Is Your Business Paying the Price Without Knowing It? — Updated March 2026
You’ve heard the promises: “We won’t raise income tax, VAT or National Insurance.” Sounds reassuring on the surface. But small businesses and director-shareholders are feeling the squeeze more than ever.
Welcome to the world of stealth taxes — a calculated way for governments to increase revenue without touching headline rates. And since our last update, the picture has become considerably more expensive.
Here’s what’s changed, what’s coming, and what you can do to stay ahead.
What Is a Stealth Tax for Business Owners?
A stealth tax is any change that increases your effective tax burden without changing the rates you see in the headlines. For example:
- Thresholds frozen — you’re taxed more as income naturally rises with inflation
- Allowances reduced — smaller tax-free amounts for dividends or capital gains
- Rates raised on “passive” income — dividends, savings and property
- Reliefs phased out — fewer ways to offset business expenses or investments
- Administrative burden — costly compliance rules dressed up as “policy”
You don’t get a shock announcement. Instead, your tax bill quietly climbs — and the Autumn Budget 2025 has locked in several more years of exactly that.
What’s Changed Since Our Last Update?
1. Income Tax & NI Thresholds Frozen Until 2031
The freeze on income tax and National Insurance thresholds has been extended by a further three years. The Personal Allowance remains fixed at £12,570 and the higher-rate threshold at £50,270, now until April 2031. The Office for Budget Responsibility estimates this will drag an additional 5.2 million people into income tax and push nearly 4.8 million into the higher-rate band by 2030–31. The Treasury’s own forecast puts the revenue from this single measure at £8 billion per year by 2029–30 — making it the largest revenue-raising measure in the Autumn Budget 2025. It is, in all but name, a tax rise.
2. Dividend Tax Rates Are Going Up (April 2026)
From 6 April 2026, dividend tax rates will increase by 2 percentage points for basic-rate and higher-rate taxpayers. The new rates will be:
- Basic rate: 10.75% (up from 8.75%)
- Higher rate: 35.75% (up from 33.75%)
- Additional rate: unchanged at 39.35%
- Dividend allowance: still just £500
For director-shareholders who extract profits through dividends, this is a direct hit. If you’re currently taking £40,000 in dividends, this change will noticeably increase your personal tax bill. Combined with the already-slashed £500 allowance (down from £2,000 in 2022), dividend income is becoming an increasingly expensive way to extract profit.
3. Employer National Insurance — Already Higher, Now Frozen Longer
From April 2025, employer NIC rates rose to 15% and the threshold at which employers start paying contributions was cut from £9,100 to £5,000 per employee. That threshold is now frozen at £5,000 until 2031. For businesses with staff, this is a significant ongoing cost increase. The good news: the Employment Allowance has risen to £10,500, which eligible small employers can use to reduce their NI bill. Make sure you’re claiming it.
4. Corporation Tax — The Squeeze Continues
The main corporation tax rate remains at 25%, with the small profits rate of 19% only applying on profits below £50,000. Inflation means more businesses are being pushed into the marginal relief zone or the 25% band even when their real (inflation-adjusted) profits haven’t grown. Corporation tax late filing penalties are also set to double, adding to the cost of non-compliance.
5. Inheritance Tax: Business & Agricultural Property Relief
Restricted (April 2026)
From 6 April 2026, Business Property Relief and Agricultural Property Relief will be significantly restricted. The 100% rate of relief will only apply on the first £1 million of combined qualifying assets. Anything above that threshold will only attract 50% relief, meaning a 20% effective IHT charge on the excess. For family business owners and farmers, this is potentially one of the most significant tax changes in a generation. Estate planning should be reviewed urgently if your business or agricultural assets are likely to exceed this combined threshold.
6. VAT Registration Threshold — Still Failing to Keep Up
The VAT registration threshold rose slightly to £90,000 for 2025/26, but given the current rate of inflation, this does not meaningfully expand the headroom for growing businesses. As turnover increases with inflation, more businesses are being pulled into VAT registration, not because they’re genuinely growing, but because prices are rising.
What Else Is Coming?
The pipeline of stealth tax changes doesn’t end here. Business owners should be aware of the following changes still ahead:
- Making Tax Digital (MTD). From April 2026, self-employed individuals and landlords with income over £50,000 must file quarterly updates. From April 2027, the threshold drops to £30,000. This is an administrative and accounting cost dressed up as modernisation.
- Savings and property income tax rates rising (April 2027). Rates on savings and rental income will increase by 2 percentage points across all bands (22%, 42%, and 47% for basic, higher, and additional rate taxpayers respectively).
- Cash ISA allowance cut to £12,000 (April 2027). The full £20,000 ISA allowance will be split, with only £12,000 available for cash ISAs (those over 65 retain the full £20,000). The remaining £8,000 must go into stocks and shares.
- Pension salary sacrifice cap (April 2029). A £2,000 cap on pension contributions made under salary sacrifice will be introduced. Contributions above this level will face National Insurance for both employer and employee.
- Points-based late filing penalties. With quarterly MTD filings, there are four times as many deadlines to miss. The new system targets repeat offenders, but the cumulative risk is higher.
What Can You Do?
Stealth taxes reward those who plan ahead. Here’s what small business owners and director-shareholders should be doing now:
- Review your profit extraction strategy before April 2026 — is your salary/dividend mix still optimal given the incoming dividend rate rises?
- Consider increased pension contributions through your company, currently one of the most tax-efficient ways to extract value, but the window before the 2029 salary sacrifice cap may not be as long as it seems.
- Assess your estate and succession plans, especially if you own a business or agricultural property, given the BPR/APR restrictions coming in April 2026.
- Get ahead of MTD. If your income is above £50,000, quarterly digital reporting starts April 2026. Cloud accounting software and a good bookkeeping process will prevent costly penalties.
- Forecast your profits regularly, with frozen thresholds, drifting into a higher tax band has never been easier or more expensive.
- Claim the Employment Allowance if eligible. At £10,500, it can significantly offset the employer NI cost increase.
- Use remaining allowances while they last. Capital allowances, R&D reliefs, and investment reliefs are all subject to future change.
- Take proactive advice before year-end. Don’t wait until your tax bill arrives to discover the damage.
The Bottom Line
Stealth taxes don’t make headlines, but they do make a difference to your bottom line. The Autumn Budget 2025 has extended the freeze era until 2031, raised rates on investment income, and tightened reliefs for business owners and farmers. None of this was framed as a tax rise. All of it functions as one.
Staying informed and planning proactively are more important than ever. Want help reviewing your company’s tax position for 2025/26 and beyond? Get in touch with us, we’ll help you stay compliant, efficient, and as far ahead of the stealth tax curve as possible.