A Bank of England survey has shown that UK businesses cut jobs this summer at the fastest rate in four years, highlighting the strain of higher taxes on employers.

The monthly Decision Maker Panel survey of more than 2,000 chief financial officers found that employment fell by 0.5% in the three months to August, the steepest drop since 2021. Intentions for future hiring also weakened, with expectations for job growth slipping from 0.5% to just 0.2%.

Business leaders blamed the Government’s decision to raise employer national insurance contributions (NICs) by £25bn in April. Almost half of the respondents said the increase had forced them to cut staff numbers, while many others reported passing costs on through higher prices.

Two-thirds of firms said profit margins had been squeezed, 34% raised prices, and 20% said they paid lower wages than planned. Despite this, the Bank noted the impact was less severe than firms had feared before the NICs changes took effect.

Economists had warned the fall in employment could sway the Bank’s 18 September meeting. In the event, the MPC left the Bank Rate at 4% (a 7–2 vote, with two members favouring a 0.25 percentage point cut to 3.75%), in line with market expectations.

Chancellor Rachel Reeves, who has set 26 November for her second budget, has acknowledged that the economy is “not working well enough for working people”. The later budget date is expected to fuel speculation over further tax rises, but the Treasury says it will also be used to outline pro-growth reforms.

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Retail sales grew in August, helped by record warm weather and a Bank of England interest rate cut.

Retailers have, however, warned that speculation over potential tax rises could hit spending during the vital pre-Christmas trading season.

According to the latest British Retail Consortium (BRC) and KPMG survey, sales rose 3.1% yearly. Food and drink sales led the way, up 4.7%, although the BRC said price rises rather than higher volumes drove this. Inflation continued to push the cost of staples such as beef, chocolate and coffee.

Computing and gaming products also performed strongly, boosted by the back-to-school period. However, parents facing rising costs cut back on school uniforms and other essentials.

Non-food sales increased by 1.8%, the third monthly rise. Furniture sales grew for a second month, while household goods, DIY products and garden tools also improved. Demand was lifted further by the launch of new Samsung foldable phones and Google’s Pixel 10 in the late summer.

August followed growth of 2.5% in July, supported by warm weather and England’s Euros success, and 3.1% in June.

Despite the positive figures, shopper confidence fell for the third consecutive month, with many consumers expecting further food price rises and financial pressures. The BRC warned that businesses remain cautious about the “golden quarter”, the three months before Christmas that account for a significant share of annual revenues.

The Chancellor, Rachel Reeves, will deliver the budget on 26 November.

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Prime Minister Sir Keir Starmer has moved to strengthen Labour’s grip on economic policy by creating a new “Budget board” that links senior ministers, advisers, and business voices.

Meeting weekly, the board will coordinate policies ahead of the Budget on 26 November to boost growth while maintaining the confidence of businesses and the City.

The initiative follows Chancellor Rachel Reeves’s first Budget last October, which raised employer national insurance by £25 billion and increased the minimum wage, souring relations with business. Reeves is now under pressure as she faces a fiscal gap of at least £20bn and the likelihood of higher taxes.

Starmer’s economic adviser and former Bank of England deputy governor, Baroness Minouche Shafik, will co-chair the new board with Treasury minister Torsten Bell. Other members include Darren Jones, who has taken the role of chief secretary to the prime minister; Starmer’s adviser Varun Chandra; and communications chiefs Tim Allan and Ben Nunn. Chiefs of staff, Morgan McSweeney and Katie Martin, are also involved to improve political and media handling.

Officials said the board was designed to ensure closer cooperation between Number 10 and the Treasury while opening stronger lines of communication with business leaders. Starmer has also instructed ministers to prioritise growth by accelerating planning and infrastructure projects and reducing the number of regulators and civil servants.

Downing Street said the Government focuses on investment and reform to deliver higher output and an economy that works for working people.

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A small business guide to IR35

Many small businesses rely on specialist contractors for flexibility and skills. That remains a sound approach, but the tax position needs care. The UK’s IR35 and off-payroll working rules govern when a contractor should be taxed like an employee. Getting this right protects cashflow, avoids interest and penalties, and builds confidence with contractors and agencies.

This guide explains, in plain terms, how the rules apply in the 2025/26 tax year, what changed in April 2025, when those changes actually bite and how to set up simple, durable processes. It’s written for owner-managers and finance teams who want a practical reference they can use throughout the year.

What IR35 and off-payroll working cover

“IR35” is a shorthand for rules that ensure people who work like employees but through an intermediary (most commonly a personal service company (PSC)) pay broadly the same income tax and national insurance contributions (NICs) as employees. HMRC’s overview sets the scope and purpose of the rule.

There are two key frameworks.

• Chapter 8 (ITEPA 2003): often referred to as IR35, in this case the PSC is responsible for deciding status and paying any deemed employment taxes.
• Chapter 10 (ITEPA 2003): the off-payroll working rules mean the client (end-hirer) decides status and, if the engagement is “inside IR35”, the deemed employer in the supply chain runs PAYE.

Which framework applies depends mainly on your size (if you’re a private-sector client) and whether you are a public authority.

Who decides employment status in 2025/26

• Public sector clients: you must determine status and operate PAYE for “inside IR35” engagements.
• Medium and large private/voluntary sector clients: you must determine status and operate PAYE where required.
• Small private/voluntary sector clients: you are exempt from Chapter 10. The contractor’s intermediary (such as a PSC) decides status under Chapter 8. You must confirm your size if asked by the worker or the agency.

