We're just a week out from the start of the 2025-2026 UK tax year. It begins on April 6th 2025 and taxpayers and businesses alike are preparing for a range of changes to tax rates, allowances, and thresholds.
There aren't many updates, which were announced in the Autumn Budget 2024 or this week's Spring Statement but there will be some important changes coming. Here's what you need to know.
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Income Tax Changes
Continuing the fiscal drag of freezing allowances, the personal allowance, which is the amount of income you can earn before paying tax, remains unchanged at £12,570 for the 2025-2026 tax year.
Along with that freeze, the tax bands and rates will also remain consistent with previous years:
- Basic Rate (20%): Applies to income up to £37,700.
- Higher Rate (40%): Applies to income between £37,701 and £125,140.
- Additional/Top Rate (45%): Applies to income above £125,140.
For Scottish taxpayers, the income tax bands differ, with rates ranging from 19% (starter rate) to 48% (top rate).
Student loan repayment thresholds rise with inflation possibly making a significant change to deductions for some people.
The reduction of the dividend allowance to £500 continues. This means that individuals receiving dividends above this threshold will face higher compared to pre-2024, with tax liabilities, set at rates of 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate).
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National Insurance Contributions (NICs)
National Insurance Contributions have seen notable adjustments for the 2025-2026 tax year, though not directly for employees as employee NICs remain at 8% for earnings up to £50,270 and 2% for earnings above this threshold.
However, employer NICs have increased to 15%, reflecting a rise from the previous rate of 13.8%. This change will impact businesses, particularly those with large payrolls. There are changes to the employment allowance, which discounts employer NIC bills, to compensate smaller businesses.
Additionally, Class 1A and 1B NICs, which apply to expenses and benefits, have also increased to 15%.
Self-employed individuals will continue to pay Class 2 (voluntarily) and Class 4 NICs (6% and 2%).
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Corporation Tax
Corporation tax rates remain consistent with the previous year. Companies with profits above £250,000 will pay the main rate of 25%, while those with profits up to £50,000 will benefit from the small profits rate of 19%. Marginal relief continues to apply for profits between £50,000 and £250,000, ensuring a gradual increase in tax liability for medium-sized businesses.
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Capital Gains Tax (CGT)
The annual exempt amount for capital gains tax had already been significantly reduced to £3,000 for individuals and £1,500 for trusts. However, changes from October 2024 raised the rates on gains above this threshold to 18% for basic rate taxpayers and 24% for higher rate taxpayers. This aligned the rates for residential property gains and other gains.
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VAT (Value Added Tax)
The standard VAT rate remains at 20%. However, penalties for late VAT payments have increased under the Making Tax Digital (MTD) initiative. From April 2025, taxpayers will face a 3% penalty for payments overdue by 15 days, with additional penalties for longer delays.
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Inheritance Tax (IHT)
Inheritance tax thresholds remain frozen for the 2025-2026 tax year. The nil-rate band is set at £325,000, while the residence nil-rate band remains at £175,000. There are however upcoming changes to inheritance tax.
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HMRC Late Payment Interest Rates
A change for the 2025-2026 tax year is an increase in HMRC's late payment interest rates. From April 6th, the rate will rise to the Bank of England base rate plus 4%, up from the previous rate of base rate plus 2.5%.
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National Minimum Wage
A big one, this change will see workers benefit from an increase in the national minimum wage. For those aged 21 and over, the rate will rise to £12.21 per hour, while workers aged 18-20 will see their rate increase to £10 per hour. Use our minimum wage calculator for 2025 to see how it affects you.