Budget 2026: what it means for your SME business
Updated: 5 days ago
Key points at a glance
• No rise in the headline rates of income tax, National Insurance, VAT or corporation tax.
• Around 70,000 more retail, hospitality and leisure businesses in England will pay no business rates from April 2027.
• The National Living Wage rises by 3.9% to £13.21 an hour from 1 April 2027.
• A new Founders’ Relief offers a 10% Capital Gains Tax rate for founders of high-growth companies, but the limit for Business Asset Disposal Relief is halved to £500,000.
• More help to start and grow: the trading allowance trebles to £3,000 and a bigger share option scheme (EMI2) arrives.
• Most energy support goes to households and energy-intensive manufacturers, not to the typical SME.
• The “steady middle”, the profitable owner-managed businesses that make up a large part of the SME economy, has largely been left out.
Introduction
Budget 2026, delivered by John Healey on 28 October 2026 in his first Budget as Chancellor, is a cautious Budget that offers modest help for most SMEs, with real gains for the high street and for high-growth founders. There are no broad-based tax rises, there is real help for the high street, and the tax offer for founders is stronger.
However, the cost of employing people continues to rise, the “steady middle” of profitable, owner-managed businesses gets little new support, and owner-managers planning to sell a modest business will be worse off.
The Chancellor described this as a Budget to give “breathing space” during “global economic storms”. The conflict in the Middle East has pushed up energy prices and the cost of borrowing.
According to the Office for Budget Responsibility (OBR):
• Inflation is expected to peak at 3.8% in early 2027, then fall back to 2% in 2028.
• The economy is forecast to grow by 1.2% this year, slowing to 1.0% next year before picking up again.
• The government will pay around £14 billion a year more in debt interest than it expected in March, which leaves little room for giveaways.
So what does it mean for SMEs? Let’s start with the positives.
The good news
Stability on the main taxes
There is no increase to the headline rates of income tax, National Insurance contributions or VAT. Corporation tax rates are unchanged: companies with profits under £50,000 continue to pay 19%, the main rate of 25% applies to profits over £250,000, and marginal relief reduces the rate for profits in between. The 25% main rate remains capped and is still the lowest headline rate in the G7, and full expensing for companies is maintained. Dividend tax rates are also unchanged this year, which gives owner-managers some certainty for planning.
There is no increase to the headline rates of income tax, National Insurance contributions or VAT. Corporation tax rates are unchanged
Business rates relief for the high street (England, from April 2027)
• Small Business Rates Relief: for qualifying retail, hospitality and leisure (RHL) properties, 100% relief now applies up to a rateable value of £18,000 (up from £12,000), with tapered relief up to £21,000 (up from £15,000). Around 70,000 more businesses will pay nothing, including 3,500 pubs, 3,900 restaurants, 2,200 cafés and 1,700 hairdressers and salons.
• A real-terms freeze: for other qualifying RHL properties, bill increases will be capped at inflation in 2027-28 and 2028-29.
• Pubs and venues: relief for pubs, social clubs and most live music venues rises from 15% to 35% from 1 April 2027.
Who qualifies? Your property must be occupied, open to visiting members of the public, and wholly or mainly used for retail (such as shops, salons and garages), hospitality (such as cafés, pubs, restaurants and hotels) or leisure (such as gyms, cinemas and music venues). Professional and financial services, such as accountants, solicitors, estate agents and banks, and medical practices do not qualify, nor do online-only businesses. Your council decides whether your property qualifies.
How much could you save? Using this year’s small business RHL multiplier of 38.2p, a business with a rateable value of £15,000, which currently gets no relief, would save around £5,700 a year. One with a rateable value of £18,000 would save around £6,900. Businesses between £12,000 and £15,000 already get partial relief, so would save less, while those between £18,000 and £21,000 will receive some relief for the first time. Actual savings will depend on next year’s multiplier and any other reliefs you already receive.
Two points of balance. These changes apply to retail, hospitality and leisure businesses only, not to every small business. And the £12,000 threshold had been frozen since 2017, so the increase partly catches up with inflation rather than being a new giveaway.
Backing founders and start-ups
• Founders’ Relief (from 6 April 2027): a 10% Capital Gains Tax rate on up to £10 million of lifetime gains for “qualifying founders of high-growth, innovative companies”. The detailed rules are subject to a technical consultation, so who qualifies is not yet known.
