Key Policy Changes Affecting Entity Setup
Budget 2025 introduced several changes that directly affect how start-ups and SMEs should consider structuring their operations:
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VAT Relief for Business Donations of Goods to Charity: From 1 April 2026, businesses donating assets or goods to charities for onward use or distribution will incur no VAT charge, under certain value limits (£100 or £200 for some goods). Check whether your donations are eligible; certain excise-duty goods (including those that will be under vaping duty) are excluded. (gov.uk)
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Tour Operators’ Margin Scheme Change: Suppliers of private hire and taxi journeys will be excluded from the Scheme unless bundled with other travel services. This reform took effect from 2 January 2026. If your entity provides such services, your VAT handling must change. (gov.uk)
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Vaping Products Duty (VPD) & Vaping Duty Stamps (VDS): Starting 1 October 2026, there’s a flat-rate duty on vaping liquids, with registration opening from 1 April 2026. Entities importing/manufacturing vaping liquids must comply with duty and stamp requirements. (gov.uk)
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Salary Sacrifice for Pension Contributions: From 6 April 2026, pension contributions sacrificed above £2,000 per annum will face employer and employee NICs. This makes salary sacrifice schemes less favourable for high RRSP-style pension contributions beyond that threshold. (gov.uk)
Choosing the Right Entity Structure
When forming or reorganizing your entity, consider:
| Structure | Advantages | Drawbacks under new rules |
|---|---|---|
| Sole Trader / Partnership | Simpler administration, lower setup costs. Good for low turnover, minimal payroll. | Pay attention to NICs changes. No salary sacrifice incorporation advantages. Personal exposure to liabilities. |
| Limited Company (Ltd) | Limited liability; clear separation; more potential tax planning (profit extraction, dividends). | Must account for new NICs on salary sacrifice; more regulatory and reporting responsibilities. Certain reliefs may differ. |
| Trusts / Overseas Entities | Used for asset protection or family succession planning. | Impacted by non-dom regime changes—understanding FIG and trust taxation rules essential. (gov.uk) |
Practical Steps for SMEs & Start-Ups
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Register for VPD / VDS early if in vaping business or about to enter it. Compliance requires registration from 1 April 2026. Fines or delays could severely disrupt supply chains. (gov.uk)
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Review donation practices: If your entity donates equipment or goods, check eligible thresholds. Ensure proper valuation and whether goods are excluded. Use VAT relief where possible. Donate within limits to avoid standard VAT. (gov.uk)
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Plan payroll and benefits: Many entities use salary sacrifice arrangements for employee benefits (pensions, childcare). With NICs applying beyond £2,000 contributions, assess whether salary sacrifice remains efficient for your staff. |
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VAT Margin Scheme: If offering private hire work or similar travel services, check whether you are excluded from Tour Operators’ Margin Scheme. Adjust your VAT invoicing systems accordingly. |
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Hope for Budget planning: Budget 2026 and future finance bills may bring further changes—stay plugged into draft legislation, and ensure entity structure is flexible enough to adapt. |
Example Scenarios
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RideConnect Ltd, a private hire company in Manchester: pre-Jan 2026 they might have used the Tour Operators’ Margin Scheme; post-2 January 2026 they cannot for pure transportation offerings. They may need to register differently and ensure correct output VAT reporting per journey.
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Fresh Vapes Ltd, importing vaping liquids: must register under VPD/VDS from 1 April 2026; ensure all product packaging will bear the required duty stamps. They must avoid excluded product categories (e.g. tobacco duty goods). |
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GreenFields Farm, donating farm produce to charities: their equipment/donated goods valued under limit (e.g. £100) qualify for VAT relief; larger or excluded goods (e.g. excise or vaping-related) may not. |
Compliance-Friendly Tips
- Keep excellent records of received and donated goods, values, dates; required to determine eligibility for VAT relief.
- Use accounting software capable of handling multiple VAT regimes, VPD/VDS stamps, and NIC calculations.
- Monitor relief ceilings and watch out for salary sacrifice edge cases.
- Ask experts about potential transitional reliefs, or reliefs phased in by Budget 2026.
Bottom line: The UK’s post-Budget 2025 tax landscape shifts significant weight onto residence, timing and proper structuring. For start-ups and SMEs, aligning your entity form and operations with these new rules now will save headaches and tax costs later.