UK Autumn Budget 2025 and What It Means for SMEs and Their People

TL;DR – UK Autumn Budget 2025 & SMEs

The 2025 UK Autumn Budget introduces several changes that will affect SMEs’ payroll, taxes, and HR planning:

• National Living Wage rises to £12.71/hr from April 2026, increasing wage bills.

• Income tax and NI thresholds frozen until 2030–31, reducing real take-home pay despite wage increases.

• Business rates reform benefits retail, hospitality, and leisure businesses; larger sites may see higher costs.

• Corporation tax allowances tighten from April 2026, making equipment and capital investment more expensive.

• £2,000 salary sacrifice pension cap from 2029 increases Employer NICs on higher contributions.

• Apprenticeship funding for under-25s supports skills development and reduces training costs.

Action for SMEs: Review staffing, payroll, benefits, and investment plans now to mitigate rising costs and communicate clearly with your teams.

UK Autumn Budget 2025: What SMEs Need to Know in 2026 and Beyond

The 2025 UK Autumn Budget has landed, and for small and medium-sized enterprises (SMEs), it marks another decisive moment in an already challenging economic landscape.

After a year marked by rising employer National Insurance costs, the rollout of new employment rights, and the steep National Living Wage rise introduced in April 2025, many SMEs were already feeling the strain.

This latest Budget introduces a further wave of changes that will shape payroll, hiring decisions, investment planning, and the long‑term cost of running a business.

While the measures vary in their impact across sectors, one thing is clear: every SME must prepare.

With most changes coming into effect from April 2026 onward, businesses that plan ahead will be far better placed to manage rising costs, communicate clearly with their teams, and make confident operational decisions.

This breakdown explores what’s changing, what it means in practice, and how HR and leadership teams can respond.

H2: Key Budget Changes for SMEs at a Glance

• National Living Wage rising to £12.71 from April 2026 

• Income tax and NI thresholds frozen until 2030/31 

• Business rates reform lowers costs for retail and hospitality 

• Corporation tax allowances tightened from April 2026 

• £2,000 pension salary sacrifice cap coming in 2029 

• New apprenticeship funding for under‑25s 

Each of these elements influences workforce planning, payroll, benefits, or investment strategy. Let’s break them down.

1. National Living Wage Rises Again in April 2026

The National Living Wage (NLW) for workers aged 21+ will rise from £12.21 to £12.71 per hour in April 2026, a 4.1% increase. For 18–20‑year‑olds, the minimum wage jumps from £10 to £10.85.

What This Means for SMEs

Any business paying staff near minimum wage, especially those employing large numbers of younger workers will see payroll costs climb. Combined with the ongoing rise in Employer National Insurance and new employment rights legislation, this creates tighter margins for labour‑intensive sectors.

What HR Teams Should Do Now

• Assess the roles most affected and model the cost impact. 

• Review pay bands to avoid pay compression across teams. 

• Re‑evaluate rota patterns and staffing levels early. 

• Equip line managers with clear internal comms about pay changes. 

Even a small increase has real consequences. For example, five full‑time workers on NLW will cost an SME roughly £4,800 more per year in wages alone. or around £5,400 including Employer NI.

2. Income Tax and National Insurance Thresholds Frozen Until 2030–31

One of the most significant long‑term changes in the Budget is the freeze on income tax and NI thresholds. As wages rise in future years, more employees will drift into higher tax bands, widely known as “fiscal drag.”

Impact on SMEs

Employers may find that pay rises feel less meaningful to employees as more of their income gets taxed at higher rates. This mismatch between increased employer spend and lower take‑home pay can make retention, expectation‑setting, and reward conversations more challenging.

What HR Should Do

• Be transparent about how tax thresholds affect real take‑home pay. 

• Refresh total‑reward strategies (e.g., flexible working, development budgets, benefits). 

• Model pay‑rise outcomes based on employees’ position within tax bands. 

Salary conversations will increasingly require careful, fact‑based communication.

3. Business Rates Reform from April 2026

Businesses in retail, hospitality, and leisure will see reduced business rates, while larger sites such as offices and warehouses could face increases.