• EMI2 (from 6 April 2027): the Company Share Option Plan is renamed EMI2, and the value of options an employee can hold doubles from £60,000 to £120,000. EMI remains the more generous scheme for smaller companies (up to 500 employees and £120 million of gross assets), allowing options of up to £250,000 per employee, which can be granted at a discount. EMI2 is for companies that have outgrown EMI or do not qualify, with options granted at market value. From April 2027, options under one scheme no longer count towards the other’s limit, so an employee could hold up to £250,000 of EMI options and £120,000 of EMI2 options. Put simply, EMI is for start-ups and scale-ups, and EMI2 is the next step up. Companies moving to an Employee Ownership Trust will keep access to EMI.
• Trading allowance (from 6 April 2027): the amount of trading income you can earn tax-free rises from £1,000 to £3,000, which helps people testing a new venture alongside other work.
• Young Entrepreneurs Allowance: a pilot in England will support young founders with living costs during their first year of business. Details are still to come.
• Women founders: a new scale-up programme to tackle the barriers women face when raising investment.
• Less admin: the R&D tax relief Claim Notification Form is removed from 1 April 2027, and the EIS, SEIS and VCT schemes will be made easier to use.
Investment and access to finance
• Capital allowances: the main rate first-year allowance rises from 40% to 50% for spending from 1 January 2027. This is partly offset by a cut in the main writing-down allowance from 14% to 12% from April 2027. Most SMEs already claim 100% of their spend through the £1 million Annual Investment Allowance, which is unchanged, so for many little changes in practice.
• British Business Bank: an extra £5 billion of capacity, including a £6.5 billion expansion of the Growth Guarantee Scheme, £1.4 billion for equity investment, £450 million for a new venture debt product and £165 million for community lenders.
• Exporters: UK Export Finance, the government’s export credit agency, will launch a new SME export guarantee with the British Business Bank in 2027, widen access to its General Export Facility to include new exporters, and introduce a new scheme for smaller export loans.
Help with everyday costs
• Mileage: the tax-free rate of 55p a mile for the first 10,000 business miles, introduced temporarily in May, is made permanent. The rate above 10,000 miles rises from 25p to 35p.
• Fuel: the 5p fuel duty cut and the cut to red diesel duty are extended to 1 July 2027.
• Import costs: tariff suspensions on 269 goods are extended, and businesses can apply for new suspensions between 11 November 2026 and 3 February 2027.
• Red tape: up to £640 million a year of new administrative savings, action on the Small Business Regulation Taskforce’s recommendations, and a commitment to tackle late payments.
The challenges
Employment costs keep rising
From 1 April 2027, the National Living Wage rises by 3.9% to £13.21 an hour, adding £910 a year to the pay of a full-time worker on that rate. The rate for 18 to 20-year-olds rises to £11.27, and for 16 to 17-year-olds and apprentices to £8.31. This is a smaller rise than in recent years, but it builds on last year’s higher employer National Insurance, and there is no National Insurance relief for hiring younger workers despite calls from business groups. Staff just above the minimum will also expect to keep their pay gap. On the positive side, the £3,000 Youth Jobs Grant and a £2,000 payment for SMEs taking on young apprentices in England, both announced in the spring, are confirmed.
Selling your business: less relief for most owners
From 6 April 2027, the lifetime limit on gains that qualify for the 18% Business Asset Disposal Relief rate falls from £1 million to £500,000. The government says three in four claimants will be unaffected, but if you are a higher-rate taxpayer selling with a £1 million gain, you could pay up to £30,000 more in tax. The new Founders’ Relief may help some, but it is aimed at high-growth, innovative companies. Together with last year’s cut to Employee Ownership Trust relief, exit planning for the typical owner-managed business has become more expensive.
Energy costs: limited help for most SMEs
The headline energy measures are for households: the VAT cut on home electricity extended to July 2027, a £100 Household Energy Payment, and gas standing charges on home bills to be abolished by the end of 2027 or as soon as possible after. Business bills are not covered. The main business support is the British Industrial Competitiveness Scheme, which will cut electricity bills by up to 25% for over 10,000 eligible energy-intensive manufacturers from April 2027. Scrapping the planned Gas Shipper Obligation levy will help all gas users.
