Budget 2025 - Business Owners and Entrepreneurs Hit with a Fresh Volley of Tax Hikes

David Little, Partner in Financial Planning at Evelyn Partners, the UK wealth manager, comments:  
  
“This Budget has left business owners with a bitter pill to swallow after they were hit with a fresh volley of blows, just over a year after they were forced to absorb £25 billion in National Insurance rises in the Chancellor’s maiden fiscal statement in October last year.  
 
“While most of today’s £26bn tax take is expected to come from personal taxation, impacting those with the broadest shoulders the most, there are major impacts for business owners as well. Changes include another sharp rise in the minimum wage from April 2027 and another increase in National Insurance costs for employers that provide salary sacrifice pension schemes. Business owners will also be impacted by hikes in fuel duty from September 2026 and a smorgasbord of other taxes, including gaming tax changes, that will affect individual sectors differently. This latest round of increased overheads will likely further fuel unemployment as businesses review their staffing levels. 
 
“In addition, dividend tax rate hikes for basic and higher rate taxpayers and higher savings rates on personal savings – along with an increase in property income tax rates and a mansion tax - will deliver a mighty blow to the personal finances of affluent business owners still reeling from the previous round of tax hikes.  
 
“Last year’s decision to bring unspent pension pots into the scope of IHT from April 2027, hike the minimum wage, increase Capital Gains Tax rates and slash business relief and agricultural property relief from April 2026, has already dealt a heavy hit to the economy. Add to that incessant speculation in the run-up to this year’s Autumn Budget - which has stifled activity in recent weeks – and we’ve seen unemployment soar to its highest level in four years, economic growth stagnate and wage growth ease back as businesses reconsider investment, hiring plans and staff pay rises. 
 
“Now, business owners must rally again and find the impetus to push forward in the face of multiple new challenges, including the impact from the impending Employment Rights Bill.

“What is clear from today is that Rachel Reeves’ focus is on raising revenue through targeted tax changes, instead of the widely trailed - then backtracked - rise in income tax rates. This Budget signals a clear shift toward taxing wealth, savings and investment rather than consumption. For entrepreneurs and small businesses, the cost of flexibility - whether in hiring, rewarding staff, or planning an exit - has gone up. These changes don’t just affect tax bills; they influence strategic decisions businesses make about growth, succession, and personal wealth planning.

“Proactive planning is no longer optional - it’s essential. Reviewing your remuneration strategy, investment approach, and exit plans now will help you stay ahead of the curve and protect long-term goals.”

Several measures will impact business owners, investors, and high earners.

Dividend Tax – extracting profits through dividends will become less attractive 

“A hike in dividend tax rates by 2 percentage points for basic and higher rate taxpayers is mainly aimed at extracting more cash from the UK’s small business owners. Small business owners often pay themselves only a very modest salaried income, because profits can be unpredictable, opting instead for dividend distributions.  
 
“Dividends are paid out of profits that have already been subject to corporation tax, which is levied at 19% for companies with profits under £50,000 and at 25% for companies with profits over £250,000.  For investors and directors, the latest hikes make extracting profits through dividends less attractive. With the tax-free allowance having shrunk to a token £500 and rates rising, the cost of taking income this way is increasing. For directors who rely on dividends for remuneration, this means revisiting the balance between salary, dividends, and other benefits. Exploring tax-efficient investment wrappers or reinvestment strategies could soften the blow. 
 
Capital Gains Tax – passing the business to employees becomes less appealing 
 
If you’re planning an exit, the changes to Capital Gains Tax (CGT) on passing the ownership to employees has become less appealing – with the 100% CGT relief lowering to 50%.  This could impact succession strategies, and even the timing of a sale. Early planning is essential - structuring the deal and considering alternative ownership models could help mitigate the impact. 
 
Salary sacrifice – employers may rethink remuneration packages 
 
“For employers and employees, salary sacrifice changes from April 2029 mean pension contributions above the new £2,000 threshold will attract National Insurance, reducing the tax efficiency of this popular benefit. Under current rules, employees can choose to ‘sacrifice’ a portion of their salary into a workplace pension pot before it is subject to income tax or National Insurance - a move that reduces their tax bill and gives their pension a boost. Employers also benefit because employer NI is only levied on pay left after pension contributions are made.  
  
“Scaling back this benefit means pension savers will see their take-home pay reduced in lieu of higher NI bills. Employers will also lose relief on the employer NI rate applied to contributions. This effectively amounts to another tax increase for workers and businesses, which could also lead to lower salary increases, scaled-back pension benefits, or even headcount reductions to offset costs. 
 
“Employers may need to rethink remuneration packages, as the cost of providing competitive benefits rises. For employees, this could mean less take-home value from pensions and bonuses. Communication and planning will be key to avoid surprises and maintain engagement. 
 
“Considering the demographic timebomb we are facing, with an aging population and declining birth rates, disincentivising saving via a pension may come back to haunt the Government in the future.  
 
Business and personal finances are often inextricably linked 
 
“While business owners may be worried about the impact on their bottom line, they are also likely to be concerned about the effect of the changes on their personal finances. For entrepreneurs, dealing with the challenges facing their business can often take precedence, but their personal and business finances are often inextricably linked. 
 
"The biggest hit will be the changes to salary sacrifice, increase in dividend tax rates and the unexpected rise in savings tax rates – something that means taking advantage of any tax reliefs and allowances will be key to mitigate a personal tax liability – both for themselves and their business.

“A business that can be flying high one moment can be burning through cash the next, with the risk that major tax changes sometimes coincide with a difficult juncture in a company’s fortunes.

“The dividend tax changes will impact entrepreneurs, who not only pay themselves primarily or partially via dividends but also hold dividend-generating listed equities, while the salary sacrifice changes will impact those who use the schemes to bolster their own finances.

“Now is the time for entrepreneurs and business owners to reevaluate personal financial plans, taking advantage of all the personal allowances available to them as an individual, as well as their spouse and children.

“For some entrepreneurs their business is their retirement plan, but successful exits are not guaranteed, so it is important that entrepreneurs don’t ignore the tax advantages that still come with saving into a pension despite the latest changes.

“Pension saving is potentially even more advantageous for entrepreneurs than it is for employees, as it can be very tax efficient for owner managed businesses to manage their retirement savings via their company. While the salary sacrifice change, will see them lose the National Insurance saving from April 2029, taking advantage of current rules while they remain in place and even utilising carry forward rules to mop up past unused allowances - could be a tax-efficient savings strategy for business owners in the short term for those with access to spare funds.

“Business owners have particular needs and concerns that don’t always apply to employees. Speaking to a financial planner that specialises in working with entrepreneurs will provide them with the tailored cash-flow modelling, tax planning and investment advice they need to help them through difficult periods and ensure their financial future feels more secure.”