With the new tax year on the horizon, it’s essential for businesses to stay up to date with any changes that may impact payroll, tax contributions, and financial planning.
Understanding what the updates will mean for you and employees will make it that much easier to prepare for any potential adjustments. It’ll also give you greater peace of mind as you manage your financial affairs.
So, in this article, we’ll outline the key tax year changes for 2025/26, including updates to National Insurance Contributions (NICs), VAT, income tax allowances, and more.
Please note that this article is intended as general information, and we always recommend consulting your accountant or financial advisor for tailored tax, financial and financial management advice.
Headline changes as announced by the government
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Employer’s National Insurance Contributions (NICs) rate will increase to 15% from April 2025.
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Secondary Threshold for employer NICs will decrease from £9,100 to £5,000.
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Employment Allowance will increase from £5,000 to £10,500, with the £100,000 eligibility threshold removed.
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Statutory Sick Pay (SSP) will increase from £116.75 to £118.75 per week.
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National Living Wage (NLW) will rise to £12.21 per hour for those aged 21 and over.
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Capital Gains Tax for Business Asset Disposal Relief will increase from 10% to 14%.
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Full new State Pension will rise to £230.25 per week.
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Furnished Holiday Lettings (FHL) tax regime will be abolished.
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Business rates relief for retail, hospitality, and leisure properties will be extended with 40% relief.
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Dividend allowance will remain unchanged at £500.
Sources: GOV.uk Rates and thresholds for employers 2025 to 2026 and Autumn Budget.
National Insurance Contributions (NICs)
National Insurance Contributions (NICs) rates and thresholds can directly impact both your business costs and employees’ take-home pay. Class 1 NICs are the most relevant, as they cover employees and employers, with contributions deducted from salaries and additional payments made by businesses.
For the 2025-26 tax year, the rate of employer’s National Insurance Contributions (NICs) will rise by 1.2%, bringing it to 15%. This increase means businesses will face higher costs when it comes to employee contributions.
Additionally, the Employer’s NI Secondary Threshold will decrease from £9,100 to £5,000. This change, alongside the rate increase, means a higher NI burden for many businesses, as employers will begin paying contributions on lower earnings.
NICs thresholds for the 2025–2026 tax year
The following table outlines the NICs thresholds for the 2025–2026 tax year:
|
Threshold Type |
Weekly |
Monthly |
Annual |
|
Lower Earnings Limit (LEL) |
£125 |
£542 |
£6,500 |
|
Primary Threshold (Employee) |
£242 |
£1,048 |
£12,570 |
|
Secondary Threshold (Employer) |
£96 |
£417 |
£5,000 |
|
Upper Earnings Limit (UEL) |
£967 |
£4,189 |
£50,270 |
The Primary Threshold determines when employees start paying NICs, while the Secondary Threshold applies to employers. The Upper Earnings Limit (UEL) caps the primary contribution rate before it reduces.
This structure applies across England, Wales, and Northern Ireland. Scotland follows the same NICs structure as the rest of the UK, with the same Primary and Secondary thresholds, but different income tax rates apply.
VAT
There are some noteworthy changes to VAT regulation that may affect you in the 2025-26 tax year.
Starting 1 January 2025, private schools will need to pay VAT on supplies of private education, boarding fees, and vocational training. However, the VAT exemption remains for welfare, nursery classes, higher education, and English language teaching.
Meanwhile, live streaming and online courses for EU non-VAT registered consumers will be taxed based on the consumer’s location, rather than the suppliers. UK and other non-EU businesses will need to use the One Stop Shop (OSS) to report VAT across all EU member states.
There’s no change for B2B supplies on live streaming and online courses, where VAT will still be due where the business customer is based.
Additionally, UK businesses face the risk of double taxation or no taxation on supplies to the EU or UK consumers. UK businesses should review their VAT arrangements to determine whether the OSS or VAT registration is required.
Finally, the ‘Green Lane’ and B2C parcel arrangements for goods moving from Great Britain to Northern Ireland will be fully implemented from 31 March 2025, under the Windsor Framework.
Income tax personal allowance
For the 2025-2026 tax year, the personal income tax allowance is £12,570 across England, Wales, and Northern Ireland, meaning you can earn up to this amount before paying income tax. However, tax rates differ by region.
In England and Wales, the income tax bands are straightforward:
|
Income Tax Band |
Taxable Income Threshold |
Income Tax Rate |
|
Personal Allowance |
Up to £12,570 |
0% |
|
Basic Rate |
£12,571 to £50,270 |
20% |
|
Higher Rate |
£50,271 to £150,000 |
40% |
|
Additional Rate |
Over £150,000 |
45% |
In Scotland, the income tax system is more complex, with rates ranging from 19% to 48%. The Scottish tax bands for the 2025-26 tax year are:
|
Income Tax Band |
Taxable Income Threshold |
Income Tax Rate |
|
Personal Allowance |
Up to £12,570 |
0% |
|
Starter Rate |
£12,571 to £14,876 |
19% |
|
Basic Rate |
£14,877 to £26,561 |
20% |
|
Intermediate Rate |
£26,562 to £43,662 |
21% |
|
Higher Rate |
£43,663 to £75,000 |
42% |
|
Advanced Rate |
£75,001 to £125,140 |
45% |
|
Top Rate |
Over £125,140 |
48% |
Scottish residents pay Scottish Income Tax on wages, self-employed earnings, and most forms of taxable income, while dividend income and savings interest are taxed under UK-wide rules.
