2025 budget: What does it mean for UK agencies

If you run an agency in the UK, this wasn’t a “feel-good” Budget.

Rachel Reeves has delivered a tax-raising Autumn Budget that leans heavily on frozen thresholds, higher taxes on investment income and rising wage floors to rebuild fiscal headroom. Corporation tax hasn’t moved, VAT hasn’t moved, but almost everything around them has been tightened in ways that directly hit owner-managed businesses. 

For SME agencies, this is not a growth stimulus. It’s a reality check.

This piece isn’t a technical tax recap. It’s a founder-focused walkthrough of what actually changed, how it flows through your P&L and balance sheet, and what to do in the next 90 days to avoid sleepwalking into margin erosion.

Here’s the 60-second version.

• Frozen income tax (and key NI) thresholds to at least April 2031 = a stealth tax on every pay rise as more of your team (and you) are dragged into higher effective tax bands.  
• Higher wage floor from April 2026: National Living Wage moves to £12.71 for 21+, and other minimum rates jump too, making juniors and support staff more expensive.  
• Higher tax on dividends, savings and property income: dividend tax rates rise by 2 percentage points from April 2026; new property income bands (22%, 42%, 47%) and higher savings tax apply from April 2027, hitting founders with portfolios.  
• Corporation tax rates unchanged at 19% / 25%: the real squeeze is on extraction (how you pay yourself) and payroll, not the headline CT rate. 
• No change to VAT rates or thresholds: the rumoured VAT threshold shock never landed.  
• Business rates reforms: a new “high value” multiplier for premises with rateable value over £500k increases the burden on premium office space, especially in big cities.  
• New 40% first-year investment allowance (from 1 Jan 2026) for most main-rate assets, alongside a cut in the main writing-down allowance from 18% to 14%, nudging you to invest in tech/AI and production kit rather than just more headcount.  
• From 2029, a £2k cap on NI-free pension salary sacrifice: any salary-sacrificed pension contributions above £2,000 a year will attract employer and employee NICs, making this a less generous tax play for high earners and founders.  
• Rising “admin tax” on SMEs: mandatory e-invoicing for all VAT invoices from April 2029 and tighter digital reporting rules under Making Tax Digital mean higher compliance costs and more risk if your finance stack is behind.  

If you feel like every lever that made it cheaper to employ people, take money out, or keep your admin light has been nudged in the wrong direction, you’re not imagining it.

1. People & Payroll

This Budget quietly lifts your people costs on two fronts.

First, wage floors. From April 2026, the National Living Wage rises to £12.71 for 21+ workers, with sharp increases for 18–20s and under-18s. Most good agencies are already trying to pay fairly (and usually above the minimum), so, in principle, this aligns with how we want to treat people. The challenge is practical: if you’ve got studio assistants, coordinators, junior execs or apprentices anywhere near those lower bands, the mandated increases still flow straight into your monthly payroll and compress your salary ranges from the bottom up.

Second, frozen thresholds. With income tax and key NI thresholds locked until at least 2031, every inflation-linked pay rise pushes more of each salary into higher effective tax. So you end up in a slightly perverse position as a founder: you’re working harder to support your team with higher pay, but the tax system quietly absorbs more of what you give. Staff can feel like they’re going backwards even as costs go up, which creates tension in salary reviews and puts pressure on you to “keep up” with their net pay, not just the headline number.

On top of that, from April 2026, the employee homeworking deduction disappears. Employees will no longer be able to claim the £6/week flat rate for working from home through their own tax return, although you can still choose to pay up to £6/week tax and NI-free as an employer. It’s a small number, but for remote and hybrid teams, it becomes a symbolic decision: do you pick up that goodwill cost or not?

Net result: payroll goes up, expectations go up, and the tax system quietly absorbs more of every “cost of living” increase you put through.

2. Founder Pay & Personal Wealth

If you’re an agency founder, the Budget is very clear: the extraction game just got harder. 

From April 2026, dividend tax rates rise by 2 percentage points (to 10.75% basic / 36.75% higher, with the additional rate unchanged), with the £500 dividend allowance preserved but increasingly irrelevant if you pay yourself meaningful dividends. From April 2027, property income is carved out into its own bands (22%, 42%, 47%), and savings income rates also increase by 2 points. 

If your personal wealth is a mix of: 

• Salary
• Dividend from the agency
• Rental income
• Interest on cash or bonds

….this Budget takes a slice out of every leg of that stool.

Add to that the salary sacrifice cap from 2029. Up to £2,000 a year of pension contributions via salary sacrifice will still be NIC-free; anything above that will be like normal employee pension contributions and attract NI for both sides. For senior staff on big packages and founders using sacrifice as part of remuneration planning, the “free” NIC saving above that level disappears. 

