Content accurate as of 26 March 2025.
- Increased costs for many employers from April 2025 through both the increases in the national minimum wage and significant reforms to employers’ national insurance contributions.
- Changes to capital gains tax rates in relation to some business disposals from both April 2025 and April 2026.
- A change in approach for businesses utilising double-cab pick-up vehicles, coming into effect in April 2025.
- Changes in penalties being introduced by Companies House and a new identity verification system being put in place.
- Making Tax Digital for Income Tax will go ahead from April 2026 for all those whose sole trader and rental income (sales not profits) exceeds £50,000.
Below, we talk more about what these changes may mean to you:
INCOME TAX
Please note that ‘tax years’ run to 5 April each year and that, for example, 2025/26 signifies the year to 5 April 2026.
Your personal allowance
Your tax-free personal allowance will remain at £12,570 in 2025/26. The personal allowance is partially withdrawn if your income is over £100,000 and then fully withdrawn if your income is over £125,140.
Income tax rates and allowances
For 2025/26, income tax rates and thresholds remain frozen at their 2024/25 levels.
After your tax-free ‘personal allowance’ has been deducted, your remaining income will be taxed in bands in 2025/26 as follows:
| 2025/26 | ||||
| ‘Other income’ | Savings income | Dividend income | ||
| Basic rate | £1 – £37,700 | 20% | 20% | 8.75% |
| Higher rate | £37,701 – £125,140 | 40% | 40% | 33.75% |
| Additional rate | Over £125,140 | 45% | 45% | 39.35% |
‘Other income’ means income other than from savings or dividends. This includes salaries, bonuses, profits made by a sole trader or a partner in a business, rental income, pension income and anything else that is not exempt.
Scottish taxpayers
If your main residence is in Scotland or you are otherwise classed as a ‘Scottish taxpayer’, the application of income tax rates and bands applies differently where ‘other income’ is concerned. After the ‘personal allowance’ has been deducted, your ‘other income’ is taxed in bands as follows:
| 2025/26 | ||
| Starter rate | £1 – £2,827 | 19% |
| Basic rate | £2,828 – £14,921 | 20% |
| Intermediate rate | £14,992 – £31,092 | 21% |
| Higher rate | £31,093 – £62,430 | 42% |
| Advanced rate | £62,431 – £125,140 | 45% |
| Top rate | Over £125,140 | 48% |
Welsh taxpayers
Similarly, you pay Welsh income tax if you live in Wales. The rates set by the Welsh government usually shadow the main UK income tax rates and allowances and this is still the case for 2025/26.
Tax on savings income
A savings allowance determines how much savings income you can receive at 0% taxation, instead of the usual tax rates for savings income as shown above. This will remain at the 2024/25 level of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
Interest income from an Individual Savings Account (ISA) continues to be exempt from tax.
Tax on dividend income
A dividend allowance determines how much dividend income you can receive at 0% taxation, instead of the usual tax rates for dividend income as shown above. This will remain at the 2024/25 level of £500.
Dividend income from a ‘stocks and shares’ ISA continues to be exempt from tax.
The High-Income Child Benefit charge (HICBC)
You may have to pay the HICBC if you are considered to have ‘high income’ and child benefit is being paid in relation to a child that lives with you, regardless of whether you are a parent of that child. If you are living with another person in a marriage, civil-partnership or long-term relationship, you will only be liable to HICBC if you have the higher income of the two of you.
Since 2024/25 the child benefit ‘high-income’ threshold is £60,000. The HICBC is calculated at 1% of the child benefit received for every £200 of income above the threshold. This means that child benefit is only fully clawed back where income exceeds £80,000. These limits remain the same for 2025/26.
The HICBC does not apply if the child benefit claimant opts out from receiving the payments.
CAPITAL GAINS TAX
The rate of CGT on BADR qualifying disposals is increasing from 10% to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. These rates apply to the first £1 million of qualifying disposals.
NATIONAL LIVING WAGE (NLW) AND NATIONAL MINIMUM WAGE (NMW)
Employers must pay their employees at least the NLW, for workers aged 21 and over, or the NMW otherwise. The minimum hourly rates change on 1 April each year and depend on the worker’s age and if they are an apprentice.
| 1 April 2025 – 31 March 2026 | 1 April 2024 – 31 March 2025 | |
| NLW – age 21 and over | £12.21 | £11.44 |
| NMW – 18-20 year old | £10.00 | £8.60 |
| NMW – 16-17 year old and apprentice | £7.55 | £6.40 |
The percentage increases for the 18-20 year old rate (16.3%) and the 16-17 year old and apprentice rate (18.0%) are significant. This is a step towards Labour’s ambitions for all adults to receive the same minimum wage. While this is good news for workers, employers will need to carefully consider affordability when planning their headcount for the year ahead.