Where Chapter 10 applies, you must issue a status determination statement (SDS) to the worker and the next party in the chain, explaining the outcome and your reasons. You must also keep records and have a process to handle disagreements.

What counts as “small” — and what’s changing

Small company test used for off-payroll working in 2025/26

For the 2025/26 tax year, private companies are generally small for off-payroll purposes if they do not meet two or more of these conditions in the last relevant financial year:

• turnover more than £10.2m
• balance sheet total more than £5.1m
• more than 50 employees.

Where a simplified test applies to certain unincorporated clients, meeting a £10.2m annual turnover threshold brings you into scope. Group rules also apply: if the parent is medium/large, subsidiaries follow suit.

Important: The thresholds above are the ones that matter for off-payroll working assessments in 2025/26. See below for changes from 6 April 2025 and why they do not usually change your off-payroll position until 2027/28 at the earliest.

Threshold increases from financial years beginning on or after 6 April 2025 — timing for off-payroll

From financial years beginning on or after 6 April 2025, two of the Companies Act thresholds increase to: turnover £15m and balance sheet total £7.5m (employee limit remains 50). However, HMRC has confirmed how these increases flow through to the off-payroll rules using the last filed financial year and a two-year test. The upshot is that, for most clients, the earliest off-payroll impact is the 2027/28 tax year (and often later).

Why the delay? The off-payroll regime looks at the last financial year for which the filing period ended before the start of the tax year, and a company generally needs to meet the size test for two consecutive financial years. HMRC’s manual includes transitional rules and examples that lead to 2027/28 as the earliest practical effect.

What the latest HMRC data says

HMRC’s February 2025 update on the private-sector reforms (introduced 2021) estimates:

• around 120,000 workers were directly affected by the April 2021 reform
• about 45,000 fewer new PSCs formed around the time of the reform (vs trend, to March 2022)
• the reform generated about £4.2bn in additional tax, NICs and apprenticeship levy by March 2023
• those affected represent around 1% of the workforce (impacts vary by sector).

These figures help with resourcing decisions and what to expect if you change approach (for example, moving some roles onto payroll or re-scoping work to be genuinely outside IR35).

If you are small in 2025/26: Your obligations and good practice

If you are small (outside the public sector), Chapter 10 does not apply to you in 2025/26. The contractor’s intermediary decides status and accounts for tax/NICs under Chapter 8 (the “original IR35”).

You should still:

• confirm your size when asked by the contractor or agency. HMRC guidance for intermediaries explains the worker can request confirmation and the client must respond within 45 days. Keep a simple template reply ready.
• clarify working practices in contracts and onboarding packs (substitution, control, equipment, financial risk, integration into teams and so on).
• keep records: request and file the contractor’s company details, insurance certificates and engagement letter.
• re-check if your size will change in future years (see section 3.2). If you later become medium/large for off-payroll, you must switch to Chapter 10 from the relevant tax year.

Tip: If an agency or client in the chain asks for an SDS when you are small, explain that Chapter 10 doesn’t apply to you in 2025/26 and provide written confirmation of small status for the tax year in question.

If you are medium/large in 2025/26: The core steps

Where Chapter 10 applies, put these steps on a checklist.

1. Assess status for every engagement involving a PSC or other intermediary (contract-by-contract, based on actual working practices). You can use HMRC’s check employment status for tax (CEST) tool to assist.
2. Take reasonable care in your determination (gather facts from hiring managers, review contracts, consider substitution and control, and document the rationale).
3. Issue an SDS stating (a) the conclusion and (b) your reasons. Send it to the worker and the party you contract with before payment. Maintain version control.
4. Identify the deemed employer (fee-payer) in your supply chain (often the party that pays the PSC). Ensure the SDS reaches the qualifying person in the chain; until it does, you risk being treated as the deemed employer.
5. Operate PAYE for inside IR35 roles: deduct income tax and employee NICs, pay employer NICs and (if applicable) apprenticeship levy. Keep Real Time Information (RTI) flagged correctly for off-payroll payments.
6. Run a client-led disagreement process (CLDP). Respond within 45 days when a worker or the deemed employer challenges the outcome. If you fail to respond in time, the tax/NIC liability shifts to you.
7. Retain evidence: working-practice questionnaires, meeting notes, CEST outputs (PDF), SDS copies and any independent reviews.

Supply-chain risk: If the fee-payer fails to account for PAYE, HMRC can use transfer-of-debt rules to pursue another relevant party up the chain (for example, the end client), so due diligence on agencies matters.

Using CEST (and what’s changed in 2025)

HMRC updated CEST and related guidance on 30 April 2025. HMRC states it will stand by determinations the tool gives, provided the information entered is accurate and you follow HMRC guidance. You still need to keep evidence and revisit if the working practices change.

Independent reviews can be valuable where CEST returns “unable to determine” or where roles are borderline. If you use external tools or advisers, keep a clear audit trail showing how you reached the decision and that you took reasonable care.

Passing the SDS down the chain (and when you remain liable)

While the legislation focuses on you issuing the SDS to the worker and your counterparty, HMRC guidance explains you remain the deemed employer until the SDS is passed down the labour supply chain to the next qualifying person. Build this hand-off into your accounts-payable workflow so no invoices get paid before the correct party has the SDS.

