Between the National Living Wage rise, frozen NI thresholds, the salary sacrifice cap and higher enforcement, most small businesses will see a meaningful increase in their people costs over the next two years.

At the same time, the new Fair Work Agency will be far more aggressive in targeting poor HR practices, missing paperwork and non-compliance.

In short: higher costs, less room for error, and greater scrutiny of how you employ and manage people.

The steps you need to take now

1. Re-forecast your 2026 payroll and overheads

The wage rises combined with frozen employer NI thresholds mean your labour costs will climb faster than in previous years. Build this into next year’s budgets now, not later.

2. Strengthen HR compliance before enforcement ramps up

The new Fair Work Agency will investigate, name and penalise employers far more quickly. Review your contracts, right-to-work checks, policies, timekeeping records and employment terms. Any gaps will become liabilities.

3. Protect your margins by redesigning your workforce model

Rising payroll costs will force many businesses to rethink staffing levels, shifts, overtime, agency use and seasonal patterns. A tighter staffing model now is cheaper than last-minute fixes later.

4. Refresh your hybrid and homeworking rules

Tax relief for employees’ homeworking expenses is ending. If your policies are unclear or inconsistent, expect pushback and confusion. Set out what you cover, how and why.

5. Review your reward and benefits packages

Pension salary sacrifice over £2k a year loses NI relief from 2029. High-value options schemes are changing. This is the moment to check whether your benefits are still cost-effective and competitive.

6. Understand how business rates changes will hit your premises

Some businesses will benefit, but others will see steep increases once transitional caps come off. Check your rateable value and budget for your true future bill, not just this year’s.

7. Plan for tax changes if you take dividends or property income

Dividend tax and property income tax rises mean owner-managers will take home less  Build this into your personal and business cash flow planning.

8. Use funded labour schemes to offset higher costs

Take advantage of subsidised youth placements, training programmes and skills funding.  If costs are rising, you need to benefit from every support mechanism available.

9. Get HR and finance working together

These changes cut across payroll, contracts, compliance, staffing and tax.  A joined-up review now will save you time, money and stress when the changes hit.

This Budget increases your cost of employing people and raises the stakes on getting HR right. The businesses that act early will absorb the changes and offset the costs smoothly. The ones that wait will face higher bills, compliance risks and operational disruption.

What it is: The legal minimum pay rates employers must pay staff.

What’s changing:

●      NLW for 21+ increases to £12.71/hour.

●      Big increases for younger workers too.

●      Accommodation offset rises to £11.10/day.

Impact on business:

●      Higher payroll costs.

●      You may need to adjust pay bands to keep roles fair and avoid compression.

●      Budgeting and workforce planning needed before April 2026.

What it is: The salary level at which employers start paying NI for each employee.

What’s changing: The threshold stays at £5,000 for the next six years.

Impact: Because the threshold stays fixed while wages rise, more of each employee’s pay will attract NI over time. This is a stealth increase in employer NI costs.

What it is: Salary sacrifice allows employees to give up part of their salary in exchange for pension contributions, saving tax and NI for both sides.

What’s changing: Only the first £2,000/year of pension contributions through salary sacrifice will be exempt from NI. Everything above this will attract employer and employee NI.

Impact:

●      Higher payroll costs for companies with generous pension arrangements.

●      Affects retention packages, senior staff and benefits design.

What it is: A new government enforcement body that oversees breaches of employment law.

What’s changing:

●      New team to target sectors with widespread employment law breaches.

●      Directors can be disqualified for repeated violations.

●      Employers who break the law will be publicly named much faster.

Impact: Businesses face a much higher risk of enforcement action, especially those with weak HR processes, missing paperwork, or cash-in-hand practices.

What it is: Currently, employees can claim tax relief for unreimbursed homeworking costs.

What’s changing: This tax relief is being abolished.

Impact:

●      Employees may expect employers to cover more homeworking costs.

●      Employers can still reimburse tax-free if they choose.

What it is: A scheme where employers pay 0% employer NI on qualifying veterans for their first year of civilian employment.

What’s changing: Extended for another two years.

Impact: Continued incentive for hiring veterans.

What it is:

●      Revaluation: Government updates the value of business properties to match current market rents.