EMPLOYMENT TAXES
For employees
The national insurance contributions (NICs) rates and annual thresholds for employees for 2025/26 are as follows:
| Employees’ Class 1 NICs | 2025/26 | 2024/25 |
| Lower earnings limit (LEL) | £6,500 | £6,396 |
| Primary threshold (PT) | £12,570 | £12,570 |
| Upper earnings limit (UEL) | £50,270 | £50,270 |
| Earnings between the LEL and the PT | 0% | 0% |
| Earnings between the PT and the UEL | 8% | 8% |
| Earnings above the UEL | 2% | 2% |
Earnings below the LEL are not subject to primary Class 1 NICs and do not accrue entitlement to state benefits. Earnings between the LEL and the PT do accrue entitlement to state benefits and are subject to primary Class 1 NICs, albeit at the 0% rate.
For employers
The Chancellor announced a package of changes to employers’ Class 1 NICs that will apply from 6 April 2025:
- An increase in the employers’ NICs rate, from 13.8% to 15%;
- A decrease to the threshold at which an employer starts to pay NICs on each employee’s salary (the ‘secondary threshold’) from £9,100 to £5,000*; and
- A widening of availability and an increase in the amount of the ‘employment allowance’, which eligible employers can offset against their employers’ Class 1 NICs liability, from £5,000 to £10,500. In particular, the employment allowance has only been available to businesses who have incurred an employers’ Class 1 NICs liability of less than £100,000 in the previous tax year but that restriction will be removed for 2025/26.
* A higher secondary threshold of £50,270 applies for employees who are under 21 and apprentices under 25. Other variations can also apply.
This increase in employers’ NICs is undoubtedly a blow to some businesses and, indirectly, employees. Combined with the increases in the NMW and potential costs associated with reforms in employment law, these measures will stretch employer wage budgets and potentially lead to slower growth in some employee wages or higher costs for consumers.
Directors’ salary for 2025/26
For the majority of directors, the salary will remain at £1,047.50/month (£12,570/annum), as the Employment allowance will absorb any additional Employers NI liability.
However, if a company is not entitled to the employment allowance then you may need to consider whether you should reduce your salary to lessen the impact of the Employers NI changes.
If your company is profitable, it generally* remains tax-efficient to pay a salary of £12,570 per annum, even if the sole director/employee on the payroll, though the tax savings have been significantly reduced. This is because the corporation tax savings (19%/25%) still outweigh the Employers’ NI charge (15%). However, be aware that there will be a PAYE liability payable during the 2025/26 tax year.
If you are not entitled to the employment allowance, and your company is loss making, it may be more tax efficient to reduce the salary the company is paying you. It is important to note that if you do take a lower salary, paying £6,500 per annum will qualify for a full year’s state pension. However, please note that this will incur a small Employers’ NI charge of £225.
*There are several other factors than can impact the most tax efficient level of your salary, such as income outside of the company and state pension qualifying years etc.
If you have any questions regarding your specific circumstances, please do not hesitate to get in contact with us.
Benefits in kind
Employees are required to pay income tax on certain non-cash benefits. For example, the provision of a company car constitutes a taxable ‘benefit in kind’. In 2025/26, employers will also pay Class 1A NIC at 15% on the value of benefits (13.8% in 2024/25).
The benefit value of a company car is calculated as a percentage of its list price when it was first registered. The percentage used is determined by the car’s carbon dioxide emissions or, if it is electric, its electric range. The percentages used are set to increase steadily until 5 April 2028, meaning employees with company cars can expect their percentage to increase by 1% in 2025/26 and consequently will pay more tax on their company car. More substantial increases will affect the percentages used from 2028/29 onwards.
The figures used to calculate benefits-in-kind on employer-provided vans, van fuel (for private journeys in company vans), and car fuel (for private journeys in company cars) increase in line with inflation for 2025/26:
| 2025/26 | 2024/25 | |
| Van benefit | £4,020 | £3,960 |
| Van fuel benefit | £769 | £757 |
| Car fuel benefit multiplier | £28,200 | £27,800 |
Uncertainty surrounding the tax treatment of double cab pick-up vehicles with a payload of 1 tonne or more has been addressed: such vehicles that are not predominantly suitable for carrying goods are to be treated as cars for benefit in kind purposes. However, vehicles that were acquired or ordered before 6 April 2025 can be treated as vans until the earlier of disposal, lease expiry, or 5 April 2029.
