What innovative SMEs must do to survive the latest Budget shake-up
The Chancellor's Autumn Budget delivered a punishing stream of tax rises that has left business owners reeling.
Between frozen thresholds and capital gains tax changes, combined with previous National Insurance increases, many SMEs are facing their most challenging fiscal environment in years.
However, there are some targeted measures that can help specific businesses, as well as strategic steps all SMEs should be taking now to safeguard their bottom line.
Seize the innovation opportunity
The government's continued commitment to research, development and innovation represents a genuine bright spot. With £20.4 billion allocated to R&D funding for 2025-26, including almost £9 billion through UK Research and Innovation, there's substantial capital available for businesses willing to innovate. The routes aren’t always obvious - for example, companies in software, biotech, analytics or engineering can access funding through publicly funded university and NHS research projects that regularly subcontract private firms.
My advice is: don't wait. If your business has any R&D activities, start exploring funding opportunities now. The broader reforms signalled in the Budget text, particularly changes to the UK R&D system as part of the government's Industrial Strategy, suggest this is a priority area. Smart businesses will position themselves to benefit from this funding before the inevitable rush.
Navigate the business rates maze
The business rates announcements require careful analysis. On the surface, the permanently lower multipliers for retail, hospitality and leisure (RHL) properties appear positive, benefiting over 750,000 properties. From 2026–27, small RHL properties will pay 38.2p and larger ones 43p in rates for every pound of what the building is worth, around 5p less than the standard national rates, which means a real saving.
Following the latest revaluation, all ratepayers will face lower national tax rates overall, with over half seeing no increase in their bills and around a quarter seeing reductions. The extension of Small Business Rates Relief for firms expanding into a second property offers a lifeline for growing businesses.
However, businesses must act strategically. Use the government's call for evidence on barriers to investment within the business-rates system to make your voice heard. This is your opportunity to shape future policy while understanding exactly how these changes affect your specific circumstances.
Confront the stealth taxes
The decision to extend the tax threshold freeze until 2031 has rightly been described as a stealth tax.
This hits employees' take-home pay directly, which inevitably kills morale and triggers demands for higher salaries. For SMEs, this creates a dangerous squeeze: your staff feel poorer, yet your National Insurance costs have risen.
My recommendation is to be proactive with your workforce. Have honest conversations about total compensation packages. Consider non-monetary benefits, flexible working arrangements, or professional development opportunities that add value without breaking your payroll budget.
For many businesses, however, the increased employment costs may necessitate more fundamental restructuring. Offshoring certain functions - including back-office operations, customer service, or sales roles - has become increasingly common amongst UK businesses whose margins are being tightly squeezed.
Understand the Capital Gains Tax (CGT) changes
The targeted CGT reforms will affect many SME owners planning exits or restructurings. The immediate tightening of conditions for deferring CGT when shares are rolled over as part of a restructuring requires urgent attention if you're considering any ownership changes.
The reduction of CGT relief on disposals to Employee Ownership Trusts from 100% to 50% for qualifying transactions from 26 November 2025 fundamentally changes the economics of this exit route.
For businesses with carried interest arrangements, the shift from capital gains treatment to an income-tax framework from April 2026 represents a significant change in after-tax returns. Carried interest will be taxed as trading income rather than an investment gain, and, where it doesn’t meet the new ‘qualifying’ conditions, it could be taxed at broadly the same rate as wages. Fund structures, incentive arrangements and retention plans therefore need reviewing now to understand how the new rules will affect future rewards and deal economics.
What smart SMEs should do now
First, conduct a comprehensive Budget impact assessment specific to your business. The combined effect of multiple changes may be more severe than any single measure suggests.
Second, revisit your business plan. The certainty of tax freezes until 2031 allows for better planning, even if the news isn't welcome. Model different scenarios and identify which levers you can pull to maintain profitability.
Third, accelerate any planned restructurings or ownership changes. The narrowing windows for certain reliefs mean that strategic moves delayed could become significantly more expensive.
Finally, engage with your advisors early. The businesses that weather this Budget most successfully will be those that act decisively in the coming months, not those that wait to see how things unfold. The tax landscape has shifted, so your strategy should shift with it.
The Autumn Budget was undoubtedly challenging for SMEs, but it wasn't uniformly bleak. The businesses that will thrive are those that move beyond reaction to strategic response, identifying opportunities within the constraints and acting before their competitors do. In uncertain times, decisive action beats cautious waiting every time.
Alex Fenton is Group CEO of The Legends Agency, an offshoring recruitment firm specialising in South African talent. He is also Partner at finance broker Funding Bay/FBX Capital.
