The Autumn Budget 2026 contains important announcements for UK contractors, freelancers, sole traders and limited company directors. While the government has maintained its commitment not to raise the headline rates of Income Tax, National Insurance or VAT, changes to business disposals, mileage, the trading allowance, payroll costs and tax administration could affect your financial plans.
Below, our contractor accounting specialists explain what is new, what was already in force and when changes are due to take effect. Not every announcement applies to every business, and some measures remain subject to legislation or consultation.
Autumn Budget 2026: the key changes at a glance
| Measure | What it means | When |
|---|---|---|
| Income Tax, NI and VAT | No increase to headline rates announced | Budget 2026 |
| Business Asset Disposal Relief | Lifetime qualifying gains limit falls from £1m to £500,000 | 6 April 2027 |
| Trading allowance | Rises from £1,000 to £3,000 | 6 April 2027 |
| Business mileage | 55p for first 10,000 miles made permanent; rate above 10,000 miles rises to 35p | 55p already applies from 6 April 2026; check implementation guidance for higher rate |
| National Living Wage | £13.21 an hour for workers aged 21+ | 1 April 2027 |
| Capital allowances | Main-rate first-year allowance rises to 50%; main writing-down rate falls to 12% | January–April 2027 |
| Founders’ Relief | Proposed 10% CGT rate on up to £10m qualifying lifetime gains | 6 April 2027, subject to detailed rules |
1. Income Tax and National Insurance: no headline rate rises
The government has confirmed it is not increasing the headline rates of Income Tax or National Insurance contributions in this Budget. That does not mean everyone’s tax bill will stay the same: thresholds, personal circumstances and changes announced in earlier Budgets can still affect the amount payable.
For limited company directors: review salary, dividends and employer pension contributions together rather than relying on a fixed annual strategy. For sole traders: continue forecasting Income Tax and Class 4 National Insurance against expected profits.
2. Dividend tax: distinguish existing rates from new announcements
The dividend tax increases that took effect in April 2026 were announced previously, not introduced for the first time in this Budget. For 2026/27, dividend tax rates are 10.75% (basic), 35.75% (higher) and 39.35% (additional), with a £500 dividend allowance.
For illustration, £30,000 of dividends that are fully taxable at the basic dividend rate would attract £3,225 in dividend tax, compared with £2,625 at the previous 8.75% rate. The example assumes the entire £30,000 is taxable, rather than the amount before the dividend allowance, and excludes other income and band interactions.
What to do: limited company directors should review the combined impact of salary, dividends, Corporation Tax and pension contributions before making distributions.
3. Corporation Tax: headline rates maintained
The Budget maintains the government’s existing corporate tax roadmap. The general Corporation Tax framework remains the 19% small profits rate, 25% main rate and marginal relief between the relevant limits. The standard £50,000 and £250,000 profit limits can be reduced for associated companies and short accounting periods.
There is no new general headline Corporation Tax increase for ordinary contractor limited companies. However, changes to capital allowances and company-distribution rules deserve attention.
4. Business Asset Disposal Relief: £500,000 lifetime limit from April 2027
One of the most consequential new announcements for business owners is the planned reduction in the Business Asset Disposal Relief (BADR) lifetime limit from £1 million to £500,000, effective 6 April 2027.
BADR can reduce Capital Gains Tax on qualifying disposals of business assets, including shares in qualifying trading companies. It is not automatically available simply because you own a limited company.
Example: on an £800,000 qualifying gain, an owner with their full lifetime entitlement could currently have the whole gain within the £1 million limit. Under the £500,000 limit, £300,000 would fall outside BADR. Assuming an 18% BADR rate and 24% ordinary CGT rate on that excess, the difference would be £18,000, before individual adjustments.
What to do: if you are considering a business sale, retirement or members’ voluntary liquidation, obtain advice early. The eligibility requirements, anti-avoidance rules and timing of a disposal all matter.
5. Business mileage: the 55p rate is not new
This is an important distinction. The 55p per mile rate for the first 10,000 qualifying business miles was already introduced from 6 April 2026. The Autumn Budget confirms it will become permanent and announces an increase in the rate above 10,000 miles from 25p to 35p.
| Annual qualifying mileage | Current rate | Announced permanent rate |
|---|---|---|
| First 10,000 miles | 55p | 55p |
| Above 10,000 miles | 25p | 35p |
At 15,000 qualifying miles, the allowance would increase from £6,750 to £7,250 — an additional £500 of allowable mileage or potential tax-free reimbursement, not a £500 reduction in tax. The exact application depends on the claimant and relevant mileage rules.
Ordinary commuting does not generally qualify. Directors and employees should retain journey records, and sole traders should check whether simplified mileage expenses are appropriate for their circumstances.
6. National Minimum Wage and National Living Wage: new rates from April 2027
From 1 April 2027, the National Living Wage for workers aged 21 and over rises from £12.71 to £13.21 an hour. The minimum wage for 18–20-year-olds rises to £11.27, while the rates for 16–17-year-olds and eligible apprentices rise to £8.31.
| Category | From 1 April 2027 |
|---|---|
| Aged 21+ | £13.21/hour |
| Aged 18–20 | £11.27/hour |
| Aged 16–17 | £8.31/hour |
| Eligible apprentices | £8.31/hour |
For a worker aged 21 or over on 35 paid hours a week for 52 weeks, the 50p hourly increase means £910 more in annual gross pay. Employers should also budget for any additional pension and employer National Insurance costs.