Owner-managers’ personal tax
Dividend tax is unchanged, but last year’s two-point rise remains (10.75% basic rate and 35.75% higher rate). Tax on savings and property income rises by a further two percentage points from April 2027, on top of the rise announced last year. From April 2028, new rules on how company distributions are taxed will close off some planning routes, while protecting genuine changes of ownership, including families passing down their business. The cap on pension salary sacrifice from April 2029 also remains.
Borrowing and banks
The Bank Corporation Tax Surcharge doubles from 3% to 6% from 1 January 2027 to 31 March 2028. It is lower than some had feared and temporary, but with inflation rising, the cost of borrowing is worth watching closely.
Tax admin changes on the horizon
• Making Tax Digital for income tax: those joining in April 2027 will not receive penalty points for late submission of their first four quarterly updates, and the roll-out for some groups is deferred.
• Online marketplaces (from October 2027): platforms will collect VAT on sales by UK VAT-registered businesses and by UK businesses selling over £90,000 a year on a platform.
• From April 2029: more regular Self Assessment payments on account, direct debits required for VAT and PAYE liabilities, and VAT e-invoicing.
• From July 2029: a new HMRC power to collect smaller tax debts directly from the bank accounts of those who can pay but repeatedly do not.
Power and money moving to local areas
The Budget sets out a roadmap to move more decisions and money out of Whitehall. Mayors will receive a share of business rates from 2027-28 and a share of income tax from 2028-29, with the intention that 100% of business rates are retained locally. New Good Growth Funds will support mayors and local leaders, and strategic authorities will be able to introduce visitor levies on overnight stays.
For SMEs, this means more of the support and investment in your area will be decided by your mayor or local council, so it is worth keeping in touch with what they offer.
The “steady middle”: largely left out
Most of the support in this Budget is aimed at two groups: high street businesses in England with smaller premises, and high-growth, investor-backed companies. The largest part of the SME economy sits between them. These are profitable, owner-managed businesses such as consultancies, agencies, trades, business services and smaller manufacturers.
For this “steady middle”, the Budget brings little that is new. They do not qualify for the business rates relief, they get no help with business energy bills, and Founders’ Relief is aimed at “high-growth, innovative companies”. At the same time, they face another rise in wage costs and a halving of the Business Asset Disposal Relief limit when they come to sell.
To be fair, this Budget does not add significant new taxes for them either. They have not been hit hard, but they have largely been left out. These businesses provide much of the UK’s employment and stability, and we hope future Budgets recognise the value of sustainable, profitable growth as well as rapid scaling.
The impact on your sector
Hospitality
The clear winner. Many smaller venues will pay no business rates from April 2027, others get a real-terms freeze, and pubs receive 35% relief. Small brewers benefit from more generous Small Producer Relief from 1 February 2027, and pubs are protected from the Machine Games Duty rise, which only applies to machines with stakes over £1. Against this, wage costs rise again, business energy bills get no direct help, and visitor levies may follow in some areas.
Retail and the high street
Retailers share the business rates gains, with around 120,000 shops expected to benefit from the real-terms freeze. Online marketplace VAT rules from October 2027 aim to create a fairer playing field with online sellers, and tariff suspensions are extended. Wage costs remain the main pressure, and vape shops lose their business rates reliefs from April 2027.
Manufacturing
Energy-intensive manufacturers should check their eligibility for the British Industrial Competitiveness Scheme urgently, as applications close on 30 November 2026. To qualify, your business must be registered at Companies House with an eligible manufacturing industry code, make eligible products at a site in Great Britain, and use at least 33 MWh of grid electricity a year at each site claimed. Support depends on how much of a site’s electricity is used for eligible manufacturing, with the full exemption from certain policy costs available where it is 50% or more.
The Climate Change Levy on electricity will be frozen from April 2028. The higher first-year allowance helps larger investment programmes, while extended tariff suspensions and the new suspension window help with input costs. Manufacturers that export, or want to, should look at the new UK Export Finance support for SMEs from 2027. Smaller manufacturers outside the scheme will see little change to energy costs.
Professional services
Consultancies, agencies and other service firms receive little direct support. The permanent mileage rates help those who travel to clients. For owners, dividend tax is stable, but the cut to Business Asset Disposal Relief, the distributions rules from 2028 and changes to Self Assessment payments from 2029 all affect planning. This remains the “sustainable but squeezed” part of the SME economy, and is at the heart of the steady middle.
