Introducing the new tax landscape for business owners

Combined, these changes could make life as a business owner much tougher. Planning and good advice are key to navigating these challenges. In this article, we’ll explain these changes and tell you why. 

Changes to EOT sales

An untrailed budget change was the reduction in tax relief on sales to Employee Ownership Trusts (EOTs) from 100% to 50%, with immediate effect, which caught many business owners by surprise, especially if they were in the middle of an EOT transaction.

Although the overall 12% tax rate for sales to EOTs remains below all other routes for sale, this change means that future deals will need more planning to factor in the need to fund CGT costs.

The wider commercial benefits of EOTs are unchanged, including a simpler sale process and the recruitment, retention and incentivisation benefits for employees.

Hiring costs rise again

The cost of employing people is on the rise again. Last year’s rise in employer National Insurance Contributions (NICs) continues to affect business viability. Insolvencies are up 17% year-on-year, with retail and hospitality companies accounting for 30% of those failures. Businesses that rely heavily on labour are under real strain.

Salary sacrifice arrangements are also tightening. From April 2029, the amount of employee salary sacrifice contributions that will be exempt from NICs will be capped at £2,000 per year. This new restriction makes some pension-related schemes less effective for employers, raising costs and making it harder to offer competitive employee benefits.

When you put these tax changes together, the implications are clear:

• Businesses reduce headcount due to higher employment costs
• Recruitment plans are put on hold
• Employers are evaluating each role carefully before committing to new hires

Salary vs dividends

Rising dividend taxes from 2026-27 will change how business owners think about drawing income from their companies. The basic and higher rates both increase by two percentage points to 10.75% and 35.75% respectively. The additional rate remains at 39.35%.

For sole traders considering setting up a limited company, incorporation will become less tax-efficient than before. The government is clearly looking to reassess the traditional differential between salaries and dividends, which was initially designed to reward entrepreneurship. Even limited company business owners are reviewing how they will draw income when these changes kick in.

These shifts add another layer of complexity for business owners considering the income tax and wealth tax changes from a personal perspective. They have their companies to think about, not just their personal bank balance.

Day-to-day decision-making

The Budget has affected the already dwindling business confidence when it comes to day-to-day decision-making. The fear of what may lie ahead is influencing behaviour. Owners are delaying major choices, preferring to hold cash rather than invest.

Rumours of U-turns (which this government has enacted in the past) encourage caution rather than risk-taking. The result is slower investment, fewer deals and planning for defence rather than offence. In this already challenging economic environment, business owners need clarity.

Looking to the future

The 2025 Budget has created a new landscape for business owners. The costs of employing people continue to rise. Salary sacrifice restrictions narrow the options available for employee benefits. Rising dividend taxes make incorporation less tax-efficient. In addition, there have been recent changes to restrict inheritance tax relief on company shares and the new changes to EOTs, meaning that succession plans should be reviewed.

To address these challenges, business owners need to conduct more frequent reviews of company structures, tax positions and future plans. The rules will change more in the future, but the need for a clear strategy remains as strong as ever. 

Accentuate by K3 Hub – The Autumn Budget: a comprehensive analysis

On Monday 1st December 2025, we held an Autumn Budget webinar at which our keynote speaker, Jeremy Mindell, Director at Primondell Ltd, analysed the details of the statement and provided a comprehensive overview of the latest economic and public financial outlook.

Jeremy was joined by a panel of experts discussing the economy, the deals market, stealth taxes and other measures affecting businesses and private individuals.

The panel included:

Kelly Mitchell
Managing Director, Restructuring & Insolvency
Quantuma

Ian Barton
Managing Director, Corporate Finance
Quantuma

Marcus Pilkington
Chartered Financial Planner
Pareto

Holly Bedford
Managing Director, Tax Advisory
K3 Tax Advisory Limited