Contracted-out services and overseas clients

• Contracted-out services: where you buy an outsourced service (rather than labour) from a supplier, that supplier assesses and, if necessary, operates off-payroll. Take care to ensure a staff-augmentation agreement is not simply relabelled as a deliverables-based contract to sidestep the rules.
• Overseas clients: if the client has no UK connection (for example, wholly overseas with no UK permanent establishment), Chapter 10 does not apply and the PSC decides status.

The 2024 set-off change (double-taxation mitigation)

From 6 April 2024, HMRC can offset certain taxes already paid by the worker or their PSC against the PAYE/NICs bill assessed on the deemed employer for past non-compliance. The mechanism applies to deemed direct payments made on or after 6 April 2017 (public sector) and 6 April 2021 (private sector), where the trigger event (such as settlement) is on or after 6 April 2024. This reduces the risk of double-collecting taxes across the chain.

Set-off does not erase interest or potential penalties for failures, and you still need robust processes to prevent errors in the first place.

Quick reference: Small vs medium/large

Planning for the threshold changes (now through to 2027)

1. Check your actual size for 2025/26 using the £10.2m/£5.1m/50 criteria. If you are medium/large, continue to apply Chapter 10.
2. For financial years beginning on or after 6 April 2025, monitor whether the new thresholds (£15m/£7.5m/50) change your size. Because of the two-year test and filing-date rule, the earliest off-payroll impact is tax year 2027/28 for most. Keep this on your risk register and revisit annually.
3. If you expect to fall outside Chapter 10 in a future year, plan your communications to agencies and contractors and update your onboarding packs to reflect the return to Chapter 8 responsibilities at the appropriate time.

FAQs

Does an “outside IR35” SDS affect employment rights?
No. The SDS concerns tax only. Employment law tests may give a different result for rights (holiday pay and so on). Keep tax and employment law analyses separate.

Is CEST mandatory?
No, but HMRC will stand by CEST determinations if you used it correctly and the facts are accurate. You can use other tools or advisers; just ensure you take reasonable care and keep records.

What if we buy a deliverables-based project from a supplier?
If it is a genuine outsourced service, the supplier assesses and accounts for off-payroll where needed. Guard against contracts that are essentially staff supply relabelled as outsourcing.

We’re part of a group — which size test applies?
Group rules can pull you into scope if the parent is medium/large (figures aggregated).

If HMRC later says our “outside” SDS was wrong, will we pay twice because the PSC also paid tax?
From 6 April 2024, HMRC can set off certain taxes already paid by the worker/PSC against the deemed employer’s assessed liabilities, reducing double taxation. Interest and penalties can still apply.

Conclusion

You can keep contractor hiring simple and compliant by focusing on three things: know whether Chapter 10 applies to you this tax year, make status decisions you can evidence, and embed SDS and payment controls in your workflow. For many small businesses, the off-payroll rules do not apply in 2025/26, but you still need clear documentation and a quick way to confirm your size when asked. For medium and large organisations, a short, well-run process beats ad hoc decisions every time.

If you’d like a light review of your current process, or a one-page policy and checklist tailored to your roles and supply chains, we can help you put that in place and reduce the admin burden.

Get in touch if you’d like tailored support in reviewing your contractor processes or setting up a clear off-payroll policy.

HMRC has significantly increased oversight of research and development (R&D) tax relief, with errors in claims totalling £441 million in 2023/24. In 2024, one in five claims faced an enquiry, compared with just one in 20 two years earlier.

The compliance crackdown includes creating a specialist anti-abuse unit, which added 300 staff to HMRC’s small business compliance team. Around 500 officers now focus on detecting errors and fraud in R&D claims.

Two new measures are also raising the bar. The additional information form (AIF) requires claimants to submit detailed project and cost breakdowns upfront. At the same time, the mandatory random enquiry programme (MREP) increases the likelihood of investigations, even for fully compliant claims.

There are three key steps to reduce risk.

• Strong documentation is the best defence in an enquiry. Businesses should ensure they track project milestones, staff time and costs using reliable systems, and back up claims with payroll data, invoices and receipts.
• Compliance should not be a last-minute task. With regular reviews and early preparation, accountants can guide clients to embed good practice throughout the year.
• Rejected claims damage cashflow and confidence. Businesses that combine robust documentation with technical expertise and innovative tools put their clients in the best position.

With increasing enquiries, preparation and accuracy are essential for every R&D claim.

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The UK Government has announced a new plan to support small businesses, with a wide-ranging set of measures designed to tackle long-standing challenges and drive growth.

The UK Government has announced a new plan to support small businesses, with a wide-ranging set of measures designed to tackle long-standing challenges and drive growth.

The Chartered Institute of Management Accountants (CIMA) and the Institute of Chartered Accountants in England and Wales (ICAEW) have welcomed the plan, which addresses key issues facing smaller firms.

A primary focus is on improving cashflow by legislating to stop late payments, which currently cost the UK economy £11 billion each year. The Government also aims to reduce business regulatory costs by 25%.

The start-up loans scheme will be expanded to improve access to finance, providing funding and mentoring to 69,000 new businesses. The British Business Bank’s Growth Guarantee Scheme will also be extended, alongside a £2bn increase in the ENABLE programme’s capacity – from £3bn to £5bn.

