The Autumn Budget brought several important updates for owner-managed businesses, many of which will directly influence how business owners structure their remuneration, manage payroll, and plan for the year ahead. With changes to tax rates impacting remuneration structure and increases to the National Living Wage, thoughtful planning has never been more important.
Below, we outline the key changes and what business owners should be preparing for.
1. Tax Rates Impacting Remuneration Structure
Dividend Tax Increases
From April, tax rates on dividends are increasing by 2% for both basic and higher-rate taxpayers. The dividend allowance remains at £500, taxed at 0%, but anything above this will be subject to the higher rates.
This shift means that the historic benefit of drawing dividends over salary is narrowing. As a result, many owner-managed businesses will find the balance between salary and dividends becoming far more nuanced. Reviewing your remuneration structure early is now essential.
Personal Allowance Freezes and New Ordering Rules
The personal allowance, already frozen until 2031, will soon be subject to new Income Tax ordering rules. From April next year, your tax-free personal allowance must be allocated against employment income first, before dividends or other income types.
This may reduce flexibility for tax-efficient planning, making early-year decision-making even more critical. Business owners should consider their remuneration mix as soon as possible to avoid unnecessary tax charges.
Other Planning Considerations
Alongside the above changes, several additional factors should be reviewed:
- State pension contribution stamps – Often a key advantage of taking a salary.
- Private pension contributions – Still a strong tax-efficient planning tool.
- Employment allowance – Can provide savings for eligible companies and influence salary planning.
Comprehensive remuneration planning will require integrating all of these elements to achieve the best financial outcome.
2. National Living Wage Increases – What It Means for Employers
The rising cost of living has prompted the Chancellor to increase the National Living Wage to £12.71. While positive for employees, this presents a challenge for small businesses already managing tight margins.
When combined with last year’s reduction in National Insurance thresholds, the new wage rates may make it more expensive for small businesses to employ staff. Many will face difficult decisions, such as whether to:
- Increase prices to protect profit margins
- Absorb the additional costs internally
- Review staffing levels and operational efficiencies
Proactive financial planning and cashflow forecasting will be essential to navigate these rising employment costs.
What Should Owner-Managed Businesses Do Now?
To prepare for the changes ahead, we recommend:
- Reviewing salary vs. dividend remuneration strategies for 2025/26
- Assessing employment costs and updating payroll budgets
- Exploring tax-efficient pension and salary planning options
- Checking eligibility for the Employment Allowance
- Scheduling early-year tax planning rather than waiting until year-end
A clear, tailored approach will help minimise tax exposure and maintain business stability in the face of rising costs.
Need Advice? Contact Us
Our expert accountants specialise in supporting owner-managed businesses through legislative changes and tax reforms. If you would like personalised guidance on remuneration planning, employment costs, or any Autumn Budget updates, contact us today.
We’re here to help you make informed financial decisions and keep your business running efficiently.