ISAs
For the 2025/26 tax year, the ISA allowance remains at £20,000, which allows individuals to contribute up to this amount across various types of ISAs, such as cash ISAs, stocks and shares ISAs. Any returns from these investments, including income and capital gains, are free from tax.
If you don’t use the full £20,000 allowance within the tax year, it cannot be carried over to the next year, so it’s essential to make the most of this limit.
The annual capital gains tax allowance remains at £3,000, so holding investments in an ISA ensures you won’t be affected by capital gains tax or income tax.
National Minimum Wage
From 1 April 2025, the National Living Wage (NLW) and National Minimum Wage (NMW) rates will increase in line with recommendations from the Low Pay Commission. Employers must ensure that all eligible employees receive the updated hourly rates from this date.
The updated rates are as follows:
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National Living Wage (for those aged 21 and over): £12.21 per hour
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18-20 year olds: £10.00 per hour
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16-17 year olds: £7.55 per hour
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Apprentice rate: £7.55 per hour
Employers should review their payroll to ensure compliance with these new rates and ensure that all workers aged 16 and over are paid at least the applicable minimum wage for their age group.
Dividends
For the 2025-26 tax year, the dividend allowance will remain at £500. This means that shareholders can continue to receive up to £500 in dividend income from their investments without being taxed on it.
Any dividends received above this threshold will be subject to the applicable dividend tax rates.
Capital gains
From 6 April 2025, the Capital Gains Tax (CGT) rate for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and Investors’ Relief will rise from 10% to 14% for qualifying disposals.
This rate will then increase further to 18% for disposals made on or after 6 April 2026.
These changes will affect individuals disposing of qualifying business assets, and may impact their tax liabilities on the gains made from such sales.
Statutory Sick Pay (SSP)
Effective from 6 April 2025, statutory pay rates for employees will see an increase. Statutory Sick Pay (SSP) will rise from £116.75 to £118.75 per week, which is designed to offer more financial support for employees unable to work due to illness.
Additionally, statutory payments for maternity, paternity, adoption, shared parental leave, and parental bereavement leave will increase from £184.03 to £187.18 per week. Maternity Allowance will also match this increase.
The earnings threshold required for employees to qualify for SSP or family-related payments will increase from £123 to £125 per week, though eligibility for Maternity Allowance will continue to be set at £30 per week.
Employment Allowance
The Employment Allowance will increase from £5,000 to £10,500, and the current £100,000 threshold for eligibility will be removed. This change will allow more businesses to claim the allowance, and mean some of their cost burden is eased.
Other eligibility requirements for the Employment Allowance remain unchanged.
Student loan thresholds
For the 2025/26 tax year, updated thresholds for student loan and postgraduate loan repayments will come into effect. Employers must ensure their payroll systems are set to calculate and deduct repayments automatically for employees earning above these thresholds.
The new thresholds are as follows:
|
Loan Plan |
Annual Threshold |
Monthly Threshold |
Weekly Threshold |
Deduction Rate |
|
Plan 1 |
£26,065 |
£2,172.08 |
£501.25 |
9% |
|
Plan 2 |
£28,470 |
£2,372.50 |
£547.50 |
9% |
|
Plan 4 |
£32,745 |
£2,728.75 |
£629.71 |
9% |
|
Postgraduate Loan |
£21,000 |
£1,750.00 |
£403.84 |
6% |
The deduction rates remain at 9% for student loans and 6% for postgraduate loans, calculated on earnings above the respective thresholds.
Company cars
Effective from 1 December 2024, advisory fuel rates help employers calculate mileage reimbursement for company cars. Rates vary by engine size and fuel type, with petrol rates ranging from 12 to 23 pence per mile and diesel from 11 to 17 pence per mile. Hybrid cars are treated as either petrol or diesel for these purposes.
For fully electric cars, the advisory electricity rate is set at 7 pence per mile. Note that electricity is not classified as a fuel for car fuel benefit purposes.
Stay on top of your finances with Quickbooks
Managing tax year changes can be challenging, but Quickbooks offers the tools and solutions to help you stay compliant and confident. With seamless payroll management, you can easily adapt to changes in National Insurance rates and statutory pay requirements.
Our intuitive accounting software also simplifies VAT tracking, perfect for if you’re managing B2B or B2C transactions, and helps you keep on top of your income and expenses. In addition, powerful cash flow insights give you a clear picture of your business finances.
Start your Quickbooks journey today to get ahead of the 2025/26 tax year changes and manage your business finances with ease.
