As the new 2025-26 tax year approaches on 6th April, a raft of changes are set to impact businesses and individual taxpayers across the UK. From increased National Insurance contributions to the overhaul of non-domicile tax rules, it’s crucial to understand how these updates might affect you. Here at Max Pro Accountants, we’re here to help you navigate these changes.
Rising Employment Costs and HMRC Interest
Businesses will face a significant change with a 1.2% hike in employer’s National Insurance contributions (NICs). This increase, affecting all employers, is estimated to add an average of £800 per employee to employment costs. The impact is amplified by a substantial cut to the secondary NICs threshold, dropping from £9,100 to £5,000.
While this presents a challenge, there’s also some positive news for employers. The Employment Allowance is being more than doubled, rising from £5,000 to £10,500. Importantly, the previous £100,000 threshold for eligibility has been removed, making this allowance accessible to a wider range of businesses.
Another key change to be aware of is the increase in HMRC interest rates for late payments. Effective April 6th, these rates will rise by 1.5% across all taxes, resulting in a new rate of 8.5%. This is calculated as the Bank of England base rate plus 4%, up from the current base rate plus 2.5%. Furthermore, late payment penalties have already seen an increase, rising to 10% from 4% as of April 1st, with the slowest payers facing a significant jump. Penalties for late Income Tax payments under Self Assessment and VAT are also increasing, with escalating penalties kicking in at 15 and 30 days, and a substantial rise from day 31.
Frozen Tax Thresholds and Scottish Rate Adjustments
For another year, tax thresholds will remain frozen. The tax-free Personal Allowance will stay at £12,570, meaning more individuals could find themselves moving into higher tax brackets as their income rises.
In Scotland, there are specific changes to income tax bands. The starter rate band will see a 22.6% increase, and the basic rate band will rise by 6.6%. This will increase the thresholds for the 20% basic rate and the 21% intermediate rate by 3.5%. However, the higher, advanced, and top rate thresholds will remain frozen until the end of the current Scottish Parliament in 2026-27.
The Personal Savings Allowance remains unchanged at £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and £0 for additional rate taxpayers. With current high interest rates, making the most of tax-efficient savings like ISAs is more important than ever. The government is also set to review the future of ISAs this year, so watch this space.
Business Asset Disposal Relief, Furnished Holiday Lets, and Non-Dom Rules
For businesses, the rate of Business Asset Disposal Relief (BADR) and Investors’ Relief will increase from the current 10% to 14% from April 6th, 2025, with a further rise planned for the following year.
The tax treatment of income from furnished holiday lets (FHL) is also changing significantly. From April 6th, it will be aligned with long-term lets for individuals, trusts, and partnerships. This means FHLs will no longer be eligible for beneficial capital allowances treatment, and existing reliefs will cease.
A major overhaul is on the horizon for non-domicile (non-dom) tax rules. The current remittance basis will be abolished and replaced with a system based on tax residence, effective from April 6th. Long-term residency will replace the concept of domicile. Individuals resident in the UK for income tax purposes for 10 out of the last 20 years will be treated as long-term residents for Inheritance Tax (IHT) and taxed on their worldwide assets. A new temporary repatriation facility (TRF) will be introduced for previous remittance basis users, allowing them to pay a reduced one-off tax on historic untaxed foreign income and gains arising before April 2025. Capital Gains Tax (CGT) re-basing will also be available for disposals of personally owned assets held since at least April 5th, 2017, made on or after April 6th, 2025.
Double Cab Pick-Up Tax Hike
The controversial tax hike on double cab pick-ups has already begun, applying to Corporation Tax from April 1st and Income Tax from April 6th. These vehicles, with a payload of one tonne or more, will now be treated as cars for certain tax purposes. This change will primarily affect businesses, particularly in the agricultural sector, as these vehicles will no longer qualify for the Annual Investment Allowance but will be subject to car capital allowances.
Statutory Payment and Child Benefit Increases
Finally, there are changes to statutory payments. A new statutory payment for neonatal care leave will be introduced on April 6th, providing £187.18 per week or 90% of earnings if lower, for eligible employees. Child benefit payments are also set to increase from April 7th, 2025.
Navigating these upcoming tax changes can seem complex, but at Max Pro Accountants we are here to provide the expert guidance you need.
Contact us HERE to discuss how these changes will affect your specific circumstances and ensure you’re well-prepared for the new tax year.