The strategy includes permanent reforms to business rates, offering lower multipliers for high street retail, hospitality, and leisure properties. Up to 350 communities will benefit from targeted local funding to boost the everyday economy.

In terms of future planning, the Government will invest £1.2bn in apprenticeships and skills, focusing on helping small businesses adopt new technology.

Finally, the Business Growth Service will be reintroduced to offer tailored support. UK Export Finance’s lending capacity will increase from £60bn to £80bn, broadening international trade opportunities for small firms.

Professional bodies have praised the strategy as a strong signal of support for the UK’s small business sector.

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UK employers have reduced annual pay increases and scaled back hiring as the economic slowdown affects the jobs market.

Office for National Statistics (ONS) data for the three months to June shows unemployment increased, though the unemployment rate remained 4.7%,  the highest in four years. Average earnings growth, including bonuses, fell from 5% to 4.6%. Pay growth remained at 5% excluding one-off awards, indicating reduced incentive payments.

Vacancies dropped by 44,000, more than 5% from the previous quarter, marking the 37th consecutive decline. At 718,000, vacancies are now well below pre-pandemic levels. The finance and business services sector, which typically pays higher bonuses, recorded the lowest annual regular pay growth at 3.1%.

The Bank of England has highlighted signs of a cooling labour market and easing pay pressures. However, last week’s quarter-point interest rate cut to 4% is unlikely to be followed by immediate further reductions. Markets expected unemployment and pay growth to ease in line with the ONS figures.

Surveys indicate businesses are holding back on recruitment amid rising employment costs and economic uncertainty. The Chartered Institute of Personnel and Development reported record-low hiring intentions, with young jobseekers hit hardest. Only 57% of private sector employers plan to recruit in the next three months, down from 65% last autumn.

Private sector pay grew 4.8% in the year to June, equivalent to a 0.7% rise after inflation. Public sector pay rose 5.7%, the ONS said.

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Construction output saw its steepest fall since May 2020, according to the latest S&P Global Market Intelligence survey.

The UK construction sector suffered its sharpest downturn since the early days of the Covid pandemic, as housebuilding activity collapsed in July.

The sector’s purchasing managers index (PMI) dropped from 48.8 in June to 44.3 in July, well below the 50.0 mark that separates growth from contraction.

Housebuilding was the biggest drag, with its sub-index falling from 50.7 to 45.3. Civil engineering also recorded a steep fall, while commercial construction slowed modestly.

The data, drawn from around 150 firms, is closely watched by the Treasury and the Bank of England for signs of economic health. It comes amid a grim outlook: unemployment is rising, inflation remains sticky, economic output shrank in April and May, and global trade faces new disruption from Donald Trump’s latest tariffs, which started this week.

The figures raise doubts over Labour’s ambition to deliver 1.5 million new homes by the end of the current Parliament. Industry voices have questioned the target’s realism, pointing to overstated assumptions about building capacity.

While the Government offers £39 billion for social housing and planning reforms to support development, analysts highlight significant obstacles, including labour shortages, inflation, and April’s rise in employer NICs.

Despite these headwinds, ministers are hoping for a rebound. Following the Bank of England’s rate cut to 4%, markets now expect at least one more cut by the end of 2026 – a move that could further alleviate financial pressures on households and businesses.

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When and how to attract outside investors.

External capital can accelerate product development, hiring, international expansion, and mergers and acquisitions (M&A). It can also help you professionalise reporting and governance, supporting sustainable growth. The trade-off is dilution and a closer relationship with investors who will expect evidence-based plans, transparent financials and measurable milestones.

Before you start any process, be clear about: what you need the money for, how much you really need, when you’ll reach break-even (or the next value-step), and what you’re prepared to give up to get there. Investors will ask the same questions. Read our extensive guide, which will help you better understand the process.

What investors look for

Commercial traction and unit economics: Show consistent revenue, gross margin and cash-burn trends, plus the drivers behind them. For subscription or marketplace models, include retention/churn, average revenue per user (ARPU), customer acquisition cost to lifetime value (CAC/LTV), cohort analyses and sales cycle.

A credible plan: Forecasts should tie to hiring plans, capacity constraints and pipeline quality. Your model must reconcile to historical accounts and bank statements.

A clean cap table: Avoid ambiguous share classes, undocumented promises, unpaid share consideration or inappropriate liquidation preferences. Keep option grants recorded and aligned with an agreed pool.

Defensible intellectual property (IP) and contracts: Check assignments from founders/contractors, trade marks, licences, data-processing agreements and any change-of-control clauses.

Good governance: Board minutes, shareholder consents, policies (data protection, information security) and documented controls will all be tested during diligence.

Regulatory awareness: Certain deals in sensitive sectors require notification under the National Security and Investment Act (NSIA). Notifiable acquisitions typically include stakes of 25% or more (or equivalent voting/control thresholds) in 17 specified sectors; completing a notifiable deal without approval can render it void and risk penalties. If you operate in or sell to those sectors, get advice early.

Housekeeping with Companies House: New rules are phasing in identity verification for directors, people with significant control (PSC) and those filing on a company’s behalf. Voluntary verification has been available since April 2025, with mandatory verification beginning on 18 November 2025 with a 12-month transition window for existing directors/PSCs. Make sure your registered email and office address meet current requirements.

