The 2026 Budget announcement includes measures affecting UK small businesses, sole traders, and limited companies. In this article we summarise they key changes and how they impact business owners.
The 2026 Budget announcement at a glance
| The announcement | Who it affects |
| Trading Allowance increases from £1,000 to £3,000 | Sole traders, freelancers, anyone with a side hustle |
| Business rates relief expanded | Retail, hospitality, and leisure businesses |
| Capital Gains Tax changes | Company directors, entrepreneurs, startups |
| Capital allowances revised | Businesses investing in equipment |
| Company Share Option Plans (CSOPs) extended | Companies, employers, employees |
| Mileage allowances increase | Sole traders, employees, employers, directors |
| Minimum Wage rates increase | Employers |
| Property Income Tax rates and landlord registration | Landlords and hosts |
| Parental Allowance changes | Self-employed fathers, partners, and adopters |
| VAT responsibilities for online marketplaces | Ecommerce and online sellers |
| VAT reverse charge | Customers buying services from overseas |
| Vehicles: Fuel duty, and Benefit in Kind reporting | Transport businesses and tradespeople, and employers |
Trading Allowance increased
The Trading Allowance is the amount an individual can earn from self-employment during the tax year before they’re required to tell HMRC, or start paying tax on it.
This won’t be backdated, so anyone earning more than the current £1,000 allowance in any tax year before then will still need to follow the usual reporting rules.
Business rates
There are several changes to business rates in England coming into effect from 1st April 2027:
- Small Business Rate Relief: The rateable value threshold to get 100% relief increases from £12,000 to £18,000 for eligible retail, hospitality and leisure properties
- Tapered rate relief: The upper threshold for tapered rate relief increases from £15,000 to £21,000
- Support for hospitality businesses: Pubs, social clubs and live music venues receive an additional 20 percentage points of business rates relief, bringing relief to 35%
Capital allowances
Businesses can use a type of tax relief called capital allowances to deduct some or all of an asset’s value from their profits, helping to reduce their tax bill.
- Main-rate writing down allowance: Claim relief on a percentage of the asset’s value over a longer period of time. As of April 2027, the rate you can claim will reduce from 14% to 12% of the asset’s value.
- Main-rate First Year Allowance (FYA): Claim relief on a percentage of the asset’s value in the accounting period you buy it. The percentage you can claim increases from 40% to 50% as of April 2027.
Capital Gains Tax changes
These include a brand new type of relief against Capital Gains Tax for business founders, and changes to the existing Business Asset Disposal Relief (BADR).
Founder’s Relief
A new Capital Gains Tax Founder’s Relief, effective from 6th April 2027, could reduce the rate of Capital Gains Tax eligible founders must pay when they sell their business or shares.
The new relief reduces the rate of Capital Gains Tax from 18% for basic rate taxpayers and 24% to higher rate payers, to 10% on up to £10 million of lifetime gains.
The table below gives you an example of what this looks like as a tax saving for a 24% higher rate taxpayer:
| Without Founder’s Relief | With Founder’s Relief | |
| Amount gained | £1,000,000 | £1,000,000 |
| Rate of Capital Gains Tax | 24% | 10% |
| Capital Gains Tax to pay | £240,000 | £100,000 |
| CGT saving | – | £140,000 |
The rates are currently under consultation.
Business Asset Disposal Relief (BADR)
The existing Business Asset Disposal Relief (BADR) is similar to the new Founder’s Relief in that it reduces the rate of Capital Gains Tax which is payable when selling off business assets. In this case it reduces the rate to 18%.
The difference between Founder’s Relief and BADR
It’s understandable that most people would wonder why a new rate has been introduced at the same time as cutting the limit on something broadly similar. The key difference between Founder’s Relief and Business Asset Disposal Relief is eligibility.
