What It Means for You and Your Business

The Autumn Budget 2025 introduces several important tax changes that will affect business owners, company directors, investors and higher earners from April 2026 onwards.

While there were no dramatic headline increases to Income Tax or Corporation Tax, the combined effect of frozen thresholds, dividend rate rises and upcoming pension reforms means many individuals will experience a gradual but meaningful increase in their overall tax burden.

At Moorhen Accountancy, we’ve summarised the key changes below — and more importantly, what they mean in practical terms.

Income Tax Threshold Freeze Extended to 2031

The personal allowance (£12,570) and higher rate threshold (£50,270) will remain frozen until at least April 2031.

Although income tax rates remain at:

• 20% (Basic Rate)
• 40% (Higher Rate)
• 45% (Additional Rate)

Fiscal drag means that as wages, bonuses and dividends increase, more income will be taxed at higher rates.

The impact:

• More taxpayers will move into the higher rate band
• Additional rate tax exposure will increase
• The effective tax burden rises without headline rate increases

Over time, this is one of the most significant revenue-raising measures in the Budget.

Forward planning is now essential rather than optional.

Dividend Tax Rate Increases (From April 2026)

Following the extension of frozen thresholds, dividend taxation becomes even more important for company directors.

From April 2026, dividend tax rates will increase to:

• Basic rate taxpayers: 10.75% (up from 8.75%)
• Higher rate taxpayers: 35.75% (up from 33.75%)
• Additional rate taxpayers: 41.35% (up from 39.35%)

For owner-managed businesses where profits are extracted primarily through dividends, this represents a direct reduction in net take-home income.

What this means:

• Reviewing the timing of dividend payments before April 2026 may be beneficial
• Salary/dividend ratios may need restructuring
• Retained profits and pension contributions may become comparatively more attractive

When combined with frozen income tax thresholds, the effective tax cost of dividends becomes more pronounced.

Pension Reform and Salary Sacrifice Changes

The Budget also confirmed the Government’s intention to tighten National Insurance advantages linked to salary sacrifice arrangements — particularly those used for pension contributions.

How Salary Sacrifice Currently Works

Salary sacrifice allows an employee or director to exchange gross salary for an employer pension contribution.

This currently provides:

• Income tax relief at the individual’s marginal rate
• Employee National Insurance savings (8% or 2%)
• Employer National Insurance savings (13.8%)
• Corporation Tax relief for employer contributions

For many directors, this remains one of the most tax-efficient extraction methods available.

What Is Expected to Change?

From April 2029, the Government has indicated:

• A possible cap on earnings that can be sacrificed free of National Insurance
• Reduced NI advantages for higher earners
• Strengthened anti-avoidance provisions around remuneration planning

While draft legislation is awaited, the direction is clear — National Insurance savings are under increasing scrutiny.

Why This Matters for Company Directors

Pension contributions are commonly used to:

• Reduce Corporation Tax
• Avoid higher dividend taxation
• Lower adjusted net income (protecting personal allowance or child benefit)
• Build tax-efficient retirement savings

If National Insurance efficiencies are restricted, the optimal remuneration structure may change significantly.

Annual Allowance and Tapering Rules

The standard Annual Allowance remains £60,000.

However:

• The Tapered Annual Allowance applies where adjusted income exceeds £260,000
• The Money Purchase Annual Allowance may apply if pensions have been flexibly accessed
• Carry-forward relief remains available for unused allowances from the previous three tax years

Failure to monitor thresholds can result in unexpected tax charges.

Planning Opportunities Before 2029

There is currently a planning window before salary sacrifice reforms take effect.

Directors may wish to consider:

• Accelerating pension contributions
• Reviewing employer vs personal contributions
• Utilising carry-forward allowances
• Stress-testing remuneration structures through to 2031

Early action could secure substantial tax efficiencies before restrictions tighten.

Business Investment and Capital Allowances

The Budget maintained:

• Full expensing for qualifying plant and machinery
• Ongoing business rates reform measures

For growing businesses, this supports capital investment planning and may offset some of the increased personal tax burden faced by directors.

Timing expenditure carefully remains key.

The Bigger Picture

The Autumn Budget 2025 focuses less on headline rate increases and more on incremental revenue measures:

• Extended fiscal drag
• Higher dividend taxation
• Gradual restriction of National Insurance advantages
• Continued tightening of allowances

The cumulative impact over the next five years could be significant for business owners and higher earners.

Proactive planning is now essential.

How Moorhen Accountancy Can Help

At Moorhen Accountancy, we specialise in helping directors and business owners structure their affairs efficiently and proactively.

We are currently advising clients to:

• Review dividend payments before April 2026
• Reassess salary vs dividend strategies
• Model projected tax liabilities through to 2031
• Maximise pension planning opportunities
• Review long-term remuneration structures

If you would like a tailored review of how the Autumn Budget 2025 affects you or your business, please contact us to arrange a consultation.