UK Budget 2026: Key Tax Changes for Businesses and Individuals

The changes will affect businesses and individuals differently, depending on their circumstances. For those planning investments and earning rental income, it is worth understanding what the new rules could mean and preparing for the changes ahead.

We’ve picked out some of the main points and what they could mean in practice.

Changes to tax and allowances

Trading allowance to increase

From 6 April 2027, the trading allowance is expected to increase from £1,000 to £3,000. The threshold for reporting trading income through Self Assessment will also increase to £3,000.

This means you can generally earn up to £3,000 a year from a small business or side activity without paying tax on that income, provided you qualify for the allowance and it is beneficial to claim it. People with small amounts of trading income may no longer need to report that income to HMRC through Self Assessment, provided they meet the relevant conditions and have no other reason to file a tax return.

Whether you need to file a Self Assessment tax return will still depend on your individual circumstances and other sources of income.

Higher tax rates on savings and property income

From 6 April 2027, the tax rates on savings income will rise to 24% for basic-rate taxpayers, 44% for higher-rate taxpayers and 49% for additional-rate taxpayers. The same rates will apply to property income in England, Wales and Northern Ireland, subject to the devolved arrangements described by the Government.

In simple terms, people may pay more tax on the taxable interest they earn from savings and the taxable rental profit they receive from property. This does not necessarily mean you will pay tax on all your savings interest. The Personal Savings Allowance and other applicable rules may mean some interest remains tax-free.

Landlords and people with significant savings income should consider how these changes may affect their tax bills. Reviewing expected interest and rental profits ahead of April 2027 will give them more time to plan.

Relief for business founders

The Budget announcement includes a new Founders Relief for eligible founders of high-growth, innovative companies. The proposed relief would apply a 10% Capital Gains Tax rate to up to £10 million of lifetime gains.

This could be relevant to business owners who expect to sell shares or exit a company in the future. The eligibility criteria will be important, so it would be sensible to take advice before relying on the relief as part of an exit plan.

Business Asset Disposal Relief

The lifetime limit for gains eligible for Business Asset Disposal Relief (BADR) will reduce from £1 million to £500,000 from April 2027.

This may affect owners who are planning to sell or dispose of a business or qualifying shares. Anyone considering an exit should review the expected timing and tax position with an adviser. BADR and the new Founders’ Relief are separate reliefs, with different eligibility conditions.

Capital allowances and investment in equipment

From 1 January 2027, the main first-year allowance for qualifying plant and machinery expenditure will increase from 40% to 50%. The main rate of writing-down allowance will reduce from 14% to 12% from April 2027 (1 April for Corporation Tax and 6 April for Income Tax).

The effect will depend on the type of asset, the business and whether other reliefs, such as the Annual Investment Allowance or full expensing, are available. Businesses planning significant equipment or machinery purchases should review the timing and tax treatment of the expenditure before making decisions.

Changes to employee share schemes

From April 2027, the individual limit for Company Share Option Plans (CSOPs) will increase to £120,000, and the maximum exercise period will extend to 15 years. The exercise window for Enterprise Management Incentives (EMI) following certain disqualifying events will also increase to 180 days.

An employer could offer an eligible employee the option to buy company shares worth up to £120,000 at a set price in the future. If the company grows in value, the employee could benefit financially when exercising the options and eventually selling the shares, subject to the scheme rules.

If certain events occur that would normally affect an employee's eligibility for favourable EMI tax treatment, the employee will have up to 180 days to exercise their share options in qualifying circumstances. This gives employees more time to act without potentially losing the tax advantages of the scheme.

These changes may give some employers more flexibility when using share schemes to recruit and retain staff.

Business rates and VAT

Support for retail, hospitality and leisure

The Budget introduces targeted support to help eligible businesses manage operating costs. In England, this includes an additional 20% business rates reduction for eligible pubs, social clubs and most live music venues. An increase in the Small Business Rate Relief thresholds is also intended to allow a further 70,000 retail, hospitality and leisure businesses to pay no business rates.

Business rates bills for other eligible retail, hospitality and leisure properties will be capped at inflation for two years, from April 2027.

The impact will depend on the property's rateable value and the reliefs available. Business rates are devolved, so arrangements may differ elsewhere in the UK. Businesses occupying commercial premises should check how the changes apply to their property.

The Budget also makes Small Producer Relief under the Alcohol Duty system more generous, providing additional support to small alcohol producers across the UK.

VAT and online marketplaces

From October 2027, online marketplaces will be responsible for collecting VAT on qualifying sales made by UK businesses through their platforms. The rules will apply to VAT-registered businesses and certain non-registered businesses with annual sales exceeding £90,000 on an individual platform. Personal sales, second-hand goods and business-to-business transactions are excluded.

From 2 January 2028, larger private hire operators will be required to account for VAT on the full fare. The Government is consulting on the turnover threshold, with £50 million in annual fare turnover proposed as the starting point. Smaller operators are intended to be protected, subject to the final rules.

Smaller private hire operators outside London, where drivers contract directly with passengers, and black cabs are not expected to be affected by this change.

Mandatory electronic VAT invoicing

VAT invoices will need to be issued and received in a specified electronic format from 1 April 2029. The Government plans to publish further details on the policy and technical design by April 2028.

Businesses should check whether their accounting and invoicing software can support the future requirements and keep track of the guidance as it develops. This is a planned change, so businesses do not need to overhaul their systems immediately, but early preparation may help avoid a last-minute transition.