What This Means for SMEs

Customer‑facing businesses with smaller premises will benefit the most. Meanwhile, space‑heavy operations may see fixed costs rise. Transitional relief will cap sharp increases, offering temporary support for businesses facing higher rates.

HR Priorities

• Factor revised business rates into multi‑year workforce planning. 

• Review long‑term hiring or expansion tied to physical premises. 

• Work with finance leaders to model the cost shift across sites. 

For some SMEs, business rates may become a deciding factor in whether to expand, consolidate, or relocate operations.

4. Corporation Tax Allowances Tightened from April 2026

Though the headline corporation tax rate remains unchanged, Writing Down Allowances (WDAs) will be reduced. This makes equipment and machinery investment more expensive from a tax perspective.

What This Means for SMEs

Asset‑heavy SMEs, manufacturers, logistics firms, and tech companies will feel the shift most. The real cost of upgrading equipment rises, which may delay growth plans or encourage leasing instead of buying.

What HR Should Consider

• Align equipment purchases and hiring plans. 

• Bring forward planned investments where possible before April 2026. 

• Prepare for how reduced capital allowances could impact expansion or resourcing. 

In short, investing in growth becomes more expensive without any change to the corporate tax rate itself.

5. £2,000 Cap on Salary Sacrifice Pension Contributions from 2029

From April 2029, employer National Insurance will apply to any salary sacrifice pension contributions over £2,000 per year. This reduces the tax efficiency of higher employee contributions and impacts employers who offer enhanced pensions.

What This Means for SMEs

Businesses with generous pension schemes will see their NICs bill increase. The value of salary sacrifice schemes diminishes for higher contributors, making benefit packages more costly for employers to maintain.

What HR Should Do

• Identify employees contributing above the threshold. 

• Model future Employer NICs spending. 

• Consider redesigning pension schemes or benefit structures before 2029. 

This early visibility gives SMEs time to review benefits and communicate long‑term changes.

6. New Apprenticeship Funding for Under‑25s

The Budget includes targeted support for apprenticeship training for under‑25s—a meaningful opportunity for SMEs.

Why This Matters

Apprenticeships allow SMEs to develop practical skills in‑house at lower salary levels than experienced hires. With training costs further subsidised, apprenticeships become an even more attractive part of a sustainable talent pipeline.

Practical Steps for HR

• Identify roles suitable for entry‑level apprenticeship pathways. 

• Review funding eligibility based on sector and business size. 

• Build structured development plans for apprentices. 

• Integrate apprenticeships into the 2026 hiring strategy. 

Apprenticeships can offer real value: an apprentice typically costs £16,000–£20,000 in salary in year one, plus support from experienced team members.

Additional Budget Measures SMEs Should Note

• Dividend tax rises: Directors relying on dividends will take home less. 

• Fuel duty freeze through September 2026: Short‑term relief for mobile businesses. 

• Ride‑hailing VAT alignment from January 2026: Full VAT now applied to fares. 

• HMRC VAT enforcement tightening: Faster penalties and stricter audits from 2026. 

Not all SMEs will be affected, but those operating in relevant sectors should prepare ahead of time.

How HR Teams Can Stay Ahead of Budget Changes

1. Review the Budget Changes with Leadership 

Identify which measures affect payroll, benefits, investment, and staffing.

2. Re‑evaluate 2026–2027 Workforce Plans 

Model the impact of NI, minimum wage rises, and tightened allowances.

3.Clean Up Policies and Internal Guidance 

Ensure handbooks and manager guidance reflect upcoming legal and financial changes.

4. Prepare Payroll and HR Systems 

Work with software providers now so everything updates smoothly in April 2026.

5. Brief Managers Early 

Managers are the front line of communication so equip them with clear explanations.

SMEs face a complex few years ahead, with rising employment costs and tighter tax conditions. But with strategic planning and clear communication, businesses can remain resilient and ready.

Final Thought

The 2025 Budget is another reminder that the cost of employing people is rising. But it’s also an opportunity to take stock: refine reward strategies, strengthen workforce planning, and invest in long‑term capability through apprenticeships and smarter benefits.

The businesses that act now not in March 2026 will be best placed to control costs and support their people through the next wave of change.