New Year, New UK Tax Changes. The new year always brings changes that businesses and individuals need to prepare for.
As the 2025/26 tax year approaches, it’s essential to stay informed about updates to income tax rates, National Insurance Contributions, and more.
These 2025 tax changes could significantly impact your finances, so now is the perfect time to understand what’s coming and plan accordingly.
This blog will cover everything you need to know about the 2025/26 tax changes, breaking them down into manageable sections and offering practical tips to help you stay ahead.
- Income Tax: What’s Staying the Same?
While there are no major shifts in income tax rates, the 2025 tax changes include a continued freeze on personal allowances and tax thresholds.
Key Income Tax Details for 2025/26:
- Personal Allowance: £12,570 (the amount you can earn before paying tax) remains unchanged.
- Higher Rate Threshold: Stays at £50,270, meaning income above this is taxed at 40%.
- Additional Rate Threshold: Unchanged at £125,140, with income above this taxed at 45%.
Although these rates haven’t increased, the ongoing freeze means more people may find themselves paying higher rates due to wage growth, a phenomenon known as “fiscal drag.” Keeping an eye on your earnings and considering tax planning strategies is necessary.
- National Insurance Contributions: Key Adjustments for Employers
One of the most significant 2025 tax changes involves National Insurance Contributions (NICs), which will see increases that could impact both employers and employees.
NICs Updates:
- Employer NICs Rate: Rising from 13.8% to 15% from April 2025.
- Secondary Threshold: Lowering from £9,100 to £5,000, meaning employers will pay NICs on more employee earnings.
- Employment Allowance: Increasing from £5,000 to £10,500, providing relief for smaller businesses.
Employers should plan for higher costs per employee and consider how this will affect budgets and hiring decisions.
- Capital Gains Tax: Lower Allowances Ahead
For those selling assets like property or investments, changes to Capital Gains Tax (CGT) will affect how much tax you pay.
What’s Changing?
- Annual Exemption for Individuals: Reduced from £6,000 to £3,000.
- Trustees’ Exemption: Dropping from £3,000 to £1,500.
Current CGT Rates:
- Basic Rate Taxpayers: 10% (18% for residential property).
- Higher/Additional Rate Taxpayers: 20% (28% for residential property).
With smaller exemptions, more people will now pay CGT on gains. If you’re planning to sell assets, seeking advice on timing and tax relief options is highly recommended.
- Dividend Allowance and Corporation Tax: What to Expect
If you’re a shareholder or company director, 2025 tax changes to dividend allowances and corporation tax may affect your bottom line.
Dividend Allowance:
- The tax-free dividend allowance will remain at £500.
- Dividends above this threshold will continue to be taxed at:
- Basic Rate: 8.75%
- Higher Rate: 33.75%
- Additional Rate: 39.35%
Corporation Tax:
- Small Profits Rate: 19% (for profits up to £50,000).
- Main Rate: 25% (for profits above £250,000).
- Marginal Relief: Applies for profits between £50,000 and £250,000, creating a gradual increase in the effective tax rate.
Understanding these changes can help you better plan how you distribute profits and manage cash flow within your business.
- National Minimum and Living Wage: Increased Obligations for Employers
Starting in April 2025, employers will need to adjust pay rates to comply with higher National Minimum and Living Wage requirements.
New Rates:
- National Living Wage (Aged 21 and Over): £12.21 per hour (up 6.7%).
- National Minimum Wage (Aged 18-20): £10.00 per hour.
Ensuring your payroll system reflects these changes is essential to avoid non-compliance penalties.
- Vehicle Excise Duty and Green Initiatives
Environmental considerations are also influencing 2025 tax changes, particularly in the area of vehicle taxation.
Key Updates:
- Vehicle Excise Duty (VED): Doubling for high-emission vehicles, with first-year rates reaching up to £5,490.
- Incentives for electric vehicles remain a priority, encouraging businesses to adopt eco-friendly fleets.
If your business relies on company vehicles, exploring electric or hybrid options could reduce your tax liabilities while contributing to sustainability goals.
- Important Deadlines for the 2025/26 Tax Year
Staying organised is crucial to ensure compliance with the new tax rules. Here are the key dates to keep in mind:
- 6 April 2025: Start of the new tax year.
- 31 January 2026: Deadline for online submission of 2024/25 Self-Assessment tax returns and payment of any tax owed.
- 5 April 2026: End of the 2025/26 tax year.
Mark these dates in your calendar and prepare early to avoid last-minute stress or penalties.
How to Prepare for the 2025 Tax Changes
With proactive planning, you can minimise the impact on your finances. Here’s how to get started:
- Review Your Finances: Assess how the changes will affect your income, business costs, and tax liabilities.
- Plan for NICs Increases: Budget for higher employer contributions and evaluate workforce costs.
- Explore Tax Reliefs: Investigate options like the Employment Allowance or timing asset sales to optimise tax savings.
- Work with an Accountant: Professional guidance can ensure you’re compliant while taking advantage of every opportunity to save.
If you’re feeling uncertain about how these changes might affect you, we’re here to help. At Keirstone, we specialise in providing expert advice tailored to small businesses and individuals navigating the ever-changing tax landscape.
Schedule a free consultation today, and let’s ensure you’re fully prepared for the 2025/26 tax year and beyond.