The takeaway: your old “low salary + dividends + sacrifice + property” playbook needs to be re-run with an accountant. You can still optimise, but the margin for error is shrinking. 

3. Overheads & Office

On the overhead side, the big story is business rates and where you choose to base your team. 

Retail, hospitality and leisure properties get some relief via permanently lower multipliers. Agencies, by and large, don’t sit in that bucket. At the same time, a new high-value business rates multiplier kicks in for properties with a rateable value over £500k, disproportionately hitting prime locations and larger footprints, exactly where many “we’ve made it” agencies have traditionally taken space.

If you’re renewing a lease in a big city or debating whether to move from hybrid back to predominantly office-based, this is a non-trivial input into the model. You’re effectively being pushed to: 

• Think harder about space efficiency
• Double-down on hybrid/remote where it works
• Use co-working or smaller hubs instead of a flagship HQ you don’t fully use

Even without this Budget, most agencies should be reviewing whether their office footprint matches how their teams actually work. What’s changed now is the level of pressure: higher business rates on premium space and rising wage costs mean the bar for “nice to have” offices that sit half empty is much higher. The Budget hasn’t killed the office, but it has intensified the focus on efficiency, location, size and utilisation, all need to earn their keep.

4. Compliance & Digital Reporting: The Quiet Cost

Alongside the obvious tax changes, there’s a quieter shift: the admin tax.

From April 2029, e-invoicing becomes mandatory for all VAT invoices. That means your invoicing and accounting can’t live in half-manual systems and Excel templates anymore; you’ll need proper, compliant software that can issue VAT invoices in the required electronic format. 

From 2027 and 2028, HMRC will also roll out more digital prompts in VAT and Corporation Tax Software to nudge, warn and eventually penalise you when a return looks late, incomplete or inconsistent. Add in extra investigators, tighter rules around avoidance and disguised remuneration, and more data sharing (including crypto reporting), and the message is simple: 

“If your tax planning sounds clever in the pub, it’s probably a liability, not an asset.”

For agencies, this isn’t just about avoiding fines; it’s about running a grown-up business. Proper financial management is now as important as client delivery:

• Clean, timely bookkeeping, reconciled monthly, so you always know where you stand.
• Standardised, software-driven invoicing and collections, ready for mandatory e-invoicing and MTD.
• Clear, defensible positions on IR35, contractors, benefits and any incentive schemes, documented and agreed with your advisers.

If you ever want to exit, this is non-negotiable anyway. Buyers don’t just look at revenue and logos; they look at how tight your numbers are, how robust your controls are, and whether they can trust what your finance system is telling them. The new compliance regime just means you can’t afford to treat this as “back office” anymore.

The bad news: everything above is also happening to your clients. 

Most SME clients now face:

• Higher wage bills
• Frozen thresholds eating into net pay
• Higher tax on their own dividends, savings and property
• More compliance and digital reporting requirements

When squeezed, clients rarely say, “let’s just pay our agency more”. They: 

• Delay sign-off and push decisions down the road
• Add more stakeholders and procurement friction
• Squeeze scopes while asking for “just one more thing”
• Try to get more for the same fee, or the same for less

If you don’t tighten your pricing, scopes and change-control, your margin will quietly end up finding your clients’ Budget problem. 

You can’t change the Budget, but you can change how exposed you are to it.

Here’s a simple three-layer framework to work through. 

• Fix Margins

This is the foundation. Before you worry about clever structures or exit options, you need healthy gross margins. 

Reprice:

• Review rate cards, retainer and project pricing
• Make sure you have annual uplift clauses baked into contracts
• Stop carrying legacy clients at “mates rates” that don’t reflect current cost-to-serve. 

Re-scope: 

• Tighten statements of work
• Define clear deliverables, rounds of amends and boundaries
• Kill unbilled extras and “value-add” activity the client doesn’t even see

If your gross margin per client or per service is off, the rest of the stack can’t save you. 

2. Plan Founder Cash & Tax

Next, you need a deliberate plan for how you, as a founder, get paid under the new rules.

• Model 12–24 months under the new tax and pension regime:
  
  • Salary vs dividends vs employer pension contributions
  • Impact of higher tax on dividends, savings and property income
  • The 2k salary sacrifice cap from 2029 and how it affects your own package
• Decide what the goal is: 
  
  • Maximise net take-home now?
  • Build pension and reduce future exposure?
  • Reinvest into the agency to support a future exit? 

Get your FD and tax adviser in a room and treat this like a strategy problem, not an after-thought.