Tip – If you are considering buying a double cab pick-up vehicle with a payload of 1 tonne or more, acquiring or ordering it before 6 April 2025 could ensure it attracts the more beneficial tax treatment for vans.
The official rate of interest (currently 2.25%) used to calculate the benefit value of employment-related loans and living accommodation will, from April 2025, be allowed to change on a quarterly basis. Previously the rate has been set for a full tax year.
From 6 April 2026, the use of payroll software to report and pay tax on benefits in kind will become mandatory, except in relation to employer-provided loans and living accommodation. These two benefits can be ‘payrolled’ on a voluntary basis.
BUSINESS TAX
Motor vehicles
Continuing the topic seen above on double cab pick-up vehicles, a similar change in approach applies in relation to plant and machinery capital allowances claims. From April 2025, most double cab pick-up vehicles with a payload of 1 tonne or more will need to be treated as cars for capital allowances purposes. This is less favourable than the current common classification as a goods vehicle. While the change applies from April 2025, if the expenditure was incurred as a result of a contract entered into before 1 April 2025 for companies, or 6 April 2025 for non-corporate businesses, and the expenditure is incurred before 1 October 2025, it can continue to be treated as a goods vehicle.
Also on motor vehicles, it was confirmed in the budget that the 100% first-year allowance for zero-emission cars will be extended until 31 March 2026 for corporation tax and 5 April 2026 for income tax.
Making Tax Digital (MTD) for Income Tax
Under the government’s MTD for income tax initiative, businesses will be required to keep digital records and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. These requirements will be phased in from April 2026, starting with income tax-paying sole traders and property landlords with combined trade and rental income of more than £50,000.
This threshold will be reduced to £30,000 from April 2027 and to £20,000 by the end of this parliament.
Eligible businesses are currently able to opt-in to HMRC’s beta testing programme.
Electronic invoicing
In Spring 2025, the government will launch a consultation about electronic invoicing (e-invoicing) to gather input from businesses on how HMRC can support investment in e-invoicing and encourage uptake within the business community. As part of the government’s digitisation strategy, e-invoicing is likely to be mandatory in future.
Business rates
For 2025/26, retail, hospitality and leisure (RHL) businesses will be given a 40% relief on their business rates. The small business tax multiplier, which applies to properties with a rateable value of less than £51,000, will also be frozen next year.
The government is looking at longer-term measures to support RHL businesses and intends to permanently lower tax rates from 2026/27 for RHL properties with a rateable value below £500,000.
NATIONAL INSURANCE FOR THE SELF-EMPLOYED
Self-employed individuals pay Class 2 and Class 4 National Insurance Contributions (NICs). The relevant rates and thresholds are:
| 2025/26 | 2024/25 | |
| Class 2 NICs per year – mandatory* | £nil | £nil |
| Class 2 NICs per year – voluntary* | £182.00 | £179.40 |
| Small profits threshold (SPT) | £6,845 | £6,725 |
| Lower profits limit (LPL) | £12,570 | £12,570 |
| Upper profits limit (UPL) | £50,270 | £50,270 |
| Class 4 NICs on profits below the LPL | 0% | 0% |
| Class 4 NICs on profits between the LPL and the UPL | 6% | 6% |
| Class 4 rate on profits above the UPL | 2% | 2% |
* From 2024/25 onwards, Class 2 NICs are effectively abolished. If trade profits exceed the SPT, the individual will accrue entitlement to state benefits such as the state pension. However, if trade profits fall below the SPT, the individual will need to pay Class 2 NICs voluntarily if they need the tax year to qualify for state benefit purposes.
TAX REGIME FOR FURNISHED HOLIDAY LETS
If you rent out residential or commercial property, the profits are taxed as part of your ‘other income’. If you sell property that has been rented out, Capital Gains tax is likely to apply. Generally, rental business activity attracts fewer tax reliefs than trading ventures. However, if a residential property meets the strict definition of a ‘furnished holiday let’ (FHL), enhanced tax relief rules are currently available.
It has been confirmed that, from 6 April 2025, the special tax rules for FHLs will be abolished. Going forward, profits from FHLs will be taxed in the same way as any other rental business.
These are the main impacts of this change:
- Interest Deduction: Interest on loans for FHL businesses will no longer be fully deductible. Instead, individual owners will receive a 20% tax credit, reducing tax relief for higher-rate taxpayers.
- Capital Gains Tax (CGT): Capital gains on FHL disposals will shift from a business asset rate of 10% to investment rates (18% or 24%) after April 2025.
- Rollover Relief: CGT rollover relief will be limited. Only forced disposals under compulsory purchase orders will qualify after April 2025.
- Capital Allowances: Eligibility for capital allowances on FHL property improvements will end. Existing allowances will carry forward, but property owners may consider capital improvements before the cut-off.
