Phil Cooper (FCG Midwest)

There have been numerous posts, emails and articles about the headlines from the recent budget issued by the Labour government.  In this article we want to look a bit more about how the budget will impact rural businesses on a day-to-day basis, so I have not commented on the changes to the Inheritance Tax regulations.

Minimum Wage

From 1 April 2026 the minimum wage for those aged 21 and over increases to £12.71.  The key point for rural businesses here is that this impacts everyone including staff members on a salary.  It’s easy to forget that salaried staff may not actually be on the minimum wage, especially if the number of hours worked increases over time.  The table below is an example:

On this basis if staff work on average 5 days per week for 10 hours per day the minimum they must be paid is £33,046 assuming they are 21 or older.

If you employ a 17-year-old they are now paid £8 per hour so their salary based on the above would be £20,800.

The impact is not only on those on a minimum wage but the knock-on effect to the rest of the team as they will also be expecting similar increases.

Make sure you check your salaries and hours worked to ensure you are not in breach of these regulations. ggggggggggggggg

Income Tax

Whilst the income tax rates have not been increased for basic or higher rate taxpayers the allowances have been frozen until 2031.  This effectively means that as wages rise the amount of tax you pay out of your pay packet increases, which is one way the government is raising more tax income.

So, whilst the minimum wage has increased by 4% as detailed above the actual money that employees take home will only increase by around 3%.

Tax on Property Rental

This covers both residential property lets and renting of land.  A new rate of tax has been introduced from 1 April 2027 which means that the income from these rentals will now be taxed separate to your income tax calculation.  This does not apply to businesses that rent out property as a company.

The new rates are: gggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggg

• 22% for basic rate taxpayers gggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggg

• 42% for higher rate taxpayers ggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggg

• 47% for additional rate taxpayers. ggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggggg

In practice this means that a new tax rate has been created for land and property rents that are outside of a limited company and will increase the amount of tax paid by 2% as the rates are higher than the equivalent income tax rates.

Limited Companies

Income tax on dividends, at both the basic rate and higher rate, will increase by 2%. From 6^th April 2026, basic rate dividend income will be taxed at 10.75% (up from 8.75%) and higher rate dividend income will be taxed at 35.75% (up from 33.75%). The additional rate of tax on dividend income will remain at 39.35%.

So, the question is whether a Limited Company is still the right structure for your business or should you be considering returning to a partnership or other structure?  The answer to this will differ for every business but should be a topic of conversation when you sit down with your accountant.

Sale of Business and Capital Gains Tax (CGT)

You may recall that an Entrepreneurs’ Relief scheme was introduced some time ago which offered a low rate of CGT at 10% for those selling and retiring from a business, e.g. a farm moving out of dairy farming.

The name of this tax has changed over the years and is now known as Business Asset Disposal Relief.  This has increased to 18% from 1 April 2026 from 14% which means that businesses could pay more CGT, e.g. for every £100,000 of gain this increase equates to an additional £4,000 tax.  The rate is now the same as the CGT rate for basic rate taxpayers, i.e. provides no extra benefit, unless you are a higher rate taxpayer which has a CGT rate of 24%.

If you are planning on making this kind of decision in the next 12 months there is an incentive to do this before 31 March 2026.  This does not apply to limited companies.

Whilst the main focus has been on the impact of Inheritance Tax changes which no doubt will affect a number of rural businesses the other changes detailed above will have significant impacts on business operating costs and tax paid.  Couple this with a drop in the milk price of between 8-10 ppl and low arable crop prices and the outlook for 2026/27 looks like being a challenging year.

It is ever more important to focus on what a business can control which are the amount/quality of inputs used, and the price paid for them.  Using benchmark data to compare your business against similar businesses will help you do this.  Contact Phil at pcooper@fcgagric.com or your local FCG Office for data to benchmark your business.