The current UK equity market at a glance

Knowing the market helps you set realistic expectations on valuation, timelines and terms.

• UK smaller businesses raised £10.8bn of equity in 2024, down 2.5% on 2023; 2,048 deals completed (-15.1%). Despite softer activity since 2023, 2024 was still the fifth-highest year on record by value.
• Angel investors remain active. HMRC/Enterprise Investment Scheme (EIS) data suggests around £1.6bn of angel-type funding in 2023/24, with a majority of angels investing at an early stage.
• Spinouts were resilient – £1.9bn raised in 2024 (about 17% of total UK equity investment), with an average spinout deal size of £8m.
• The deal mix is changing. The British Business Bank reports larger average round sizes and strong interest in artificial intelligence (AI), where deal sizes were around 40% larger than the market average in 2024.
  

Use this context to frame your plans and timelines when approaching investors.

Is outside capital right for you now?

Ask yourself the following questions.

• Do you have line-of-sight to value creation? Funding should take you to a defined milestone that materially reduces risk (for example, regulatory approval, contracted annual recurring revenue (CARR), first factory line).
• Have you exhausted cheaper capital? Consider grants, revenue-based finance, asset finance or bank debt where cashflows support it.
• Will dilution be worth it? Model ownership after the round and under future dilution scenarios.
• Are there deal-breakers today? Examples include uncertain IP ownership, disputed founder arrangements, missing statutory filings or unresolved HMRC issues.

If the answer to any of these is “not yet”, tackle those items first. It usually shortens fundraising time and improves outcomes.

Types of outside investors (and what they expect)

Friends and family: Fastest to close but treat it professionally: a simple subscription, a clear use of funds and transparent updates.

Angel investors and syndicates: Often experienced operators who can add expertise and networks. Many angels invest using the Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS), which can materially improve your close rate if you qualify. Typical expectations: early signs of product-market fit, a clear hiring and go-to-market plan, and timely reporting.

Equity crowdfunding: Useful for B2C brands with engaged communities. Be ready for disclosure, ongoing investor relations at scale and platform diligence.

Venture capital (pre-seed to Series B): Venture capitalists look for fast growth and large addressable markets. They negotiate preference shares, investor rights and board seats. They examine unit economics closely and expect monthly reporting.

Growth equity/minority private equity: Targets proven commercial traction and a clear path to profitability. Expect comprehensive due diligence and more robust minority protections.

Corporate/strategic investors: Can add distribution, credibility and technical collaboration. Balance strategic value against potential conflicts, such as customer exclusivity.

Family offices: Increasingly active; may offer flexible terms and longer hold periods, but diligence standards vary — confirm decision processes and timelines.

Investor incentives you can use

SEIS and EIS are two HMRC-backed schemes that can improve investor returns and make a round easier to close if your company and the investor meet the conditions.

Seed Enterprise Investment Scheme

• For investors: Income tax relief at 50% on investments up to £200,000 per tax year; partial capital gains tax (CGT) reinvestment relief is also available.
• For companies: Can raise up to £250,000 under SEIS, subject to age, asset and trading-status limits.
  

Enterprise Investment Scheme

• For investors: Income tax relief at 30% on up to £1m a year (up to £2m if at least £1m is invested in knowledge-intensive companies), with CGT advantages on exit.
• For companies: Can raise up to £5m per year and £12m lifetime across EIS and other venture capital schemes (higher limits apply for knowledge-intensive companies).

Certainty of availability: The government has legislated to extend EIS and venture capital trust (VCT) income tax reliefs to 6 April 2035, giving long-term policy certainty.

Advance assurance and advanced subscription agreements: Many investors will ask for HMRC advance assurance. If you use an advanced subscription agreement (ASA, also known as SAFE notes), to take funds before a priced round, ensure the ASA is equity-only (no refund or interest). For SEIS or EIS advance assurance, HMRC expects a long-stop of no more than six months; in later compliance reviews, HMRC has indicated that a longer long-stop won’t automatically prevent relief if the ASA remains equity-like (no interest, no redemption and genuine subscription for shares).

Practical tip: Build time for the advance assurance process. It’s not mandatory, but it can shorten investor invested capital cycles.

Instruments and terms: Getting the structure right

New ordinary or preference shares (priced round) are common for VC and growth equity. Key points you will negotiate include:

• Valuation and option pool: Pools are typically created or “topped up” pre-money; model post-money ownership for each scenario.
• Investor rights: Reserved matters, information rights and board representation.
• Liquidation preference: A standard term is 1x non-participating; multiples and participating features increase investor downside protection and your dilution in a downside exit.
• Anti-dilution: Weighted-average is more typical than full-ratchet in the UK; be clear how it interacts with future rounds.
• Pre-emption, tag/drag-along: Make sure these align with your growth and exit plans.
• Convertible instruments: In the UK, ASAs are widely used to bridge to a priced round. Convertible loan notes are also used but usually do not qualify for EIS/SEIS because they are debt. If investor tax relief is essential, structure carefully and take advice.
• Secondary sales: Selling existing founder or early investor shares can help rebalance risk. Plan early for any stamp duty or stamp duty reserve tax on transfers (not applicable to new share issues), and consider the optics with incoming investors.

Employee options and your option pool

A well-designed option plan helps you hire and retain key people and is expected by most institutional investors.