3. Increase Leverage

Finally, shift the business model so that every pound of cost does more work.

• Use investment relief strategically
  
  • The new 40% first-year allowance (plus existing AIA) can support spending on: 
    
    • AI tooling and automation
    • Production and studio kit
    • Data and analytics infrastructure
  • If this Budget forces you to choose between more headcount and better automation, lean towards automation.

• Push towards higher-margin, more productised services
  
  • Standardise recurring offerings.
  • Move away from bespoke, labour-heavy work with low perceived value.
  • Build add-ons and upsells that don’t require linear headcount growth.

• Talent & incentives: Use EMO and EIS intelligently
  
  • The Budget expands Enterprise Management Incentive (EMI) schemes, higher employee limits, higher gross asset threshold, larger option pools and longer holding periods, making it easier for scale-ups to use options to attract and retain senior talent. 
  • EIS limits and thresholds are also being increased, widening the pool of companies that can raise tax-efficient capital.
  • If you’re serious about scaling, this is a good moment to revisit your long-term incentive plan and cap table strategy.

Leverage is what lets you absorb a structurally higher tax and wage environment without burning out your leadership team or crushing your margins.   

Big picture is useful, but founders need a list. Here’s a practical 90-day sprint.

This Week:

• Meet with your FD/accountant
  
  • Re-run a 12–24 month P&L with:
    
    • Higher wage assumptions
    • Frozen thresholds
    • Higher dividend/savings/property tax baked in

• Identify problem areas
  
  • Underpriced clients
  • Low-margin services
  • Projects where scope creep is swallowing margin

Next 30 Days:

• Start repricing legacy retainers.
  
  • Prioritise clients where margin is worst and relationship is strongest.
  • Communicate clearly: increased costs, increased value, structured uplifts.

• Update your legal and sales templates
  
  • Proposals, SoWs and MsAs should all include:
    
    • Clear scope and deliverables
    • Defined amends/rounds
    • Annual uplift clauses
    • Change-request mechanisms

Next 90 Days:

• Decide on headcount vs freelance mix
  
  
  • Given wage changes and minimums, where does it make sense to flex with freelancers or partners instead of permanent hires?
    
    
• Agree priority areas for automation and AI
  
  
  • Where can tooling realistically reduce delivery hours without degrading quality?
  • Map potential capex to the new investment allowances.
    
    
• Audit your finance stack
  
  
  • Are you ready for mandatory e-invoicing and tighter MTD rules?
  • Or are you still relying on manual workarounds, spreadsheets and heroic effort at quarter-end?

This doesn’t have to be perfect in 90 days. But you should be able to say, “We know our exposure, we’ve made conscious decisions, and we’re not crossing our fingers.”

When the tax system makes it more expensive to withdraw funds gradually, a single liquidity event starts to look more attractive.

This Budget pushes founders in that direction: 

• Higher personal tax on dividends, savings and property income eats into long-term extraction.
• The EOT CGT relief has been cut from 100% tax-free to 50% relief on gain when selling to an Employee Ownership Trust, meaning half the gain is not taxed under normal CGT rules for disposals after 26 November 2025. 

EOTs remain a viable, people-centred exit route, but they’re no longer the obvious “tax-no-brainer” they were. Structures will need to be tighter, valuations more robust, and the emotional vs financial trade-off more carefully weighed. 

On top of that, earlier changes to Business Property Relief (BPR), including a £1m cap from April 2026, are now being paired with a new ability to transfer that BPR allowance between spouses and civil partners. That’s helpful for some families, but the direction of travel is still clear: the era of hugely generous, lightly policed reliefs is ending.

Meanwhile, buyers are only going to get more forensic. Expect increased scrutiny on:

• Margins and revenue quality
• Cost base and wage-to-revenue ratios
• Client concentration and sector exposure
• Operational leverage and use of automation
• Compliance hygiene and finance ops

Translation: if your exit thesis relies on clever tax rather than a genuinely resilient, well-run agency, this Budget should be a wake-up call. 

Use the next 12-24 months to professionalise, de-risk and protect your multiple. Don’t bank on specific reliefs staying generous.

You can’t control the Chancellor’s spreadsheet. You can control how exposed your agency is to every frozen threshold, wage hike and admin burden that came out of this Budget. 

If you want to move from “we’ll see what happens’ to a concrete plan:

• Take the Exit Readiness assessment: get a clear view of how your current structure, margins and client mix stack up if you’re thinking about an eventual sale.
• Or book a call with Unusual to stress-test your P&L and exit plan under the new rules, and build a 12-24 month roadmap that works in a higher-tax, higher admin environment.

The Budget has raised the bar. Your job now is to make sure your agency can clear it.