UK Autumn Budget legal expert comments

Leading regional law firm, Gardner Leader, offers some expert legal comments in response to the UK Autumn Budget.

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Gardner Leader

27 November 2025

Headline corporation tax may have stayed put, but inflation and frozen income tax thresholds will lift effective rates for businesses

Joe Lewis, Partner and Head of Corporate, Commercial and Employment Teams at Gardner Leader says: “With the Chancellor’s limited scope to raise prevailing tax rates, we may see increased levels of scrutiny and enforcement being employed by HMRC as a revenue tool. It would be prudent to expect more enquiries into reorganisations, share buy-backs, goodwill valuation and business-property relief optimisation, meaning a greater focus on robust valuation methodology and tax clearances for transactional areas historically treated pragmatically. “Headline corporation tax may have stayed put, but frozen income tax thresholds, tighter deductions and the effects of inflation will lift effective rates for owner-managed businesses. Increases in dividend taxation will further affect how owners extract value. Combined with sharper HMRC scrutiny, the environment is set to become more demanding for smaller corporate groups. Joe advises entrepreneurs and business owners at all stages of their development from start-up to exit, including start-up capital, angel financing and private equity investment. His practice covers private M&A, management buyouts, shareholders’ agreements and joint ventures, reorganisations and corporate governance. He has experience of capital markets transactions, including flotations, introductions and fundraisings, having acted for numerous UK and international issuers.

It is likely that SMEs will share the pain of freezing income tax brackets

Bonnie Jackson, a Corporate and Commercial solicitor at Gardner Leader says: On income tax“It is likely that SMEs will share the pain of freezing income tax brackets. With pressure on both the demand side and a need to pay higher wages, margins will shrink and some will become targets for opportunistic local competitors or trade buyers. The latter have a track record of mopping up in fragmented markets - in the same way as we have seen with vets and accountancy firms in recent years.” “This will no doubt focus the mind of SME owners contemplating an exit. They may be inclined to bring forward a sale or consider a partial release of equity (such as selling a minority portion of the business).” Income tax freeze “Business owners will likely breathe a sigh of relief today. However, while freezing income tax brackets has the greatest impact on individuals and households, it will inevitably have a knock-on impact on mid-level M&A activity. Ultimately, when consumers have less disposable income, demand for certain services lowers and this results in lower valuations. This is particularly the case for consumer-facing businesses, such as leisure and retail, for whom lower business rates will be little consolation.  “It is likely that SMEs will bear the brunt. With pressure on both the demand side and a need to pay higher wages, margins shrink and some will become targets for opportunistic local competitors or trade buyers. Private equity backed platforms have a track record of mopping up in fragmented markets, in the same way as we have seen with vets and accountancy firms in recent years. “This will no doubt focus the mind of SME owners contemplating an exit. They may be inclined to bring forward a sale or consider a partial release of equity (such as selling a minority portion of the business). This allows owners to diversify their wealth, without the risk of missing out if conditions and valuation improve in the future.” Deal structures “Deal structures will likely shift as buyers feel more vulnerable and debt financing becomes more conservative. We expect to see buyers pushing for earn-outs and deferred consideration, in place of cash. These arrangements allow buyers to hedge their risk by paying a variable purchase price linked to future profits of the business or to spread the price over several years. In these situations, it is vital for sellers to ensure that the terms of the earn-out offer them sufficient protection. As an example, restricting buyers from making material changes to the management structure, or selling off key business assets until the end of the earn out period. Sellers must also ask for adequate security for the deferred consideration, such as a charge over the buyer’s assets. “In a buyer’s market, buyers may feel they have greater leverage on key deal terms such as warranties and indemnities, shifting risk onto the seller, so it is important that these are carefully drafted to limit both the scope and extent of the seller’s liability. We also expect an increase in the use of rollover structures, where sellers are given shares in a buyer’s company as part payment, in place of cash. A seller may have the opportunity to retain some equity in the business they are selling.” RnD Reliefs “We are pleased to see an assurance scheme for R&D claims. R&D is such a key relief for businesses, lowering innovation costs and allowing businesses to demonstrable future potential, particularly in the tech and life science sectors. This in turn boosts future profitability and results in higher valuation and more deals. Recently, we have seen buyers become more cautious – R&D relief supports cash-flow, which along with working capital, has become a key concern for nervous buyers. The new assurance scheme, which will vet claims before they are submitted to HMRC, should go some way to reducing the risk to future sellers of innovation heavy businesses. Scrutiny of R&D claims is already a material focus for buyer due diligence and this assurance should provide peace of mind that claims are robust. All too often we see mishandled claims result in price chips, indemnities or withheld completion payments, shifting the risk back to sellers and ultimately undermining value. “Sellers should also be aware that while W&I insurance is becoming increasingly popular to reduce the risk of a claw-back of sale proceeds, it rarely covers sellers for flawed R&D claims. This risk is often borne by the sellers themselves in the form of a specific indemnity. General Comment “It’s important to remember that while any tax changes are significant for business owners planning an exit, for many mid-market owner-manged businesses, personal goals such as retirement or de-risking outweigh the tax considerations. Valuations rise and fall with market conditions, interest rates and investor appetite. The best and most profitable exits are five years in the making, and seller with a strong proposition, in an attractive market window will not be dissuaded by the changes announced in the budget today.” Bonnie is a corporate lawyer, advising clients on M&A transactions, internal restructuring and shareholders agreements.