- BADR is open to those who have owned at least 5% of their business for a minimum of two years, and there aren’t any conditions around business turnover
- Founder’s Relief means you’ll need to own at least 25% of the company when it starts trading, own it for at least 5 years, and the company must have generated turnover of at least £10 million in the accounting period before the disposal happens
Company Share Option Plans (CSOPs) extended
Company Share Option Plans (CSOPs) mean a company can give employees and full-time directors the option to buy shares at a fixed rate, without needing to pay tax on the difference between what they paid for them and their value. When the new tax year starts in April 2027, the amount they can buy and remain tax-free will increase from £60,000 to £120,000.
At the moment these options are tax-free if they’re held for at least three years, and ‘exercised’ before 10 years. In April 2027 the window increases to 15 years.
Mileage allowance rates increased
The mileage allowance is the tax-free amount per mile which self-employed people can claim as an allowable expense (or that employers can pay employees) if they use a personal vehicle for business travel. From April 2027 the rates for cars and vans are:
- First 10,000 miles: 55p per mile
- Over 10,000 miles: 35p per mile (increased from 25p)
Minimum Wage increased
The minimum hourly rates which employers must pay employees based on their age or apprenticeship status will increase from 1st April 2027:
- 21 or older: Increases from £12.71 to £13.21 per hour
- 18–20-year-olds: Increases from £10.85 to £11.27 per hour
- 16–17-year-olds and those in the first year of an apprenticeship: Increases from £8.00 to £8.31
Property income and landlord tax
New tax rates for property income earned by individuals in England, Wales, and Northern Ireland have been confirmed from April 2027:
- Basic rate: 22%
- Higher rate: 42%
- Additional rate: 47%
The phased rollout of a £65 registration fee for landlords in England will also start on 15th December 2026.
Parental Allowance to include self-employed people
From April 2029, parental pay will be extended to self-employed fathers, partners, and adopters who would usually not be able to access statutory support.
VAT changes
The VAT registration threshold and rates are staying the same, but the responsibility for collecting and reporting VAT will change for some people.
Responsibilities for online marketplaces
Under the digital reporting rules, it’s already a requirement for online marketplaces to tell HMRC about the earnings of some sellers. From October 2027 online platforms such as Amazon and eBay will also be required to collect VAT on sales by UK businesses if those sales reach the £90,000 VAT registration threshold.
We expect that VAT registered businesses will be able to provide their VAT registration details to the platform and continue accounting for and paying VAT the normal way.
As a side note, but still related: The £135 customs duty exemption (customs – not VAT) will be removed from October 2028.
VAT reverse charge for services
The current rules for the VAT reverse charge mean you can buy services from an overseas supplier to use in the UK, but they won’t charge VAT on the invoice.
If you’re VAT registered, you add the charge to your VAT return. If you’re not, then you won’t pay any VAT, but the amount counts towards your rolling taxable turnover (which is used to check if you meet the £90,000 VAT registration threshold).
- VAT registered businesses: Nothing changes. You’ll provide the supplier with your VAT number, they’ll make it clear on the invoice that the reverse charge applies, and you’ll report everything on your VAT return as normal
- Non-registered businesses: The supplier must now charge UK VAT on taxable services
- The overseas service provider: Must check whether the customer is UK VAT registered, and take the appropriate action as above
Vehicles
- Benefit in Kind tax rates on company cars will increase by 1 percentage point from 6th April 2030
- The current 5p-per-litre reduction in fuel duty has been extended to 1st July 2027
- The duty on red diesel reduced by 3.7p per litre 15th June 2026 – 1st July 2027
- A temporary HGV road tax holiday, which reduces Vehicle Excise Duty to £1 for 12 months
On the horizon; Company distributions
The Budget did refer to further review of company distributions, though no further detail is available just yet. A distribution means a company has transferred money or something of value to a shareholder. The classic example is a dividend, but it could also include money you receive as capital (for instance, by closing the company down and then giving its remaining assets to yourself).
The government announced plans to reform this area with effect from April 2028, which could affect the way some people plan investments or extract profit from their company.
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