Neil Williams
Partner, Corporate Tax Services - Professional Services
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John Healey’s announcements came across as a quiet Budget, and although it’s preferable to the uncertainties of previous years, it nevertheless contains a number of policy changes that leaders of professional services businesses need to understand.
Several echo themes from the last Budget: increasing wage costs, changes to capital allowances and incremental adjustments rather than fundamental reform.
Many firms are still absorbing higher National Insurance costs, economic crime levy costs and wage pressures, and responding to disruption from AI, so it is unlikely that the latest measures will materially ease the pressures facing the sector. Assessing their impact early and identifying opportunities to benefit from the changes is paramount for leaders as they plan costs, cash flow and future investment.
The professional services transaction market continues to demonstrate its resilience, with 21 deals announced in the first nine months of 2026, representing £646m in deal value. Appetite for high-quality businesses across the sector remains strong. The reduction in Business Asset Disposal Relief coming in April 2027 leaves time for those looking to sell their business to benefit from the current limits, with potential tax savings of £30,000. This may encourage leaders to transact before the change.
Firms planning capital expenditure, including investment in technology or the fit-out of new or existing office space, will need to factor changes to capital allowances into their decisions. For expenditure incurred on or after 1 January 2027, the main rate first-year allowance, available on most new and unused plant and machinery, will increase from 40% to 50%. Eligible businesses can use this alongside the existing £1m Annual Investment Allowance. While the increase provides additional relief upfront, the main rate writing-down allowance will fall from 14% to 12% from April 2027, reducing tax relief in subsequent years for expenditure not fully relieved.
Changes to existing Company Share Option Plans , which will be rebranded as ‘EMI2’, could be particularly relevant to growing professional services businesses seeking to attract and retain key people through equity. From 6 April 2027, the individual option limit will double from £60,000 to £120,000, and the maximum exercise period will increase from 10 to 15 years. These changes will give businesses greater flexibility to align employee incentives with long-term growth and succession plans. The interaction with the existing Enterprise Management Incentives (EMI) limit will also be removed, allowing qualifying employees to benefit fully from both schemes. For businesses that have outgrown EMI or do not meet its qualifying conditions, EMI2 could provide a more meaningful tax-advantaged route to employee ownership and long-term incentivisation.
To help low-paid workers, from April 2027, the Government is increasing the National Living Wage by 3.9% to £13.21 per hour. The National Minimum Wage for 18- to 20-year-olds will also increase by 3.9% to £11.27 per hour. Increases in pay for the lowest paid workers may put pressure on firms to increase employee pay at all levels, further adding to increased employment costs.
The government has published its response to the Timely Payments in Income Tax Self Assessment consultation, providing greater clarity on its plans for Income Tax Self Assessment (ITSA) payments. It has confirmed that ITSA payments will not be mandated through Pay As You Earn (PAYE), avoiding an additional compliance burden for employers. However, it intends to proceed with proposals to accelerate income tax payments from April 2029 for the wider Self Assessment population. The government has acknowledged the cash flow and administrative concerns raised by professional services businesses, but further details on payment frequency, timing and transitional arrangements are not expected until 2027. Businesses should therefore consider the potential impact on their cash flow forecasts from April 2029 and keep their plans under review as further details emerge.
We welcome today’s confirmation that the Government will not proceed with the proposed new reporting requirements for payments between close companies and their participators, following consultation earlier this year.
While we support the principle of modernising how transactions with participators are reported, the proposed requirements would have created significant additional reporting and administrative burdens for close companies. In our view, those burdens were not proportionate to the risk of non-compliance the measures were designed to address.
The Government has announced a further 2% increase in the rates of income tax applying to property and savings income, in addition to the 2% increase announced in last year’s Budget. From 6 April 2027, property and savings income will therefore be taxed at 24% for basic rate taxpayers, 44% for higher rate taxpayers and 49% for additional rate taxpayers.
Professional Services firms will need to ensure that property and savings income is separately identified and treated correctly. For some firms, particularly those that hold client money as part of their business, the application of the new rates may require more detailed consideration.
The Government confirmed that it will proceed with the previously announced changes to pension salary sacrifice. From 6 April 2029, pension contributions made through salary sacrifice above £2,000 will be subject to employer and employee National Insurance contributions.
The changes will have implications for businesses operating pension salary sacrifice arrangements. Employers should review their current arrangements and consider whether any changes are needed ahead of April 2029.
If you would like to discuss any of the measures announced in the Budget with our dedicated Professional Services team, please get in touch.
Neil Williams