What the 2025/26 Tax Year Changes Mean for UK Business Owners

April 2025 brought a significant set of changes that affect almost every UK business owner — from the largest employer NIC rise in a generation to frozen income tax thresholds that quietly push more people into higher tax bands. This article sets out what changed, what stayed the same, and what you should be doing about it.

1. Employer National Insurance Rose to 15%

This is the change with the most immediate impact for any business with employees. From 6 April 2025, the employer NIC rate increased from 13.8% to 15% — and the secondary threshold, the point at which employer NIC starts, dropped from £9,100 to £5,000 per year.

The combined effect is significant. You now start paying NIC on an employee's earnings earlier, and at a higher rate. For a full-time employee on £30,000, the annual employer NIC bill increased by over £900.

Item	2024/25	2025/26
Employer NIC rate	13.8%	15%
Secondary threshold	£9,100	£5,000
Employment Allowance	£5,000	£10,500

What to do: Review your payroll budget and check whether you are claiming the Employment Allowance. If you have not already, speak to your accountant about whether your director salary strategy remains optimal given the new secondary threshold.

2. Director Salary Strategy Has Shifted

For director-shareholders, the most tax-efficient salary level changed materially in April 2025. With employer NIC now starting at £5,000, many directors previously set their salary at the old secondary threshold of £9,100 to avoid triggering NIC while still qualifying for State Pension credits.

The optimal salary level now depends on your specific circumstances — particularly whether your company qualifies for the Employment Allowance and what your marginal Corporation Tax rate is. The broad options are:

Salary Level	Consideration
£5,000 (new secondary threshold)	Avoids employer NIC entirely. Below the NIC Lower Earnings Limit — does not protect State Pension credits.
£6,500 (NIC Lower Earnings Limit 2025/26)	No NIC due, but earns a qualifying year for State Pension. Often the most efficient base level.
£12,570 (personal allowance)	Uses full personal allowance. Employer NIC applies on earnings above £5,000 — but this is deductible against Corporation Tax.

What to do: The right answer depends on your profit level, whether you have other income, and your pension position. This is worth a specific conversation with your accountant rather than a generic rule of thumb.

3. Income Tax Thresholds Remain Frozen

The personal allowance (£12,570) and higher rate threshold (£50,270) have been frozen since 2021/22 and will remain frozen through to at least 2027/28. As wages and profits rise with inflation, more people are pulled into the basic and higher rate bands each year — a phenomenon sometimes called fiscal drag.

Band	Taxable Income	Rate
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,571 – £50,270	20%
Higher Rate	£50,271 – £125,140	40%
Additional Rate	Above £125,140	45%

What to do: If your income is approaching £50,270 or £100,000, proactive planning — pension contributions, timing of dividend payments — can make a meaningful difference. Speak to your accountant before the tax year end rather than after.

4. The Dividend Allowance Is Now Just £500

The tax-free dividend allowance was cut from £1,000 to £500 from April 2024 and remains at that level for 2025/26. This affects director-shareholders who draw income via dividends, as well as investors with shareholdings outside an ISA.

Dividend Income	Rate
First £500 (allowance)	0%
Basic rate band	8.75%
Higher rate band	33.75%
Additional rate	39.35%

What to do: If you draw dividends as a director, ensure your Self Assessment return accounts for the reduced allowance. Consider whether ISA wrappers make sense for any investment income outside your company.

5. Capital Gains Tax Rates Increased in October 2024

CGT rates for most assets were increased in the Autumn Budget 2024, effective from 30 October 2024. The basic and higher rates for non-property assets were raised from 10%/20% to 18%/24% — aligning them with residential property rates.

Asset	Basic Rate Taxpayer	Higher Rate Taxpayer
Residential property	18%	24%
Other assets (shares, business assets etc.)	18%	24%
Annual CGT exemption	£3,000

What to do: If you are considering selling business assets, shares, or investment property, factor the current rates into your planning. Business Asset Disposal Relief (formerly Entrepreneurs' Relief) still applies at 14% for qualifying disposals in 2025/26, rising to 18% from April 2026.

6. Making Tax Digital for Income Tax Is Now Live

From 6 April 2026, MTD for Income Tax Self Assessment became mandatory for sole traders and landlords with qualifying gross income over £50,000. If that applies to you and you are not yet set up, you need to act now — the first quarterly submission deadline is August 2026.

The threshold drops to £30,000 from April 2027. If your income is between £30,000 and £50,000, you have time to prepare — but setting up digital record-keeping now will make the transition straightforward.

What to do: Check your 2024/25 gross qualifying income. If it exceeds £50,000, contact us immediately. If you are already a Ledgertech client, we will manage your MTD setup and quarterly submissions as part of your service.

7. Class 2 NIC Has Been Abolished

Class 2 National Insurance — the flat weekly charge previously paid by self-employed people — was abolished from April 2024. Self-employed individuals now pay only Class 4 NIC on profits, with no separate weekly charge. State Pension entitlement for the self-employed is now maintained through Class 4 contributions alone, provided profits exceed the Lower Profits Limit (£12,570).

What to do: Ensure your Self Assessment return for 2024/25 and 2025/26 does not include Class 2 NIC. If your profits are below £12,570 and you wish to protect your State Pension record, you may wish to consider voluntary Class 3 contributions — speak to us about your specific position.

What Should You Do Next?

Most of these changes reward proactive planning and penalise inaction. The businesses that come through tax years like this in the best position are those who reviewed their structure, salary strategy and record-keeping at the start of the year — not in January when the Self Assessment deadline is looming.

• Review your director salary level in light of the new NIC thresholds
• Confirm you are claiming the Employment Allowance if eligible
• Check whether your income is approaching any frozen threshold and plan accordingly
• Confirm your MTD status if you are self-employed or a landlord
• Speak to your accountant before the tax year end — not after