The 2025-26 tax year is just around the corner, running from 6 April 2025 to 5 April 2026. This is the time of year when the government implements tax-related changes, annual inflationary uplifts, and new measures.
The headline changes relate to employers’ National Insurance contributions (NICs) and the Employment Allowance. However, we will also see increases to minimum wage and statutory pay rates, pension changes, an increase in the Capital Gains Tax rate for Business Asset Disposal Relief and Investors’ Relief, and inflationary changes to some Scottish Income Tax thresholds.
Before diving in, it’s worthwhile mentioning what’s staying the same. There will be no changes to:
- UK Income Tax rates and thresholds
- The Personal Allowance
- National Insurance rates (and most thresholds) for employees and the self-employed
- Corporation Tax and VAT
- Main rates of Capital Gains Tax (these increased on 30 October 2024) and the annual exempt amount (tax-free allowance)
- The dividend allowance and tax rates on dividends
Whether you’re a UK business owner, employer, or employee, keeping up to date with key tax changes and measures that may impact you is essential. Here’s an overview of what you can expect in the 2025-26 tax year.
Key Takeaways
- The employer Class 1 NIC rate will rise from 13.8% to 15%, and the Secondary Threshold will be reduced from £9,100 to £5,000 per year. However, the annual Employment Allowance will increase from £5,000 to £10,500.
- The weekly rates of Statutory Sick Pay and family-related pay (e.g. Statutory Maternity and Paternity Pay) will rise by 6.7%.
- The National Living Wage and National Minimum Wage hourly rates will increase per the Low Pay Commission’s recommendations.
1. National Living Wage and National Minimum Wage
The annual increase to National Living Wage and National Minimum Wage rates take effect from 1 April 2025 (just before the new tax year, but relevant nonetheless). The new hourly rates are as follows:
- National Living Wage (for those aged 21 and over) – £12.21
- National Minimum Wage for 18-20 year olds – £10.00
- National Minimum Wage for 16-17 year olds – £7.55
- Apprentice rate – £7.55
These uplifts are based on the recommendations of the Low Pay Commission. If you’re an employer, you must update your payroll systems accordingly and pay the correct rates.
2. National Insurance changes
As announced at the Autumn Budget 2024, the government will introduce several changes to employer National Insurance from 6 April 2025. These new measures will likely affect you as an employer if you are currently liable to secondary Class 1 National Insurance contributions (NICs) on employees’ wages or company directors’ salaries.
The NIC Lower Earnings Limit (for employees) and the Small Profits Threshold (for the self-employed) will also increase.
Employer National Insurance contributions
The rate of employer (‘secondary’) Class 1 NICs will increase from 13.8% to 15%. Class 1A and Class 1B employer NIC rates (payable on employee expenses and benefits) will also increase to 15%.
Secondary Threshold
The Secondary Threshold will be reduced from £9,100 to £5,000 per year. This is when employers start paying secondary NICs on employees’ (and company directors’) wages or salaries.
The UK government states that this £5,000 threshold will remain in place until 5 April 2028. Thereafter, it is due to rise in line with the Consumer Prices Index (CPI).
Lower Earnings Limit (for employees)
The Lower Earnings Limit (LEL) will increase from £6,396 to £6,500 annually. While employees do not pay NICs on their wages until they earn at least £12,570 per year, they are treated as paid if they earn at least the LEL. This protects their entitlement to benefits, including the State Pension.
Small Profits Threshold (for the self-employed)
The Small Profits Threshold (SPT) will increase to £6,845 annually. This is the point at which the self-employed start to receive National Insurance credits. These credits maintain the individual’s access to contributory benefits without the requirement to pay NICs.
Voluntary National Insurance
Individuals can pay voluntary National Insurance contributions to fill or avoid gaps in their records and qualify for contributory benefits.
Voluntary National Insurance rates will increase by 1.7% in the 2025-26 tax year. Class 2 NICs will rise from £3.45 to £3.50 per week, while Class 3 NICs will rise from £17.45 to £17.75 per week.
If you’re self-employed with profits below £6,845 (the SPT), you may wish to consider paying Class 2 NICs voluntarily. Alternatively, you can pay Class 3 if you have a gross income of £1,000 or less.
You can also pay Class 3 NICs if you’re an employee earning less than £6,500 per year (the LEL) and not eligible for National Insurance credits.
3. Employment Allowance
The annual Employment Allowance will increase from £5,000 to £10,500 annually. This allowance enables eligible employers to reduce their secondary NIC liability.
£100,000 eligibility cap
Since 6 April 2020, the Employment Allowance has been restricted to employers with a secondary NIC bill below £100,000 in the previous tax year. However, this £100,000 eligibility cap will be scrapped from the start of the 2025-26 tax year.
Consequently, more businesses and charities can claim Employment Allowance to reduce their employer’s National Insurance liabilities.
