With income tax thresholds frozen until 2031, more people are being quietly pulled into higher tax bands as wages and living costs rise. This is effectively a stealth tax affecting millions of working families. Fiscal drag is now one of the biggest pressures on households, reducing real take-home pay and leaving families with less money for essentials, eating out, travel and everyday spending. This squeeze also risks slowing the wider economy and placing further strain on small businesses.

Alongside this, the dividend tax increase means that most director-shareholders will be worse off by around £750 per year if taking dividends within the basic rate band, with those in the higher rate band paying even more.

Employers’ National Insurance changes have also had a major impact. For many of you running one-person companies, the biggest additional cost this year has been the jump in employer’s NI combined with the lower threshold. Using a typical director’s salary of £12,570:

• Last year (13.8% rate, threshold £9,100), employer’s NI was roughly £480.
• This year (15% rate, threshold £5,000), employer’s NI is approximately £1,135.

For landlords, the additional tax on rental income adds yet another pressure. When you combine higher dividend tax, higher property income tax, and higher employer’s NI, it becomes clear that you will need to actively manage your personal spending and business budgeting to avoid falling into HMRC tax debt next year.

Given these changes, please book a pre-year-end tax planning meeting with me so we can review your overall position. Depending on your circumstances, it may be sensible to maximise company pension contributions to save corporation tax, take less money personally, and instead invest through the company. Many of you may also need to make personal lifestyle adjustments to stay financially secure.

With more tax revenue being redirected towards benefits rather than investment and growth, the financial landscape may get tougher before it improves. At present, neither the Conservatives nor Labour have outlined a strong long-term economic plan, so preparing for a worst-case scenario is the most responsible approach.

Dividend Tax Increase

Many of you take a small salary and the rest as dividends, so this change will affect you.

From April 2026 dividend tax increases by 2% for basic and higher rates:

• Basic rate: 10.75%
• Higher rate: 35.75%
•  Additional rate: 39.35% (unchanged)

What this means for you:
Most director-shareholders will be worse off by around £750 per year if taking dividends within the basic rate band. Those in the higher rate band will pay noticeably more.

Property Income Tax (Landlords)

From April 2027 property income will be taxed separately with a 2% rise across all bands:

• Basic rate: 22%
• Higher rate: 42%
• Additional rate: 47%

This is another squeeze on landlords already dealing with rising costs and lower yields. Some advisers promote using LLPs followed by incorporation, but HMRC is already looking closely at this. The commercial and tax risks can outweigh the benefits. You can use a limited company for property, but stamp duty and capital gains tax on transfer can be so significant that it often makes no commercial sense.

Employers’ National Insurance and Employment Allowance
From April 2025:

• Employers’ National Insurance (NI) rate is 15%.
• You start paying employer’s NI once an employee’s pay goes over £5,000 a year.
• Employment Allowance is £10,500 per year, which you can use to reduce your employer’s NI bill, if you qualify.

Salary Sacrifice – Major Change from April 2029

•    Only the first £2,000 of pension salary sacrifice will be exempt from NICs.
•    Any excess will incur both employer and employee NICs.
•    Direct employer contributions for directors may not be affected, but HMRC has not released final guidance yet.

Working From Home Expenses

From April 2026:
•    You can no longer claim tax relief for unreimbursed home-working expenses.
•    Employers can still reimburse eligible costs tax-free.

National Minimum Wage: April 2026

•    21+: £12.71 per hour
•    18–20: £10.85 per hour
•    16–17 & apprentices: £8.00 per hour

Corporation Tax

• Main rate stays at 25%.
• Small profits rate remains effectively 19% on profits up to £50,000.
• If you have multiple companies, these limits are divided across them.

Late filing penalties double for corporation tax returns due on or after 1 April 2026.

Capital Allowances

• Writing down allowance (WDA) for the main pool reduces from 18% to 14% from April 2026, this slows relief and is an anti-business move for companies with general pool assets.
• New 40% first-year allowance from January 2026 for qualifying new assets.
• 100% first-year allowances for electric cars and charge points extended to 2027.This is a temporary relief. Please do not assume 100% allowances will exist beyond 2027.I would not be surprised if the Government removes the FYA and pushes electric vehicles back into the capital allowance pool at 14% per year.

Personal Tax – Frozen Until 2031

Thresholds remain fixed until April 2031:

• Personal allowance: £12,570
• Higher rate threshold: £50,270
• Additional rate threshold: £125,140

High Earners: Personal Allowance Taper
•    You lose £1 of personal allowance for every £2 over £100,000.
•    This creates an effective 60%+ tax rate in this income band.

Inheritance Tax (IHT) Updates
•    IHT thresholds frozen until 2031.
•    Nil-rate band remains £325,000.
•    Residence nil-rate band remains £175,000.
•    From 2026 the £1m APR/BPR allowance becomes transferable between spouses.
•    New anti-avoidance measures for trusts and offshore structures.

Everyone should review:

•    Their will
•    Powers of attorney
•    Gifting strategies
•    Pension death benefit nominations

Mansion Tax: High Value Council Tax Surcharge (April 2028)

For properties valued over £2m:
•    £2–2.5m: £2,500
•    £2.5–3.5m: £3,500
•    £3.5–5m: £5,000
•    Over £5m: £7,500

This is in addition to standard council tax.

ISA changes from April 2027
•    Overall limit stays £20,000.
•    But from 2027 the cash ISA limit drops to £12,000 for under-65s.

VCT income tax relief cut from 30% to 20%.

Student Loans –  Plan 2 threshold frozen until 2030.

E-Invoicing –  Full digital VAT invoice requirement from April 2029.

Crypto – UK crypto platforms must report UK customers’ data to HMRC after Royal Assent.

From 6 April 2026 –  Where umbrella companies sit in the supply chain, agencies and end clients can be jointly liable for any unpaid PAYE/NIC.

Tax advisers who deal with HMRC on behalf of clients will be legally required to register with HMRC and meet minimum standards.

New measures to tackle CIS fraud, including more power for HMRC to remove or refuse Gross Payment Status a

Practical Tax-Saving Strategies

• Consider an electric company car
• 100% FYA is still available until 2027.
• Pension contributions – still the most efficient long-term tax reducer, especially for those near the £100,000 taper zone.
• Salary vs Dividend Review – with higher dividend tax, some directors may be better off increasing salary.
• IHT lifetime planning – use annual gift allowances. Consider larger Potentially Exempt Transfers if appropriate.
• Reassess property businesses but avoid aggressive restructuring, HMRC is watching LLP + incorporation models closely.

Please remember to review and nominate your pension beneficiaries. Pension funds normally fall outside your will and cannot be gifted through it, so you must complete an up-to-date nomination form to ensure the right people receive your pension benefits.

Control your spending as you’re going to have less disposable income from next year due to tax rises. Its better to be prudent than have HMRC tax debt. Have a separate savings account to save for tax on a monthly basis. Pay your paye and vat on time (if you run a business).