State Pension will not pay income tax.
Trusts. New inheritance tax rules restrict when liabilities can reduce the value of trust assets, for deaths and other chargeable events from 28 October 2026. Anyone with trust arrangements in their estate planning should have them reviewed.
Energy and fuel. The 0 percent VAT rate on domestic electricity is extended to 1 July 2027. Households in England in council tax bands A to D will receive a £100 Household Energy Payment from January 2027. The 5p fuel duty cut is extended to 1 July 2027.
Key dates
- 28 October 2026: pension death benefit two-year rule removed; trust liability rules for inheritance tax.
- 1 January 2027: main rate first-year allowance rises to 50 percent.
- 1 April 2027: minimum wage rises; R&D Claim Notification Form removed; business rates relief changes.
- 6 April 2027: BADR limit falls to £500,000; property and savings tax up 2 points; trading allowance £3,000; EMI2; Founders' Relief; writing-down allowance 12 percent; benefits payrolling starts.
- 1 July 2027: electricity VAT cut and fuel duty cut end.
- October 2027: online marketplaces collect VAT for UK sellers.
- April 2028: distributions reform; error correction rules.
- April 2029: e-invoicing, and direct debits for VAT and PAYE.
What to do
- If you plan to sell or close your business, review the timing before 6 April 2027.
- If you are considering a share buyback, liquidation or demerger, talk to us before the 2028 reforms.
- Landlords and savers should review ownership and use of ISAs before April 2027.
- Employers should budget for the April 2027 wage rises and prepare to payroll benefits.
- Online sellers should check how marketplace VAT collection will affect them.
If you would like to talk through how the Budget affects you, book a free call.