Employers and payroll

National Living Wage increase

From 1 April 2027, the National Living Wage is due to increase by 3.9% to £13.21 an hour. The Government estimates that a full-time worker on this rate will receive an additional £910 in gross annual earnings.

Employers should factor the increase into staffing budgets and payroll forecasts now, particularly where a large proportion of the workforce is paid at or close to the minimum rate.

Payrolling benefits in kind

Mandatory payrolling of benefits in kind will be introduced in stages. The first changes, covering specified benefits such as company cars, fuel and medical benefits, are due from April 2027. Most other covered benefits are scheduled to follow in April 2028, with some exceptions.

Employers should review their benefits arrangements and payroll systems well before the relevant dates. Leaving the preparation until the changes take effect could create avoidable administrative work.

Changes to parental pay

The Government has announced plans to extend parental pay to more than 160,000 additional parents, including eligible self-employed fathers, partners and adopters who have previously been unable to access this support. The changes are planned to take effect from April 2029.

The practical impact will depend on the eligibility criteria and implementation arrangements, which are yet to be confirmed. Individuals who may qualify should look out for further guidance before making financial decisions based on the announcement.

Tax administration and HMRC payments

Making Tax Digital for Income Tax

The Government has announced a penalty easement for taxpayers joining Making Tax Digital (MTD) for Income Tax in April 2027. They will not receive penalty points for late submission of their first four quarterly updates for the 2027/28 tax year. The Government has also deferred the rollout for several taxpayer groups until further notice.

This does not remove the need to keep digital records or comply with the requirements that apply to a taxpayer. Sole traders and landlords should check their start date and whether they fall within a group affected by the revised timetable.

More regular Self Assessment payments

From April 2029, taxpayers who already make payments on account for Income Tax Self Assessment will be required to make smaller and more regular payments towards their tax bill during the year. The aim is to bring payments closer to when income is earned.

Affected taxpayers should consider how this may change their cash-flow planning. The measure does not mean that every taxpayer will be brought into payments on account. It applies to taxpayers who are within the existing system and subject to the final arrangements.

Direct debit arrangements for VAT and PAYE

From April 2029, businesses will generally be required to set up a direct debit instruction for VAT and PAYE return liabilities, subject to specified exceptions. Other payment methods will still be available to pay the amount due before the relevant cut-off date. The direct debit is intended to collect any unpaid balance.

Businesses should review their payment controls and authorisations ahead of implementation, particularly where responsibility for VAT and payroll payments is shared between staff, directors and external advisers.

Household bills and fuel costs

Eligible households in council tax bands A to D in England are expected to receive a £100 payment towards energy costs from January 2027. The devolved governments will receive funding to provide similar support elsewhere in the UK. The detailed eligibility rules still matter, so not everyone will necessarily qualify.

The temporary 0% VAT rate on qualifying domestic electricity supplies will continue until 1 July 2027, helping to keep electricity bills lower than they would otherwise be. The Government wants to remove the fixed daily charge for having a gas supply, known as the standing charge.

Instead, the cost would be added to the price paid for each unit of gas used. This means people who use more gas could pay more per unit, while people who use very little gas could benefit. The actual effect will depend on how the changes are implemented.

The 5p-per-litre reduction in fuel duty will continue until 1 July 2027, delaying the planned increase in fuel duty.

This should help keep petrol and diesel prices lower than they would otherwise be, benefiting motorists and businesses that rely on vehicles. However, it does not guarantee that pump prices will fall, as prices also depend on oil prices and other costs.

Mileage and business travel

The Budget confirms that the increased tax-free mileage rate of 55p per mile for the first 10,000 business miles for employees and self-employed people using their own cars or vans will become permanent. From 6 April 2027, the rate for business mileage above 10,000 miles will also increase from 25p to 35p per mile.

Businesses that reimburse mileage should review their expense policies and systems to reflect the revised rates and effective dates. Employers are not required to reimburse employees at these rates, but payments above the applicable approved rates may have tax implications. Mileage claims should be recorded consistently and supported by appropriate records.

What should you do now?

There is no need to change your arrangements simply because a measure has been announced. Some changes will not take effect for several months or years, and some will require further legislation or guidance.

For now, businesses may want to review:

• Payroll budgets ahead of the National Living Wage increase.

• The tax position for savings and rental income from April 2027.

• Planned capital expenditure and the tax relief available.

• VAT processes if they sell through online marketplaces.

• Business rates and available reliefs for commercial premises.

• Share schemes and plans for a future business sale.

• Payroll systems ahead of the changes to benefits in kind.

• Whether Making Tax Digital for Income Tax applies to them and when.

The right steps will depend on your business and personal circumstances. A review now can help identify which changes need attention and which can be dealt with closer to their implementation date.

Need advice on how the Budget affects you?

If you are unsure which announcements are relevant to your business or personal finances, we can help you work through the changes and plan for any that may affect you.

Contact NELVIS BUSINESS SOLUTIONS to discuss your circumstances.

+44 7787 779057

info@nelvis.co.uk

www.nelvis.co.uk

This article summarises selected Budget 2026 announcements for general information. Some measures are subject to legislation or further guidance, and the tax treatment will depend on individual circumstances. It should not be relied upon as personal tax advice.

Source: HM Treasury and HM Revenue & Customs, Budget 2026 publications.

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