What to do: employers should audit hourly pay, deductions and working hours before the new rates begin, including salaried workers whose effective hourly rate could fall below the minimum.
7. Trading allowance rises to £3,000 for 2027/28
From 6 April 2027, the Income Tax trading allowance is due to rise from £1,000 to £3,000. This could help individuals earning modest amounts from freelance work, side businesses or qualifying miscellaneous trading income.
It is not necessarily an extra £3,000 deduction on top of actual business expenses. The allowance has eligibility restrictions, and using actual deductible expenses may be better for some traders. Reporting and registration obligations should be considered separately.
8. IR35 and umbrella companies: no wholesale reset
The Budget does not announce a general repeal of IR35 or the off-payroll working rules. Contractors should continue assessing each engagement based on the contract and real working practices, including control, substitution and the overall relationship.
Umbrella-company PAYE reforms introduced from April 2026 are an existing change rather than a new Budget 2026 announcement. Contractors should continue checking assignment rates, employment costs, pension deductions and payslips.
9. Capital allowances: new 50% first-year rate and lower writing-down allowance
The Budget proposes increasing the main-rate first-year allowance from 40% to 50% for qualifying expenditure incurred from 1 January 2027. It also reduces the main-rate writing-down allowance from 14% to 12% from 1 April 2027 for Corporation Tax and 6 April 2027 for Income Tax.
The effect depends on the asset and the business. Many smaller businesses may already obtain more immediate relief through the Annual Investment Allowance or, where eligible, full expensing. Check the correct allowance before accelerating a purchase.
10. Founders’ Relief: proposed 10% CGT rate for qualifying founders
A proposed Founders’ Relief would offer a 10% Capital Gains Tax rate on up to £10 million of lifetime gains for qualifying founders of high-growth, innovative companies from 6 April 2027. The detailed design is subject to consultation and legislation.
It should not be assumed that a typical personal service company qualifies. This measure is more likely to be relevant to entrepreneurs developing and scaling innovative businesses.
11. Making Tax Digital and Self Assessment payments
Making Tax Digital for Income Tax is being introduced in phases. The Budget includes a temporary late-submission penalty-point easement for the first four quarterly updates for taxpayers joining in April 2027. This does not remove the obligation to keep digital records or submit updates.
The government also plans more frequent payments on account from April 2029 for affected Self Assessment taxpayers. Further implementation details are needed. Sole traders should continue setting aside tax regularly and plan for possible changes to payment timing.
12. VAT and digital invoicing
The government has not announced a headline VAT rate rise. Its plans for mandatory electronic VAT invoicing from April 2029 are relevant to businesses issuing VAT invoices. Further technical specifications will determine what software changes are required.
Businesses using digital accounting software such as FreeAgent are well placed to prepare, but should not assume current invoice formats will automatically meet the eventual requirements.
13. Savings and property income
The Budget also sets out higher tax rates for savings and property income from April 2027, with rates of 24%, 44% and 49% across the basic, higher and additional rate bands. These changes are particularly relevant to contractors with taxable interest or rental income alongside their trading or company income.
Some related measures were announced previously, so it is important to consider the cumulative effect rather than describing all changes as new today.
What should you do after Autumn Budget 2026?
- Limited company directors: review salary, dividends, pension contributions and any business exit plans.
- Sole traders: check whether the new trading allowance may help, prepare for MTD and forecast tax payments.
- Contractors: continue reviewing IR35 status and check qualifying mileage records.
- Employers: budget for April 2027 minimum wage increases.
- Business owners investing in assets: compare available capital allowances before purchasing.
Frequently asked questions about Autumn Budget 2026
Did Income Tax or National Insurance increase in Budget 2026?
No new increase to the headline rates was announced. Your individual liability may still change because of thresholds, income mix or earlier tax measures.
Did dividend tax increase in October 2026?
The higher dividend rates applying from April 2026 were announced previously. They should not be presented as a new October 2026 increase.
Is the mileage rate now 55p per mile?
Yes, for the first 10,000 qualifying business miles for cars and vans, the 55p rate has applied since April 2026. The Budget makes that rate permanent and increases the rate above 10,000 miles to 35p.
What is the minimum wage from April 2027?
The National Living Wage for workers aged 21 and over will be £13.21 an hour from 1 April 2027.
Has IR35 been abolished?
No. The Budget does not abolish IR35 or the off-payroll working rules. Contractors should continue reviewing the status of each engagement.
What happens to Business Asset Disposal Relief in 2027?
The government plans to reduce the BADR lifetime limit for qualifying gains from £1 million to £500,000 from 6 April 2027.
Will the trading allowance be £3,000?
Yes. The Budget proposes increasing the trading allowance from £1,000 to £3,000 from 6 April 2027, subject to legislation and eligibility rules.
Speak to Bright Ideas Accountancy
At Bright Ideas Accountancy, we specialise in accounting and tax planning for contractors, freelancers, consultants and service-led businesses. Whether you operate through a limited company or as a sole trader, we can help you understand which Budget measures affect you and plan ahead.
Need advice on your own tax position? Contact Bright Ideas Accountancy to discuss your circumstances.
Sources: HM Treasury, Budget 2026 (28 October 2026). This is general information, not personalised tax advice. Announced measures may be subject to Finance Bill legislation and further guidance. Information correct at the publication date.
