How Does the Budget Affect Creative Small Businesses & Sole Traders?

This week, Chancellor Rachel Reeves presented her second Budget, updating the

public on the state of the UK economy and outlining plans for the year ahead.

For many in our creative community: freelancers, sole traders and small business

owners, the implications are significant. Whether you operate independently, run a

micro-business, or draw income through a limited company, these changes may

affect how you pay yourself, save and plan for the future. Here’s a breakdown of

what you creatives need to know…

What Changed: Key Budget Headlines

• Personal allowance and income-tax thresholds remain frozen. As wages,

  rates or profits rise with inflation, more of your income will naturally drift into

  higher tax bands.
  

• Dividend tax is rising by 2% from April 2026 at both the ordinary and upper

  rates. For those operating through limited companies, this will reduce some of

  the long-standing benefits of profit extraction via dividends.
  

• Salary-sacrifice reforms are slated for 2029, however whether these are

  implemented in the form that has been proposed, is in my view uncertain.

  
  

• It was speculated that VAT thresholds or annual pension contributions

allowances could change. There has been no change to these, although

this could change in subsequent budgets.

Paying Yourself: Sole Trader vs Limited Company

If you're weighing up remaining a sole trader or operating as a limited company, this

Budget nudges the balance slightly back in favour of remaining a Sole Trader.

Sole Traders / Self-Employed

• All profits (after business costs) are taxed as income, and with frozen

thresholds, you may fall into higher tax brackets more quickly. Losses can be

offset against other sources of income that you might have.

• The structure remains simple, flexible and admin-light.

Limited Company (director’s salary + dividends)

• Traditionally, many directors used a low salary (up to the personal allowance,

avoiding National Insurance) plus dividends to minimise overall tax.



• But with the personal allowance frozen at £12,570 and dividend tax rising,

the advantage shrinks.

• Depending on profit levels, and other shareholdings, if you pay corporation

tax at 19%, dividends remain more tax-efficient than bonuses (effective rate

approx. 25% vs 29.4%).

• If you usually take dividends, this year may be a good time to pay them

before the April 2026 increase but be careful to make sure that you do not let

the tax tail wag the dog.

•  The gap between sole trader and limited company taxation is narrowing — but

as a company director, you still have greater flexibility in when and how you

extract profits.

Always speak to your accountant to decide which structure works best for

your specific profit level and long-term plans.

Other Budget Impacts Worth Watching

• Writing Down Allowances cut from 18% to 14%. This reduces how quickly

businesses can claim tax relief on equipment - in this context mainly cars and

items that you owned before starting the business, or transferred from

personal use into the business

• Training & apprenticeships: Full government support for SME

apprenticeship training is extremely positive news for creative businesses

wanting to grow in-house skills and expand, as well as helping young people

get a start in the workplace.

• National Minimum Wage increases (from April 2026):

o Aged 21+: up 4.1% — £12.21 → £12.71

o Aged 18–20: up 8.5% — £10.00 → £10.85

o Apprentices & under-18s: up 6% — £7.55 → £8.00

• Frozen thresholds everywhere: Income tax, allowances and other limits

staying fixed means inflation does the heavy lifting in raising your tax bill,

assuming that your profits are increasing

•  Planned for April 2028 new electric vehicle road charge: 3p per mile for

EVs and 1.5p for hybrids. There are a number of practical difficulties in

implementation, and I will be watching this with interest.

What Surprised (or Reassured) People — Because It Didn’t Happen

• No change to the VAT threshold. If your turnover is under £90,000, you still

are not obliged to register, although depending on circumstances it may be

beneficial for you to do so

• Pension contribution rules and tax-free lump sum untouched. These

remain a powerful way to reduce tax over the long term

• No change to corporation tax rates or marginal relief.

What Should You Think About Doing… Soon?

• Planning to take dividends? Consider drawing them this tax year before the

2% increase in April 2026, but discuss this with your accountant as there are

lots of different considerations.

• Thinking of buying a car for the business? If it is either a second-hand

electric car, or a new or second hand car with CO2 emissions less than

50g/Km, do this before April 2026 to benefit from an 18% Writing Down Allowance in 2025/6

• If you hire staff or outsource regularly, remember to build the new

minimum-wage costs into quotes, retainers and project fees. Use this period

to review your finances while thresholds, VAT rules and pension frameworks

remain unchanged.

If you would like any a free, no obligation chat about your finances, please do

get in touch! Sarah Gaselee sarah@gaselee.com gaselee.com