The budget is coming: Do you know what a potential raise in the National Living Wage could mean for your SME?

With the Autumn Budget set to take place on 28 October 2026, many business owners are starting to think about how any proposed changes could affect their finances.

One area likely to be high on the agenda is the National Living Wage (NLW).

While any increase in pay will be welcome news for employees, employers may be wondering what it could mean for their payroll costs and overall profitability.

For SMEs in particular, even a relatively small increase can have a knock-on effect across the business.

What could a rise in the National Living Wage mean for my business?

Each year, the Government reviews living wage rates using recommendations from the Low Pay Commission.

While we won’t know for certain whether rates will increase until the Budget is announced, it’s useful to understand the potential impact in advance.

For businesses that employ staff on or close to the living wage, a rise in rates could lead to a noticeable increase in payroll costs.

Industries such as retail, hospitality and care often feel this most because wages make up a large proportion of their day-to-day expenses.

When the living pay increases, employers often review pay across the wider workforce to maintain appropriate differences between junior and more experienced roles.

This can result in higher costs throughout the organisation, not just for those directly affected by the NLW.

For SMEs already managing rising overheads, absorbing these additional costs may prove difficult. In some cases, it could put pressure on profit margins or reduce the funds available for growth and investment.

However, it isn’t all negative. Sometimes better pay can help improve morale, encourage employees to stay with the business for longer and reduce recruitment costs associated with high staff turnover.

What can businesses do to prepare for a change in the National Living Wage?

Although details of any changes won’t be confirmed until the Autumn Budget, there are several steps businesses can take now to prepare.

Some of these include:

• Review payroll processes – Take a closer look at your workforce and identify which employees could be affected by an increase in the NLW. It’s also important to factor in additional employment costs, including National Insurance and pension contributions.
• Pricing reviews – If higher wage costs are likely to affect your bottom line, now may be a good time to review your pricing structure. Making small adjustments can help protect profitability and avoid financial pressure later on.
• Cash flow forecasting – Running different financial scenarios can help you understand how a potential increase could affect cash flow, budgets and profitability. The earlier you plan, the fewer surprises there are likely to be.
• Keeping an eye on the Budget – Staying informed is crucial. Once any changes are announced, businesses should review how the new rates affect their workforce and update payroll calculations accordingly.

For businesses working with tight margins, a little preparation now can make a significant difference when any changes eventually come into force.

How can we support you?

While there’s still plenty of speculation around what the Autumn Budget may include, businesses don’t need to wait for the announcements before taking action.

Reviewing payroll costs, updating forecasts and assessing the potential impact of different scenarios can help you make informed decisions and plan ahead with confidence.

If you’re concerned about how changes to the National Living Wage could affect your business, speaking with your accountant can help you understand the risks, identify opportunities and prepare for any adjustments that may be needed.

For support with changes during the Autumn Budget, get in touch with our team.