4. Statutory pay rates
The annual increases to statutory pay rates and earnings thresholds for employees will apply from the start of the 2025-26 tax year. The new rates are as follows:
- Statutory Sick Pay (SSP) – increasing from £116.75 to £118.75 per week
- Statutory Maternity, Paternity, Adoption, Shared Parental, and Parental Bereavement Pay – increasing from £184.03 to £187.18 per week
- Neonatal Care Pay (this is a new entitlement) – £187.18 per week
- Maternity Allowance – increasing from £184.03 to £187.18 per week
To qualify for SSP or statutory family-related pay, an employee’s average weekly earnings before tax and NIC must be at least £125 (the Lower Earnings Limit). The earnings threshold for claiming Maternity Allowance will remain at £30 per week.
Small employer’s relief
Small Employers’ Relief will increase from 103% to 108.5% of employees’ Statutory Maternity, Paternity, Adoption, Shared Parental, Parental Bereavement, and Neonatal Care Pay.
This means eligible businesses can recover 100% of the statutory payments they provide to employees, plus an additional 8.5% relief. Larger employers will still be able to reclaim 92%.
5. Capital Gains Tax
There will be a two-stage increase in the Capital Gains Tax rates for Business Asset Disposal Relief (BADR) and Investors’ Relief:
- An increase from 10% to 14% – from 6 April 2025
- An increase from 14% to 18% – from 6 April 2026
Sole traders and partners in business partnerships may qualify for these lower rates when selling their businesses. The new measure will also affect employees and office holders (directors and company secretaries) when selling shares or securities in trading companies or holding companies of trading groups.
6. Scottish Income Tax
Minor inflationary adjustments to Scottish Income Tax thresholds were announced in the Scottish Budget 2025 to 2026, which was published on 4 December 2024.
The Starter rate tax band will increase by 22.6%, while the Basic rate band will rise by 6.6%, resulting in a 3.5% increase to the thresholds at which taxpayers in Scotland pay the Basic and Intermediate rates on their taxable income.
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There will be no changes to the Higher, Advanced, or Top rate thresholds. The table below shows the taxable earnings thresholds and tax rates for the 2025-26 tax year, with the changes in bold:
| Tax band | Taxable income threshold | Tax rate |
| Starter rate | £12,571 to £15,397 | 19% |
| Basic rate | £15,398 to £27,491 | 20% |
| Intermediate rate | £27,492 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% |
These changes will be relevant to you or your business if you live in Scotland and receive taxable income from employment (or a director’s salary), self-employment, pensions, or elsewhere. You’ll also need to deduct Income Tax at these rates if you employ anyone who lives in Scotland.
7. Pension changes
The basic State Pension and new State Pension will rise by 4.1% at the start of the new tax year. The full rates for 2025-26 will be:
- £230.25 per week for the new State Pension – an increase of £470 per year
- £176.45 per week for the basic State Pension – an increase of £361 per year
Under the State Pension triple lock system, these increases align with the annual increase in the Average Weekly Earnings index for May to July 2024.
The Pension Credit Standard Minimum Guarantee will be uprated by 4.1% from April 2025.
8. Student Loan thresholds
Changes to Student Loan thresholds (the point at which loans are repayable) will affect those on Plan 1, Plan 2, and Plan 3. In the 2025-26 tax year, borrowers will be liable to make Student Loan repayments at 9% of their income above the following thresholds:
- Plan 1 – £26,065 per year
- Plan 2 – £28,470 per year
- Plan 4 – £32,745 per year
These increases will impact many employees (including company directors) and self-employed individuals with Student Loan debts. If you’re an employer, you may need to update your payroll.
9. Furnished Holiday Lettings
The Furnished Holiday Lettings (FHL) tax regime will be abolished from 6 April 2025. Income and gains from FHL properties will instead:
- Form part of the person’s property business
- Be treated in line with all other property income and gains
This means that individuals, limited companies, and trusts operating or selling FHL accommodation will no longer enjoy beneficial tax treatment on those properties. The measure also removes the need for separate reporting requirements.
10. Retail, Hospitality, and Leisure Business Rates Relief Scheme
The UK government has extended the business rates relief scheme for retail, hospitality, and leisure (RHL) properties for a further year, but at a reduced rate of 40% rather than 75%. The maximum amount of relief per business is capped at £110,000.
The small business multiplier (for RHL properties with a rateable value below £51,000) will remain frozen at 49.9p. The standard multiplier (for RHL properties with a rateable value of £51,000 or more) will increase to 55.5p.
Thanks for reading
We hope you’ve found this post helpful. We recommend contacting an accountant or tax advisor if you need tax-related advice or guidance for your business or personal finances. You can also contact Tax Aid for information and one-to-one support to help with your personal tax affairs, including tax relating to self-employment.
Please feel free to comment below if you have any questions. Explore the 1st Formations Blog for more UK business advice, insights, and limited company guidance.
If you are thinking about forming a limited company in the new tax year, visit 1st Formations’ homepage and check if your choice of company name is available.
Please note that the information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While our aim is that the content is accurate and up to date, it should not be relied upon as a substitute for tailored advice from qualified professionals. We strongly recommend that you seek independent legal and tax advice specific to your circumstances before acting on any information contained in this article. We accept no responsibility or liability for any loss or damage that may result from your reliance on the information provided in this article. Use of the information contained in this article is entirely at your own risk.
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