What can accountants expect for the 2025/26 tax year?

As the end of 2024 draws closer, many businesses will be planning for the end of the 2024/25 tax year on 5 April 2025 and considering the impact of measures set to take effect in the new tax year. Here we outline the key measures that will take effect from April 2025.

Rise in employer National Insurance Contributions (NICs)

The government used the 2024 Autumn Budget to announce that the employer NIC rate will increase from 13.8% to 15% from 6 April 2025.

The Secondary Threshold, currently set at £9,100 a year, is the point at which employers become liable to pay NICs on an individual employee’s earnings. The government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter.

Rising Employment Allowance

The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. From 6 April 2025 the government will increase the Employment Allowance from £5,000 to £10,500 and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NIC bills.

Rise in the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT)

From 2025/26, the government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) by the September 2024 CPI rate of 1.7%. For individuals paying voluntarily, the government will also increase Class 2 and Class 3 NICs by 1.7% in 2025/26.

The LEL will be £6,500 per annum (£125 per week) and the SPT will be £6,845 per annum. The main Class 2 rate will be £3.50 per week and the Class 3 rate will be £17.75 per week.

Increase in Capital Gains Tax (CGT) rates for disposals

The CGT rates will increase for disposals, other than of residential property and carried interest, made on or after 30 October 2024. The basic rate of 10% will increase to 18% and the 20% rate will increase to 24%. No changes will be made to the rates applying to the disposal of residential properties of 18% and 24%. The rate applying to trustees and personal representatives increased from 20% to 24% from the same date.

Business Asset Disposal Relief (BADR) and Investors’ Relief (IR)

For disposals made on or after 6 April 2025, the rate applying for individuals claiming BADR and IR will increase from 10% to 14%. The rate will increase again to 18% for disposals made on or after 6 April 2026.

In addition, the lifetime limit for IR will be reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. This limit takes into account any prior qualifying gains where the relief was claimed.

Changes to the Furnished Holiday Lettings (FHL) tax regime

From April 2025, the FHL tax regime will be abolished. The effect of abolishing the rules will be that FHL properties will form part of the person’s UK or overseas property business and be subject to the same rules as non-furnished holiday let property businesses. This will apply to individuals, corporates and trusts who operate or sell FHL accommodation.

Energy Profits Levy (EPL) increase

The EPL (the temporary levy on profits arising from the upstream production of oil and gas) will increase from 35% to 38% and the end date of the levy will be extended to 31 March 2030.

Business rates

For 2025/26, eligible retail, hospitality and leisure (RHL) properties in England will receive 40% relief on their business rates liability. RHL properties will be eligible to receive support up to a cash cap of £110,000 per business. The small business multiplier in England will be frozen at 49.9p for 2025/26. The standard multiplier will be increased to 55.5p.

Removal of VAT exemption for private school fees

Private school fees for education and vocational training will no longer benefit from VAT exemption and will be subject to VAT at the standard rate of 20%. The change will apply to terms beginning on or after 1 January 2025, although certain prepayments made after 29 July 2024 will also be included.

Whatever 2025 has in store, Mercia will be on hand to help keep your clients up to date.