• The Enterprise Management Incentives (EMI) scheme offers significant tax advantages if you qualify. As a guide, a company must have gross assets of £30m or less and fewer than 250 employees; an individual employee may not hold unexercised EMI options over shares worth more than £250,000 at grant value.
• Across the company, unexercised EMI options over shares (by unrestricted market value at grant) must not exceed £3m at any time.

Investors will expect to see how the pool supports your hiring plan; factor pool size into your pre-money valuation discussions.

Due diligence: What to prepare

Financials and tax

• Statutory accounts and management accounts with reconciliations to trial balance and bank.
• 12-24 month forecast model plus scenarios.
• VAT, PAYE, corporation tax filings and time to pay (if any).
• Research and development (R&D) tax relief – from accounting periods beginning on or after 1 April 2024, most companies claim under the merged R&D scheme (an R&D expenditure credit style credit). A separate enhanced R&D-intensive support remains for loss-making small and medium-sized enterprises (SMEs) with R&D intensity of at least 30%, with a one-year grace period if you dip below after qualifying. Expect close scrutiny of claims and compliance.
  

Legal

• Shareholder agreements, articles, option scheme rules, IP assignments, key contracts, data-processing agreements.
• NSIA analysis if relevant (see earlier section).
  

People and operations

• Employment contracts, contractor agreements, right to work (RTW) checks and any IR35 assessments.
• Policies and controls (for example, information security if selling into enterprise or public sector).

Corporate records

• Up-to-date cap table and Companies House filings. Prepare for upcoming identity verification requirements and keep your registered email and address compliant.
  

Create a simple virtual data room. Label documents clearly and keep a single source of truth for the capitalisation table.

Valuation: How investors will think about it

Valuation is a function of stage, growth, margins, capital efficiency, market scale and comparable transactions. Early rounds may reference market ranges for your sector and stage; later rounds will look more like a blend of revenue multiples, gross-margin-adjusted metrics, and discounted cash flows (where appropriate). Build sensitivity tables in your model so you see how valuation and dilution respond to different growth and burn scenarios.

If you want HMRC to assess share valuations for employee options (EMI), you can agree an advance valuation with HMRC. This is separate from investor pricing and can help with staff communications.

Typical process and timeline

1. Preparation (4-8 weeks): Business plan and model, data room, cap table, SEIS/EIS advance assurance (if using), shortlist of investors.
2. Outreach (4-8 weeks): Intro calls and light diligence; update your model and deck based on feedback.
3. Term sheet (2-4 weeks): Negotiate valuation, pool, and key terms; exclusivity may start here.
4. Full diligence and legals (4-8 weeks): Financial, tax, legal and commercial diligence; long-form documents; regulatory approvals as needed (for example, NSIA).
5. Completion and post-close: File share allotments, update PSC register and confirmation statement, issue option grants, and implement reporting cadence.

Timelines vary by stage and deal type; having a prepared data room is the simplest way to shorten them.

Investor communications and reporting

• During the raise: Set a cadence for updates, highlight milestones and be clear about the runway.
• After completion: Agree on reporting (monthly or quarterly), key performance indicators, board meeting dates and information rights.
• When things change: Update investors early — most will help if they understand the problem and the plan.

How accountants can support you when scaling your business

We can review your plans with an investment lens, including:

• investment-readiness review (financials, tax, governance and data-room checks)
• forecast modelling and scenario analysis
• SEIS/EIS advance assurance and post-investment compliance
• EMI option scheme design and HMRC valuations
• transaction support (financial and tax due diligence) and post-completion integration
• NSIA signposting where relevant.
  

Closing thoughts

This guide sets out the practical steps to raise outside capital, with 2025/26 tax year rules and current market data. Every situation is different — please speak to us before you take decisions that affect valuation, tax or control. We can help you plan the process, identify the right investor types, set realistic terms and complete efficiently.

If you’d like a short investment-readiness review or a second opinion on term sheets, let us know. We’ll respond with a suggested scope and timeline.

Tips for a balanced investment approach.

Investment markets rise and fall, yet the goals that matter to you – retirement security, children’s education, a comfortable buffer against the unexpected – remain constant. Managing risk means giving each goal the best chance of success while avoiding avoidable shocks. You can do that by holding the right mix of assets for your timeframe, using tax wrappers efficiently, and controlling costs and emotions.

The 2025/26 UK tax year brings unchanged ISA and pension allowances. This guide explains the key steps, such as diversifying sensibly, rebalancing with discipline, safeguarding cash, and monitoring allowances, so you can stay on track whatever the markets deliver. It is an information resource, not personal advice.

Start with a clear plan

Define goals and timeframes: Decide what each pot of money is for (for example: house deposit in three years, retirement in 20 years). Time horizon drives how much short-term volatility you can accept. Short-term goals usually need more cash and high-quality bonds; long-term goals can justify more equities.

Set your risk level in advance: Ask yourself two questions.

• Risk capacity: How much loss could you absorb without derailing plans (linked to your time horizon, job security and other assets)?
• Risk tolerance: How do you feel about market swings? Use a more cautious mix if you are likely to sell in a downturn.

Ring-fence cash needs: Keep 3-6 months’ essential spending in easy-access cash before you invest. This reduces the chance of selling investments at a low point to meet bills.