●      Multipliers: The pence-in-the-pound rate applied to your property value to calculate the bill.

What’s changing: Both multipliers are dropping significantly.

●      Small business multiplier: 49.9p → 43.2p

●      Standard multiplier: 55.5p → 48p

Impact:

●      Many businesses will see lower bills because the rate you pay per pound is falling.

●      However, some properties may still go up if their rental value increased sharply since the last revaluation.

What it is: A new tax discount built into the system for shops, cafes, pubs, restaurants, gyms, hotels, etc.

What’s changing: RHL properties under £500k rateable value get two permanently lower tax rates.

Impact: Strong support for high street, consumer-facing businesses.

What it is: A surcharge on commercial properties valued over £500,000.

What’s changing: A new higher multiplier of 50.8p for these properties.

Impact: Large offices, warehouses or prime retail sites will see higher bills to fund reductions for smaller firms.

What it is: A cap on how quickly your business rates bill can increase after revaluation.

What’s changing: Three-year scheme with specific % caps depending on property value.

Impact: Provides protection for businesses facing steep increases.

What it is: A temporary extra 1p in the pound added to business rates for those not receiving relief.

Impact: Light increase for businesses receiving no discount, used to help fund the relief schemes.

What it is: Currently, if you run a very small business and take on a second property, you lose your Small Business Rates Relief after 1 year.

What’s changing: You’ll now keep your relief for three years.

Impact: Encourages micro-businesses to expand without being hit immediately by higher rates.

What it is: Tax paid on dividends (common for owner-directors).

What’s changing: Rates rise by 2 percentage points.

Impact: Owner-managers taking dividends from their company will pay more tax.

What it is: Landlords currently pay the same tax rates as other income.

What’s changing: Property income becomes its own category with higher rates (22%, 42%, 47%).

Impact: Landlords (including company owners with rental side businesses) pay more tax.

What it is: Interest earned on savings accounts and investments.

What’s changing: All savings income tax rates increase by 2 percentage points.

Impact: Higher tax for business owners with significant personal savings.

What it is: Tax relief businesses get for plant, machinery and equipment over time.

What’s changing:

●      Main rate falls to 14% (from 18%).

●      New 40% first-year allowance introduced.

Impact:

●      Slightly slower ongoing tax relief

●      But a larger upfront deduction in year one

Useful for businesses making big equipment purchases.

What it is: Tax relief for owners who sell their business to an Employee Ownership Trust (like the John Lewis model).

What’s changing: Relief drops from 100% to 50%.

Impact: Selling to an EOT becomes less tax-efficient.

What it is: Government-funded employment and training support.

What’s changing: Funding significantly expanded.

Impact: Businesses may get:

●      easier access to subsidised training

●      support hiring young people

●      simplified apprenticeship rules (details coming)

What it is: A scheme giving businesses access to free labour for early-career workers.

What’s changing: Government pays 100% of wage costs for 25 hours/week for eligible 18–21-year-olds on Universal Credit.

Impact: Businesses gain low-risk hiring routes and inexpensive staff for entry-level roles.

What it is: More staff for planning departments.

Impact: Faster approvals for business expansion, premises upgrades and new builds.

What it is: Government-backed loan support.

Impact: Easier to access finance, particularly if affected by global tariff changes.

What it is: A tax-advantaged share options scheme used to attract and retain talent.

What’s changing:

●      Employee limit increases to 500

●      Gross assets limit increases to £120m

●      Option grant limit increases to £6m

●      Max holding period increases to 15 years

Impact: Many more scale-ups can now offer competitive equity packages.

What it is: Businesses currently often pay VAT when donating goods.

What’s changing: VAT scrapped for donations used in charity services.

Impact: Better for CSR, easier for retail and product-based businesses to donate stock.

What it is: Rules for multinationals that group companies together for VAT.

Impact: Only relevant to international groups, not most SMEs.

What it is: Crackdown on illicit trading, money laundering and non-compliant businesses.

Impact: More inspections and higher penalties for businesses ignoring compliance.

What it is: Changes how customs duty applies to cheap imported goods, especially e-commerce.

Impact: Online sellers and businesses importing low-value items may face new customs charges.