How Will the UK Budget Impact My Business and What Should I Do About It?

If you're a business owner wondering how the latest UK budget affects your business finances, you're not alone. The short answer? This budget aggressively targets personal wealth while making business ownership less attractive—but your limited company remains the most tax-efficient vehicle for wealth creation, if you structure it correctly and plan for an exit rather than just income.

After analysing every line of the Chancellor's announcement, we've identified seven critical changes that directly impact how you should manage your business finances, review your management accounts, and plan your long-term strategy. Some of these changes are immediate; others won't hit for years. But the businesses that thrive through this will be those that act now, not later.

The Seven Changes Every 7-Figure Business Owner Must Understand

1. Dividend Tax Increase: The Hidden 22% Hit

The 2% increase in dividend tax (from 8.75% to 10.75% at the basic rate) sounds modest until you realise this represents a 22% proportional increase in what you actually pay. For business owners taking dividends as their primary income source, this is a significant blow—especially when combined with the corporation tax increases we've already absorbed.

Here's what makes this particularly frustrating: your business has already paid corporation tax at 19-25% before you can even declare dividends. Then you're taxed again personally. The government positioned this as protecting "working people" while conveniently ignoring that most small business owners work far more hours than traditional employees, often with greater risk and less security.

Action Point: Your accountant needs to recalculate whether you're better off taking salary versus dividends. This isn't a one-size-fits-all calculation—it depends on your total company profits, how many shareholders you have, your other income sources, and your use of employment allowance. A proactive accountant should be running these numbers for you immediately.

2. Property and Investment Income Tax Hike

A further 2% increase applies to property rental income (in your personal name) and investment income. If you're a 7-figure business owner with a property portfolio in your personal name, your tax rate just jumped from 20% to 22% or 40% to 44%.

This creates an interesting dynamic with the new Renters' Rights Bill, which limits how much landlords can increase rents. You're facing higher taxes while your ability to pass costs on to tenants is being restricted—a perfect squeeze.

Strategic Insight: The trend is clear—personal property ownership is being discouraged. Moving forward, new property acquisitions should almost certainly be through a limited company structure unless you're nearing retirement. If you're serious about building wealth through property, you need specialist advice on restructuring your portfolio now, not later.

3. Employee Ownership Trust (EOT) Relief Halved

Previously, selling your business to an Employee Ownership Trust meant zero capital gains tax. Now, that's been cut to 50% relief. If you were planning a £2 million exit through an EOT, you've just gained a £70,000 tax bill (assuming Business Asset Disposal Relief still applies at 7%).

While EOT routes remain relatively generous compared to other exit options, this change was completely unexpected. Business owners who had meticulously planned 3-5 year exit strategies just watched their retirement calculations change overnight.

The Lesson: Tax legislation is increasingly volatile. If you're building a business for exit (which, frankly, should be every 7-figure business owner's mindset), you need specialist tax planning from day one to give yourself multiple exit options.

4. Pension Salary Sacrifice Changes (Mostly a Red Herring)

The government capped employer national insurance savings through salary sacrifice pension schemes at £5,000 per employee. This primarily affects large corporate employers offering generous pension arrangements—not most SMEs.

For context: under auto-enrolment rules, the average small business pays around £1,500 in pension contributions per employee anyway. The £5,000 cap leaves substantial headroom before it becomes an issue.

Reality Check: If you're a typical 7-figure business owner taking a £12,500 salary and dividends, this probably doesn't affect you. Your company can still contribute up to £40,000 directly into your pension pre-corporation tax. However, if you're paying large bonuses to key employees, this might impact how you structure those payments.

5. Frozen Tax Thresholds: The Stealth Tax Nobody's Talking About

Income tax and national insurance thresholds remain frozen until 2031—that's a full decade without adjustment for inflation. Since these thresholds were frozen in 2021, we've experienced 23% cumulative inflation. If that continues, we're looking at a 50% erosion in the real value of tax-free allowances.

The personal allowance should be closer to £20,000 if it had tracked inflation. Instead, it remains stuck at £12,570.

The Real Impact: This puts enormous pressure on you as an employer. Your employees aren't getting natural pay increases through tax band adjustments anymore, meaning you'll face constant pressure to increase salaries just to maintain their take-home pay. Combined with the minimum wage increase (up 6.7% to £12.21 per hour), your employment costs are spiralling while your ability to drive profit is being squeezed.

This affects your cash flow planning significantly. When reviewing your management accounts with your finance manager, factor in above-inflation wage growth for the foreseeable future.

