Entity Setup
Entity Setup Strategies under UK’s New Budget Rules: What You Need to Know
With major changes coming for businesses in the UK Budget 2025—including higher tax rates for income from assets and revised business rates—setting up your entity now can offer lasting tax advantages.
By NomadicTax Research Team • 5-8 min read • March 3, 2026
## Understanding the New Landscape for Entity Planning
The UK Budget 2025 introduced a series of changes affecting **taxation of income from assets**, **business rates**, **corporate tax deductions**, and **workplace benefit rules**. These changes have immediate, mid-, and long-term implications for how you should structure your business or entity for tax efficiency. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai))
## Key Changes Entity Founders Must Know
- **Income from Assets Tax Increase**: From April 2026, rates for dividend and savings income will rise. Higher tax percentages apply to property incomes from April 2027. Entities holding asset-rich operations need to plan accordingly. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai))
- **Business Rates Reform**: For 2026-27, business rates multipliers will vary by type: Retail, Hospitality & Leisure (RHL) properties will receive discounts, while high-value properties with rateable values over £500,000 will face elevated multipliers. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai))
- **Corporate Tax and Capital Allowances**: Changes to writing down allowances and introduction of first year allowances for main rate assets became effective from January 2026, favouring businesses investing in new plant & machinery. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai))
- **Workplace Benefits**: Reimbursement of **eye tests**, **home-working equipment**, and **flu vaccinations** will be exempt from (income tax & National Insurance) from the start of the 2026-27 tax year (6 April 2026). However, deductions for non-reimbursed home-working expenses will be removed. Entities should shift toward reimbursing eligible costs. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-overview-of-tax-legislation-and-rates-ootlar/budget-2025-overview-of-tax-legislation-and-rates-ootlar?utm_source=openai))
## Practical Strategies to Set Up or Update Your Entity
1. **Choose Structure Based on Long-Term Income Sources**
- If you expect significant **dividend, savings, or property income**, using a **company structure** with careful planning may help preserve tax efficiency.
- For sole traders or partnerships, anticipate higher rates on non-employment income and consider moving more operations into a corporate entity where permissible.
2. **Leverage Transitional Periods**
- Since some changes come into force in **April 2026** or later, timing investments (e.g. major asset purchases) **before April** could secure more favourable deductions or allowances.
3. **Optimize Business Location and Property Usage**
- If your business operates from or owns properties near the **£500,000 rateable value** threshold, consider parceling property holdings or reviewing relief qualifications to avoid the high-value multiplier. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai))
4. **Review Employee & Contractor Agreements**
- With the removal of reliefs for non-reimbursed home-working expenses, employers may want to offer reimbursements to avoid employees incurring taxed costs unnecessarily. Also make sure that any expenses align with HMRC’s defined eligible costs. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-overview-of-tax-legislation-and-rates-ootlar/budget-2025-overview-of-tax-legislation-and-rates-ootlar?utm_source=openai))
5. **Audit Internal Reporting Systems**
- Many of the administrative changes—especially under Making Tax Digital and reporting for Remote Gaming Duty—rely on accurate digital record-keeping. Invest in software or systems now. ([gov.uk](https://www.gov.uk/government/publications/budget-2025-document/budget-2025-html?utm_source=openai))
## Example: Small Consultancy Firm Scenario
| Situation | Old Rules | Under New Rules | Advice |
|---|---|---|---|
| A consultancy that earns mix of contract income and dividend income via an LTD company | Dividends taxed at current rate; savings taxed at lower bands | Dividends 2pp higher from April 2026; savings also taxed higher bands; property income more heavily taxed from 2027 | Consider using retained profits rather than dividends, ensure property held in most efficient entity, possibly restructure contracts to income-based model |
## Action Plan Checklist
- Revaluate your entity structure (sole trader, partnership, LTD) by **May 2026** to align with upcoming tax rate changes.
- Classify benefits and expenses to ensure reimbursements rather than taxable payments.
- Update digital accounting systems for anticipated MTD and business-rates thresholds.
- Consult with tax professionals for property holdings, important where threshold rates change (High Value Property, business rates multipliers).
With these changes set in stone by legislation due by **6 April 2026** for many measures, **proactive entity setup** can yield meaningful tax savings and compliance benefits. Don’t delay until deadlines become pressing—plan now to build resilience and clarity into your business structure.