What are the key changes in the tax year 2025/26?
The 2025/26 tax year introduces important changes that could affect your business, freelance income, or rental earnings. If you’re not prepared, you might miss out on valuable reliefs or struggle with new compliance rules.
With updates to tax rates, allowances, and reporting requirements, now is the time to get ahead. Understanding these changes early will help you avoid unexpected costs, stay compliant, and make informed financial decisions. In this blog, we’ll break down the key tax updates coming into effect from 6 April 2025 (with some starting from 1 April 2025) and how you can navigate them smoothly.
Table of Contents
- What does the higher employment allowance mean for small businesses?
- Where does extended support for Retail, Hospitality & Leisure apply?
- How have statutory pay and employer relief been updated?
- When is the minimum wage going up, and by how much?
- What other National Insurance changes should employers know?
- Which capital gains tax changes impact businesses?
- Rise in employers’ National Insurance contributions
- What additional measures take effect in the new tax year?
- Why do you need an accountant to navigate these tax changes?
- Conclusion
What does the higher employment allowance mean for small businesses?
Rising costs are a major challenge for small businesses, but there’s good news—the Employment Allowance is increasing to £10,500 per year from 6 April 2025. This goes some way to offsetting the National Insurance increase and means you can reduce your National Insurance bill even further, freeing up cash for other business needs.
Even better, the £100,000 eligibility threshold is being removed, making more businesses eligible for this relief. Over 865,000 small businesses won’t have to pay NICs at all in 2025/26. If your business qualifies, claiming early ensures you benefit as soon as possible.
Where does extended support for Retail, Hospitality & Leisure apply?
High business rates can put pressure on retail, hospitality, and leisure businesses, but there’s some relief—the government is extending the RHL Business Rates Relief scheme into 2025/26, providing over £1.5 billion in support.
If your business operates in these sectors, you can continue to receive a 40% reduction in business rates, capped at £110,000 per business. While the standard multiplier will rise to 55.5p, the small business multiplier will stay at 49.9p. This extension provides financial relief until permanent tax cuts are introduced in 2026/27.
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How have statutory pay and employer relief been updated?
From 6 April 2025, statutory parental pay increased to £187.18 per week, the same as the minimum wage increase. This applies to various statutory payments, including:
- Statutory Maternity and Paternity Pay (SMP/SPP)
- Shared Parental Pay (ShPP)
- Statutory Neonatal Care Pay (SNCP)
- Statutory Adoption Pay (SAP)
- Statutory Parental Bereavement Pay (SPBP)
Starting 6th April, Statutory Sick Pay (SSP) will also rise to £118.75 per week. However, Small Employers’ Relief does not cover SSP.
The small employer relief rate will increase substantially from the current 103% (comprising 100% repayment plus 3% compensation) to 108.5% (100% repayment plus 8.5% compensation).
This enhanced rate means eligible small businesses can now reclaim the full 100% of statutory payments made, plus an additional 8.5% compensation from HMRC.
Larger employers will continue to be able to reclaim 92% of statutory payments as per current arrangements.
When is the minimum wage going up, and by how much?
Keeping up with wage increases is essential for budgeting and ensuring compliance with employment laws. From 1 April 2025, the National Living Wage increased to £12.21 per hour for employees aged 21 and over, which means higher wage costs for businesses.
At the same time, the National Minimum Wage will increase to:
- £10 per hour for employees aged 18-20
- £7.55 per hour for those under 18
- £7.55 per hour for apprentices
Planning for these changes will help businesses manage expenses while continuing to support their workforce.
What other National Insurance changes should employers know?
Staying on top of National Insurance changes is crucial for both employers and self-employed individuals. From 6 April 2025, key thresholds increased, affecting how much you or your employees contribute.
The Lower Earnings Limit (LEL) will rise to £6,500 per year, setting the minimum earnings needed before National Insurance contributions (NICs) apply. Meanwhile, the Small Profits Threshold (SPT) will increase to £6,845 per year, thus increasing the point at which self-employed individuals’ receive National Insurance credits without paying contributions.
For those making voluntary contributions, rates are also increasing:
- Class 2 NICs will be £3.50 per week for self-employed earning under the LEL
- Class 3 NICs will rise to £17.75 per week.
Additionally, businesses hiring veterans can continue benefiting from employer NI relief, which has been extended until 5 April 2026. This allows employers to avoid paying NICs on a veteran’s first year of civilian employment, up to an annual salary of £50,270.
Which capital gains tax changes impact businesses?
Rising Capital Gains Tax rates could impact the profits you keep when selling business assets. From 6 April 2025, the tax rate for Business Asset Disposal Relief (BADR) and Investors’ Relief (IR) will increase from 10% to 14%, and by 6 April 2026, it will rise further to 18%.
If you’re planning to sell business assets, these changes may lead to higher tax costs. To minimise the impact, reviewing your disposal plans and considering the best timing for any sales could help you retain more of your gains.
Rise in employers’ National Insurance contributions
Rising employer National Insurance costs could put extra strain on business finances. From 6 April 2025, the contribution rate increased from 13.8% to 15%, while the secondary threshold—the point where employers start paying NICs—will drop from £9,100 to £5,000 per year.
These changes mean many businesses will face higher employment costs, impacting cash flow and profitability. Planning ahead and reviewing staffing budgets can help manage the increased financial burden.
What additional measures take effect in the new tax year?
There are some additional key tax changes coming that could affect your business and finances. Understanding them now can help you adjust your plans and avoid unexpected costs. Some of them are:
Making tax digital for income tax (MTD for ITSA)
From 6 April 2025, sole traders and self-employed individuals can voluntarily begin using the new digital reporting system before it becomes mandatory in April 2026 for those earning £50,000 or more per year. Getting familiar with the process early can help ease the transition.
Tax Changes for Furnished Holiday Lettings
The special tax status for Furnished Holiday Lettings (FHLs) has been removed. From April 2025, these properties will be taxed under the same rules as other UK and overseas rental properties. This change will impact individuals, companies, and trusts that own, manage, or sell FHL properties. Reviewing your rental strategy now can help you prepare for the shift.
Why do you need an accountant to navigate these tax changes?
With so many tax updates coming into effect, managing compliance and financial planning can become overwhelming. An accountant can help you learn how these changes impact your business, optimise tax relief opportunities, and ensure you meet all reporting requirements. Whether you’re a small business owner, self-employed, or a landlord, professional guidance can save you time, money, and unnecessary stress.
Conclusion
The 2025/26 tax year brings many changes. National Insurance is increasing, minimum wages are going up, and new tax rules will apply to businesses and individuals. Keeping yourself informed will help you stay prepared and plan ahead effectively.
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