6. National Minimum Wage: Another 6.7% Cost Increase

The 50p per hour increase might not sound dramatic, but it represents nearly 7% wage inflation for your lowest-paid staff. For hospitality businesses or those with large teams on minimum wage, this compounds the national insurance increase from the previous budget.

The Squeeze: Minimum wage increases while skilled worker salaries remain relatively flat, compressing the wage differential between skill levels. We're seeing more employees turn down promotions because the additional responsibility isn't worth the marginal pay increase. This creates succession planning problems for growing businesses.

7. ISA Changes: Forcing Investment Into UK Markets

For business owners under 65, cash ISA allowances drop from £20,000 to £12,000, with the remaining £8,000 required to go into stocks and shares ISAs—specifically UK-based investments.

This timing is intriguing given the current flood of content warning about AI-driven bubbles in US markets. Whether coincidence or coordination, the message is clear: the government wants your money invested in UK equities.

For Business Owners: This matters less for active business owners focused on growth, but becomes relevant when you're at the wealth preservation stage post-exit. Diversification is prudent—being forced into any single market isn't.

What Hasn't Changed (And Why That Matters)

Sometimes what doesn't change is as significant as what does:

Business Asset Disposal Relief (BADR): Still being reduced as previously announced, but no further attacks. Your exit planning should factor in these known rate changes.

Capital Gains Tax: Rates changed in the previous budget but remain stable here. At least you can plan with some certainty.

VAT Threshold: Despite rumours of dropping to £30,000, it remains unchanged. This is crucial for cash flow planning in smaller businesses approaching that threshold.

Limited Liability Partnership (LLP) National Insurance: Shockingly untouched. LLPs—used extensively by doctors, lawyers, and accountants—avoid employer national insurance. Given this government's targeting of "high earners," leaving this alone suggests some powerful lobbying happened behind closed doors.

Corporation Tax: No further increases. After jumping from 19% to 25% under the Conservatives, at least we have stability here.

The Strategic Takeaway: Where Do 7-Figure Business Owners Go From Here?

This budget sends a clear message: business ownership is being positioned as a route to exit wealth, not lifestyle income.

The tax differential between being employed and taking dividends has narrowed considerably. The only remaining significant advantage is building a business you can sell for a substantial sum. That means:

1. Start with exit planning, not income planning. If you're not building something scalable and sellable, the tax advantages are diminishing rapidly.

2. Get specialist tax advice early. The simple "limited company with you as sole shareholder" structure leaves you vulnerable to every tax change. More sophisticated structuring—potentially involving trusts or other vehicles—gives you options when legislation shifts.

3. Track your numbers religiously. When margins are this tight, you cannot afford to manage by gut feel. Monthly management accounts, detailed cash flow forecasting, and regular profit & loss reviews aren't optional—they're survival tools. Your bookkeeping must be impeccable because every pound matters now.

4. Work with a proactive accountant, not a reactive one. You need someone who anticipates changes, models scenarios, and recommends actions before year-end. Reactive compliance work won't cut it anymore.

5. Focus on business growth, not tax minimisation. While tax planning matters, growing your revenue and improving your gross profit remains the most powerful wealth creation tool available. Don't let tax planning paralyse you into inaction.

   
   

The Truth About Growth

Here's what's most troubling about this budget: despite the government's stated primary objective being economic growth, there's virtually nothing here that encourages entrepreneurship, investment, or business expansion.

Dividend taxes up. Property income taxes up. Exit reliefs reduced. Personal wealth aggressively targeted. Tax thresholds frozen. Employment costs rising.

Where exactly is the growth supposed to come from?

As a finance director working with 7-figure businesses daily, I've never seen such a disconnect between stated objectives and actual policy. This budget assumes the economy will grow through... well, we're still waiting to hear that part.

Your Next Steps

This isn't the budget most business owners hoped for, but it's the reality we're working with. The businesses that thrive won't be those that complain—they'll be those that adapt quickly.

Here's your immediate action list:

1. Book time with your accountant this week to recalculate your salary/dividend split

2. Review your exit strategy with a tax specialist if you haven't already

3. Model your cash flow requirements for the next 18 months, factoring in higher wage costs

4. Assess your property portfolio structure if you hold properties personally

5. Commit to monthly management account reviews if you're not doing them already

   
   

The certainty of knowing what's coming is valuable. Use it.

Need help navigating these changes? We specialise in helping 7-figure business owners optimise their financial structures and drive profit despite challenging conditions. Contact us for a free business review of your finances.

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