Choose simple, diversified building blocks: Broad index funds and exchange-traded funds (ETFs) covering global equities and high-quality bonds provide instant diversification at low cost. Avoid concentration in a single share, sector or theme unless you are comfortable with higher risk.

Diversification: Spread risk across assets, regions and issuers

Diversification reduces the impact of any single holding. Practical ways to diversify include the following.

• Assets: Use both growth assets (equities) and defensive assets (investment-grade bonds, some cash).
• Regions: Combine UK and global holdings. Many UK investors hold too much domestically; global funds spread company and currency risk.
• Issuers: In bonds, mix UK gilts and investment-grade corporate bonds to diversify credit exposure.
• Currencies: Equity funds are commonly unhedged (currency moves add volatility but can offset local shocks). For bonds, many investors prefer sterling-hedged funds to lower currency risk.

A diversified core helps the portfolio behave more predictably across different market conditions. You can add small “satellite” positions if you wish, but keep any higher-risk ideas to a modest percentage of the whole.

Use tax wrappers to reduce avoidable tax and trading frictions

Efficient use of ISAs and pensions is one of the most effective risk-management tools because it protects more of your return from tax.

ISAs (individual savings accounts)

• Annual ISA allowance: £20,000 for 2025/26. You can split this across cash, stocks & shares and innovative finance ISAs. Lifetime ISAs (LISAs) are capped at £4,000 within the overall £20,000.
• Junior ISA (for children under 18): £9,000 for 2025/26 (unchanged).
  

ISAs shield interest, dividends and capital gains from tax. Rebalancing inside an ISA does not create capital gains tax (CGT), which helps you maintain your chosen risk level at lower cost.

Note: There has been public discussion about potential ISA reforms, but the current 2025/26 allowance is £20,000. If government policy changes later, we will let you know.

Pensions (workplace pension, personal pension/SIPP)

• Annual allowance: £60,000 for 2025/26 (subject to tapering for higher incomes; see below). You may be able to carry forward unused annual allowance from the three previous years if eligible.
• Tapered annual allowance: If your adjusted income exceeds £260,000 and threshold income exceeds £200,000, the annual allowance tapers down (to a minimum of £10,000 for 2025/26).
• Money purchase annual allowance (MPAA): £10,000 for 2025/26 once you’ve flexibly accessed defined contribution benefits (for example, taking taxable drawdown income).
• Tax-free lump sum limits: The lifetime allowance has been replaced. From 6 April 2024, the lump sum allowance (LSA) caps total tax-free pension lump sums at £268,275 for most people, and the lump sum and death benefit allowance (LSDBA) is £1,073,100.
  

Pensions are long-term wrappers designed for retirement. Contributions usually attract tax relief and investments grow free of UK income tax and capital gains tax while inside the pension.

Personal savings: Interest allowances

• Personal savings allowance (PSA): Basic-rate taxpayers can earn up to £1,000 of bank/building society interest tax free; higher-rate taxpayers up to £500; additional-rate taxpayers do not receive a PSA.
• Starting rate for savings: Up to £5,000 of interest may be taxable at 0% if your other taxable non-savings income is below a set threshold. For 2025/26, that threshold is £17,570 (personal allowance of £12,570 plus the £5,000 starting rate band).
  

Dividends and capital gains outside ISAs/pensions

• Dividend allowance: £500 for 2025/26 (unchanged from 2024/25). Dividend tax rates remain 8.75%, 33.75% and 39.35% for basic, higher and additional-rate bands, respectively.
• The annual capital gains tax (CGT) exempt amount, £3,000 for individuals (£1,500 for most trusts).
• CGT rates from 6 April 2025: For individuals, 18% within the basic-rate band and 24% above it, on gains from both residential property and other chargeable assets (carried interest has its rate). HMRC examples confirm the £37,700 basic-rate band figure used in CGT calculations for 2025/26.
  

CGT reporting reminder: UK residents disposing of UK residential property with CGT to pay must report and pay within 60 days of completion. Other gains are reported via self assessment (online filing deadline is 31 January following the tax year; if you want HMRC to collect through your PAYE code, file online by 30 December; payments on account remain due 31 January and 31 July).

Why this matters for risk: Using ISAs and pensions lowers the drag from tax, allowing you to rebalance and compound returns more effectively. Outside wrappers, plan disposals to use the £3,000 CGT allowance and each holder’s tax bands and consider transfer to a spouse/civil partner (no CGT on gifts between spouses) before selling where suitable.

Bonds and cash: Interest-rate and inflation considerations

Interest rates: The Bank of England reduced the Bank Rate to 4% at its August 2025 meeting. Bond prices can move meaningfully when rates are high or changing, especially for longer-dated bonds. Consider the duration of bond funds and whether a mix of short- and intermediate-duration exposure suits your time horizon.

Inflation: Headline Consumer Price Index (CPI) inflation was 3.6% in the 12 months to June 2025, while the CPI including owner occupiers’ housing costs (CPIH) rose by 4.1%. Inflation affects the real value of cash and bond coupons, and can influence central bank policy, affecting bond prices. Review whether your mix of cash, index-linked gilts and conventional bonds remains appropriate as inflation and interest-rate expectations evolve.

Cash strategy: For short-term needs, spread deposits to respect Financial Services Compensation Scheme (FSCS) limits. For longer-term goals, excessive cash can increase the risk of falling behind inflation.