R&D, software and high-growth businesses
This is where the Budget is most generous. Founders’ Relief, the doubled EMI2 option limit, simpler R&D claims, easier venture capital schemes and new British Business Bank equity and venture debt funding all support companies raising investment and competing for talent. The government also plans to stop non-compete clauses being a barrier to hiring.
What does this actually mean for my SME business?
this Budget gives most SMEs stability rather than significant help, with two big exceptions: high street businesses in England, and high-growth companies. If you are in the steady middle, the opportunity is in careful planning rather than new support
In short, this Budget gives most SMEs stability rather than significant help, with two big exceptions: high street businesses in England, and high-growth companies. If you are in the steady middle, the opportunity is in careful planning rather than new support. Here is what we suggest you do now.
1. Check your business rates. If you are a retail, hospitality or leisure business in England, check your rateable value with the Valuation Office Agency. If it is up to £18,000, you should pay nothing from April 2027, which could save you several thousand pounds a year. If you are unsure whether you count as retail, hospitality or leisure, ask your council.
2. Budget for April 2027 pay rises. Update your payroll forecast for the new minimum wage rates, plus employer National Insurance, pension contributions and the knock-on effect on staff paid just above the minimum.
3. Thinking of selling within the next few years? Talk to an adviser now. The Business Asset Disposal Relief limit falls on 6 April 2027. Do not rush a sale just for tax, but understand your options, and watch for the Founders’ Relief rules.
4. Time your investment. The 50% first-year allowance applies to spending from 1 January 2027. If you plan to spend more than £1 million on equipment, timing could matter.
5. Review your finance. Inflation is expected to peak at 3.8% in early 2027, and borrowing costs may rise. Review your facilities early, and look at British Business Bank schemes such as the Growth Guarantee Scheme.
6. Use share options to keep key people. EMI and the new EMI2 are tax-efficient ways to reward talent without spending cash.
7. Get ready for admin changes. Making Tax Digital, online marketplace VAT, more regular Self Assessment payments and e-invoicing are all coming. Make sure your systems and cash flow forecasts can cope.
Conclusion
This is a cautious Budget that offers modest help for most SMEs, and a steadier one than last year’s. There are no broad-based tax rises, the high street gets meaningful support, and founders building high-growth businesses have a more attractive tax environment. However, the squeeze continues for the steady middle of profitable, owner-managed businesses: employment costs rise again, energy support largely passes them by, and the relief available when selling a business has been halved.
Our advice is to plan rather than panic. Know which measures apply to you, take advantage of the opportunities, and build the changes into your forecasts now so there are no surprises in April 2027.
If you would like to discuss how any of these measures might affect your business, please do get in touch. We would be happy to explore this with you.
Sources
• HM Treasury, Budget 2026 (HC document, 28 October 2026): https://www.gov.uk/government/publications/budget-2026-document
• Office for Budget Responsibility, Economic and Fiscal Outlook, October 2026 (forecasts as reported in Budget 2026): https://obr.uk/
• GOV.UK, Business rates multipliers: qualifying retail, hospitality or leisure: https://www.gov.uk/guidance/business-rates-multipliers-qualifying-retail-hospitality-or-leisure
• GOV.UK, Corporation Tax rates and allowances: https://www.gov.uk/government/publications/rates-and-allowances-corporation-tax/rates-and-allowances-corporation-tax
• GOV.UK, Estimate your business rates (2026-27 multipliers for England, used in our savings examples): https://www.gov.uk/estimate-your-business-rates
• GOV.UK, British Industrial Competitiveness Scheme: guidance for applicants: https://www.gov.uk/government/publications/british-industrial-competitiveness-scheme-business-guidance/british-industrial-competitiveness-scheme-guidance-for-applicants
• GOV.UK, Expanding the eligibility limits of the Enterprise Management Incentive scheme: https://www.gov.uk/government/publications/enterprise-management-incentive-scheme-increasing-the-limits/expanding-the-eligibility-limits-of-the-enterprise-management-incentive-scheme
Measures apply to England or the UK as stated; business rates are devolved in Scotland, Wales and Northern Ireland. Savings examples are our own estimates using 2026-27 rates.