- Pension Contribution Tax Relief: FHL profits will no longer count as “relevant earnings” for pension tax relief, affecting some owners’ ability to maximize their contributions.
Options for FHL owners include selling or gifting the property before April 2025, restructuring into a company, or retaining the property as a rental asset under the new rules. Each option has tax implications, so please contact us for individual advice.
CORPORATE TAXES
Rates from 1 April 2025
Corporation tax rates and thresholds for the financial year to 31 March 2026 remain unchanged as follows:
| Financial year to 31 March 2026 | |
| Main rate | 25% |
| Small profits rate | 19% |
| Small profit threshold | £50,000 |
| Main rate threshold | £250,000 |
| Marginal relief fraction | 3/200 |
| Effective marginal relief rate | 26.5% |
The thresholds must be equally shared between companies in a group and those controlled by the same person or persons. If an associated company is dormant, then it is not included in this calculation. However, an associated company with only limited activity would be included, which could lead to higher than necessary effective rates of corporation tax. If you are in this situation speak to us about how you might be able to mitigate this.
Companies with profits between the small profit and main rate thresholds will qualify for marginal relief, which effectively means they pay tax at 19% up to the lower threshold and at 26.5% on the balance of their profits.
Annual Tax on Enveloped Dwellings (ATED)
Companies and some other entities may need to file ATED returns or pay ATED if they hold a UK residential property with a market value over £500,000. The rates of ATED will increase from 1 April 2025
| Annual charge | Annual charge | |
| Property value | 01/4/2025 to 31/03/2026 | 01/04/2024 to 31/03/2025 |
| More than £500,000 up to £1 million | £4,450 | £4,400 |
| More than £1 million up to £2 million | £9,150 | £9,000 |
| More than £2 million up to £5 million | £31,050 | £30,550 |
| More than £5 million up to £10 million | £72,700 | £71,500 |
| More than £10 million up to £20 million | £145,950 | £143,550 |
| More than £20 million | £292,350 | £287,500 |
UK RESIDENCY AND DOMICILE
Significant tax changes have been announced for UK resident non-domiciled individuals; namely those individuals spending most of their time in the UK but without permanently settling here. The concept of ‘domicile’ will be removed from the UK tax system and replaced by a regime based on years of tax residence.
Income and capital gains taxes
At present, individuals who are both resident and domiciled in the UK must pay UK taxes on their worldwide income and capital gains. However, for UK resident non-domiciled individuals, they are able to claim a ‘remittance basis’ of taxation for their overseas income and capital gains and only pay UK taxes to the extent they remit (bring) the associated funds to the UK. To access this favourable tax treatment, non-domiciled individuals may be required to pay an annual ‘remittance basis charge’ of up to £60,000.
The concept of domicile and the remittance basis of taxation will be abolished from 6 April 2025, meaning all UK residents will default to being taxed in the UK on their worldwide income and gains. However, a 100% relief from tax on foreign income and/or capital gains will be available to individuals in their first 4 years of UK tax residence. It should be noted that if a ‘newly arrived’ individual claims this relief, they will sacrifice their UK personal allowance and CGT annual exemption, along with their ability to claim relief for some foreign losses.
From April 2025, for employed individuals eligible for the 100% relief from UK taxation on their foreign income and/or capital gains, an ‘overseas workday relief’ will remain available in relation to their duties performed overseas. Reforms to the regime will however take place, bringing increased flexibility for some but also a new maximum cap on the relief equal to the lower of £300,000 and 30% of total employment income.
ECONOMIC CRIME AND CORPORATE TRANSPARENCY (ECCT) ACT 2024 (UPDATES)
New Financial penalties introduced by Companies House
You may now receive a financial penalty if you do not comply with your legal obligations – for example, not filing your confirmation statement on time.
Companies House will introduce more financial penalties for non-compliance as and when new measures come into force. For more information see here
Identity Verification
Anyone setting up, running, owning or controlling a company in the UK will soon need to verify their identity to prove they are who they claim to be.
To get ready for identity verification, it’s important to make sure Companies House hold the correct details for each officer and person with significant control (PSC) of your company.
In the future, identity verification will become compulsory. At this point, if any directors do not comply with identity verification requirements on time, they will be committing an offence and will not be able to make any filings for their company. Companies House will introduce a range of consequences, including a financial penalty and being unable to start a new company.
Disclaimer:. The authors take great care in the production of this newsletter, but it is not exhaustive and should not be read as a full fiscal summary. The content displayed is correct as of 26 March 2025. We cannot take responsibility for any action taken or not taken from this document alone. Please contact us for personalised advice.
