Microsoft 365 Price Increases Are Live: What UK SMEs Should Do About Copilot Now

On 1 July 2026, Microsoft's largest licensing shake-up in years went live. Most Microsoft 365 Business, Enterprise, and Frontline plans got more expensive — some by over 30% — while one plan was conspicuously left alone, every tier quietly gained new AI capability at no extra charge, and Copilot moved from an optional add-on to a permanent fixture of the SMB price list. If you run Microsoft 365 AI automation decisions for a UK business, the next few months before your renewal are the window in which this either costs you money or saves you some.

This is a practical walkthrough of what actually changed, what you now get without paying for it, and a sensible decision path for the question every SME owner is now asking: do we pay for Copilot, stay on the included tier, or put the budget into something custom?

What changed on 1 July

Microsoft announced the update on 4 December 2025 and it took effect on 1 July 2026. The headline moves, from Microsoft's published USD price list (UK pounds-and-pence figures vary by currency and agreement, but the percentages carry across):

Two details matter more than the percentages. First, existing customers keep their current pricing until renewal. Nobody's July invoice jumped; the increase lands whenever your agreement next renews. That makes your renewal date the single most important date in your IT budget this year. Second, Business Premium did not move. It was already the best-value SKU in the small business line-up for any organisation that cares about security — Intune, Entra ID P1, Defender for Business — and it is now the only mainstream business plan whose price held while everything around it rose.

What you now get without paying more

The price rise is half the story. The other half is a packaging update rolling out from June through August 2026, and it is easy to miss because it arrives quietly via the Message Center rather than on an invoice.

Every Business plan gains an extra 50GB of mailbox storage, and Basic and Standard pick up URL time-of-click protection — a Defender for Office capability that was previously a paid step-up. Microsoft 365 E3 absorbs Defender for Office Plan 1 and a substantial chunk of the Intune Suite (Remote Help, Advanced Analytics, Intune Plan 2). E5 adds Security Copilot and Cloud PKI.

The piece most relevant to this article: every Business and Enterprise plan now includes upgraded Copilot Chat, with inbox and calendar awareness and access to agents in Word, Excel, and PowerPoint, plus Copilot Chat Analytics so IT can finally see who is actually using it. In plain terms, the free tier of Microsoft's AI just got materially better. Drafting an email with awareness of the thread, summarising a document, asking questions of a spreadsheet — a real share of the everyday work people were buying full Copilot licences for is now included in the licence you already pay for.

That should change your default position. Before July, the Copilot question was "is it worth £30 a month per user?" After July, the first question is "what does full Copilot do for this specific person that the included Copilot Chat now doesn't?" For a meaningful slice of most SME workforces, the honest answer is: not £360 a year's worth.

The new Copilot bundles

Alongside the increases, Microsoft made its SMB Copilot bundles permanent. From 1 July 2026, Microsoft 365 Business Standard with Copilot and Business Premium with Copilot are standard price-list SKUs at $23.50 and $32 per user per month respectively (USD list, annual billing, 1–300 seats). A standalone Copilot Business add-on for smaller organisations launched at a promotional $18 per user per month on annual terms through 30 September 2026, rising to $21 thereafter.

Do the arithmetic before you dismiss or embrace these. Business Premium with Copilot at $32 versus Business Premium at $22 plus the classic $30 Copilot add-on is a significant saving if the user genuinely needs full Copilot. If they don't, $22 with the newly upgraded free Copilot Chat wins. The bundle prices the step-up attractively precisely because Microsoft wants Copilot attached to every seat by default. Your job is to make it a per-role decision, not a tenant-wide one — the same criteria-led approach we set out in Copilot vs custom AI.

Five things to do before your renewal

1. Find your renewal date this week. It's in the Microsoft 365 admin centre under Billing → Your products. Everything else in this list is sequenced from that date. If you renew via a CSP partner, ask them what your locked pricing is and when it expires.
2. Audit seats before you renew, not after. Price increases are the cheapest possible prompt to remove leavers' licences, downgrade over-provisioned users, and kill duplicate add-ons. A 10–15% seat reduction routinely cancels out the entire increase.
3. Re-examine Business Premium. With Standard up 12% and Premium flat, the gap between them narrowed. If you're on Standard plus any third-party endpoint management or email security tooling, Premium may now be cheaper than your current stack combined — and it consolidates your security into one place.
4. Trial the included Copilot Chat before buying full Copilot. Give it 30 days and use the new Copilot Chat Analytics to see who actually uses AI daily. Buy full Copilot licences (or the bundles) for that cohort only. Usage data beats job titles every time.
5. Separate assistance from automation in your budget. Copilot is per-seat assistance. If your biggest time drain is a high-volume, repeatable workflow — inbound email triage, document processing, quote generation — per-seat AI won't fix it at any price. That's a workflow automation problem, and it's usually a custom build with different economics: engineering cost up front, inference costs in the tens-of-pounds per month, and no per-user meter running.

Where this leaves the Copilot vs custom question

The July changes sharpen a distinction we've been making all year. Microsoft has now effectively created three tiers: included AI (Copilot Chat, free with every plan and newly capable), per-seat AI (full Copilot at £30 or the discounted bundles), and everything the Microsoft 365 surface doesn't cover — which is where bespoke AI solutions built on APIs like Claude live. The included tier handles casual drafting and summarising. The paid tier earns its keep for genuinely heavy users working inside Office all day with tenant data. The custom tier is for the workflows where the value is measured in reclaimed staff-hours against a defined accuracy target, not in per-user convenience — the shape we covered in our Claude API buyer's guide.

The mistake to avoid in 2026 is paying the per-seat price for a workflow problem, or expecting the free tier to do a heavy user's job. Match the tier to the work, licence by role, and put the money the seat audit saves you towards the workflow that actually eats your team's week.

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