Control costs and product risk

Keep fees low: Ongoing charges figures (OCFs), platform fees and trading costs compound over time. Favour straightforward funds and avoid unnecessary expenses.

Understand the product: Structured products, highly concentrated thematic funds or complex alternatives can behave unpredictably. If you use them, size them modestly within a diversified core.

Use disciplined trading rules: Avoid frequent tinkering. Set rebalancing points (see below) and resist acting on short-term news.

Rebalancing: Why, when and how

Markets move at different speeds. Without rebalancing, a portfolio can “drift” to a higher or lower risk level than you intended.

Follow this simple rebalancing framework. Invest in something that will rebalance automatically (i.e. certain ETFs)

• Frequency: Review at least annually.
• Thresholds: Rebalance when an asset class is 5 percentage points away from target (absolute) or 20% away (relative).
• Tax-aware execution: I prefer to rebalance inside ISAs and pensions. Outside wrappers, use new cash or dividends where possible; then consider selling gains up to the £3,000 CGT allowance and factoring in dividend and savings allowances.
  

Implementation tip: If markets are volatile, use staged trades (for example, three equal tranches a few days apart) rather than one large order.

Safeguard cash and investments with the right protections

FSCS protection (cash deposits): Up to £85,000 per person, per authorised bank/building society group is protected. Temporary high balances from specific life events can be covered up to £1m for six months. The Prudential Regulation Authority has consulted on raising the standard deposit limit to £110,000 and the temporary high balance limit to £1.4m from 1 December 2025 (proposal stage at the time of writing).

FSCS protection (investments): If a regulated investment firm fails and your assets are missing or there is a valid claim for bad advice/arranging, compensation may be available up to £85,000 per person, per firm. This does not protect you against normal market falls.

Operational risk checks: Use Financial Conduct Authority authorised providers, check how your assets are held (client money and custody), enable multi-factor authentication, and keep beneficiary and contact details up to date.

Currency risk: When to hedge

For equities, many long-term investors accept currency fluctuations as part of the growth engine, since sterling often weakens when global equities are stressed, partly offsetting losses. For bonds, many prefer sterling-hedged funds to keep defensive holdings aligned with sterling cashflow needs. A blended approach works: unhedged global equities plus mostly hedged bonds.

Behavioural risks: Keep decisions steady

Common pitfalls include chasing recent winners, selling after falls or holding too much cash after a downturn. Tactics to keep you on track include:

• automate contributions (regular monthly investing), which spreads entry points
• write down rules (what you will do if markets fall 10%, 20%, 30%)
• separate spending cash from investments so you do not sell at weak prices to fund short-term needs
• use portfolio “buckets” in retirement.

Retirement planning: Sequence-of-returns risk and withdrawals

If you are drawing an income from investments consider the following.

• Hold a cash buffer (for example, 12–24 months of planned withdrawals) to avoid forced sales during sharp market falls.
• Be flexible with withdrawals: Pausing inflation-indexing or trimming withdrawals after a poor market year can help portfolios last longer.
• Use tax bands efficiently: Consider the order of withdrawals (pension, ISA, general investment account) to make use of personal allowance, PSA, dividend allowance and the CGT annual exempt amount. Take care around the MPAA if you are still contributing to pensions after accessing them.
  

Putting it together: A repeatable checklist

1. Confirm goals and time horizons.
2. Check emergency cash (3-6 months).
3. Map your target asset allocation.
4. Use wrappers first: Fill ISAs and workplace/personal pensions as appropriate.
5. Keep costs low: Prefer broad index funds/ETFs.
6. Set rebalancing rules: Annual review + thresholds.
7. Document tax items: Monitor dividend/CGT use; note 60-day property CGT rule; plan for 31 January/31 July self assessment dates if relevant.
8. Review protection limits: Spread larger cash balances across institutions in line with FSCS; note proposed changes for late 2025.
9. Schedule an annual review to update assumptions for interest rates, inflation and any rule changes.

When to get in touch

Get in touch if:

• you are unsure how to set or maintain an asset allocation
• you plan to draw income and want to coordinate wrappers and tax bands
• you expect large one-off gains or dividends and want to plan disposals or contributions
• you have concentrated positions (employer shares, single funds) and want to reduce single-asset risk tax-efficiently
• you are considering more complex investments.

Wrapping up

Risk management is not a one-off task but an ongoing discipline. By defining clear objectives, spreading investments across regions and asset classes, using ISAs and pensions to shelter returns, and reviewing allocations at least annually, you create a framework that limits surprises and keeps decisions rational.

Document key dates – self assessment payments on 31 January and 31 July, the 60-day CGT rule for property, and the annual ISA reset on 6 April – so tax never forces a sale at the wrong time. Check deposit limits and platform safeguards for peace of mind, and keep a written record of your rebalancing rules to prevent knee-jerk trades.

If life events or regulations change, revisit your plan promptly. A measured, systematic approach lets your portfolio work harder while you stay focused on the goals that matter most.

Important information

This guide is information only and does not account for your personal circumstances. Past performance is not a guide to future returns. The value of investments and income from them can fall as well as rise, and you may get back less than you invest. Tax rules can change and benefits depend on individual circumstances. If you need personalised advice, please contact a regulated financial adviser.

If you’d like advice on managing your portfolio, get in touch.