Rise in Employment Allowance to offset NIC increase
- The maximum Employment Allowance will increase from £5,000 to £10,500. This is a tax relief that businesses can claim to reduce their NIC bills.
- The increase in the Employment Allowance is intended to help small businesses.
This measure aims to offset the impact of rising National Insurance Contributions (NICs) by decreasing the NIC’s Secondary Threshold. Currently set at £9,100, this threshold, which determines when employers become liable for secondary Class 1 NICs, will be reduced to £5,000 per year from April 6, 2025, until April 5, 2028. After this period, the Secondary Threshold will increase in line with the Consumer Prices Index. It’s important to note that this change does not affect other employer NICs thresholds, such as the Apprentice Upper Secondary Threshold or the Upper Secondary Threshold for employees under 21.
Furthermore, this measure includes a rise in the secondary Class 1 NICs rate from 13.8% to 15%. To counterbalance these increases, the maximum Employment Allowance is being significantly increased from £5,000 to £10,500. Additionally, the current restriction on the Employment Allowance, which prevented businesses with over £100,000 in secondary Class 1 NICs liability in the previous year from claiming it, is being removed. This means all eligible businesses and charities will now be able to claim a greater reduction on their secondary Class 1 NICs liability, regardless of their previous year’s liability.
Rise in the Primary Threshold and the Small Profits Threshold (SPT)
- The Primary Threshold for class 1 National Insurance deductions will increase to £12,570. This is the level below which employees do not have to pay National Insurance.
- For those with profits in 2023/24 falling between £6,725 (the Small Profits Threshold) and £12,570, there’s a unique situation. While they aren’t obligated to pay Class 2 National Insurance Contributions (NICs), they are still granted National Insurance Credits. These credits function similarly to having paid Class 2 NICs, ensuring their eligibility for contributory state benefits.
- The rise in the Primary Threshold and the SPT is intended to help low earners and small businesses.
Changes to Capital Gains Tax (CGT)
- The Capital Gains Tax (CGT) rates will increase for disposals made on or after 30 October 2024.
- The primary rate of CGT will increase from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers.
- The CGT rate for Business Asset Disposal Relief and Investors’ Relief increases from 10% to 14% for disposals made on or after 6 April 2025 and from 14% to 18% for disposals made on or after 6 April 2026.
- The increase in CGT rates is intended to raise revenue for the government.
Abolition of the Furnished Holiday Lettings (FHL) tax regime
- The Furnished Holiday Lettings (FHL) tax regime will be abolished from April 2025.
- This means that profits from furnished holiday lettings will be taxed as income tax rather than CGT.
- The abolition of the FHL tax regime is intended to simplify the tax system for landlords.
Other changes
- There will be a number of other changes to the tax system in the 2025/26 tax year, including changes to the taxation of dividends, pensions, and inheritance tax.
- Accountants will need to keep themselves up-to-date with these changes in order to advise their clients correctly.
Implications for accountants
- Advise their clients on the impact of the changes.
- Update their systems and procedures to reflect the changes.
- Prepare their clients’ tax returns for the new tax year.
How to prepare for the changes
There are a number of things that accountants can do to prepare for the changes to the tax system in the 2025/26 tax year. Here are some tips:
- Keep up-to-date with the latest tax news.
- Attend training courses on the changes.
- Review their clients’ tax affairs to identify any areas that may be affected by the changes.
- Communicate with their clients about the changes.
In addition to the above, accountants should also consider the following:
- The impact of the changes on different types of clients, such as businesses, individuals, and landlords.
- The potential for tax planning opportunities arising from the changes.
- There is a need to communicate the changes to clients in a clear and concise way.
By staying up-to-date on these changes, accountants can ensure that they are providing their clients with the best possible advice.
Tips for accountants preparing for the 2025/26 tax year
1. Attend relevant webinars and training courses
Engaging in ongoing professional development is crucial. Accountants should seek out and participate in webinars and workshops that specifically address the latest tax law alterations. These sessions not only provide vital information but also create networking opportunities with other professionals.
2. Review HMRC guidance on new tax rules
It is essential for accountants to thoroughly explore and understand the updated guidelines issued by HM Revenue and Customs (HMRC). This may involve reading through detailed documents, attending HMRC briefings, or subscribing to their updates to stay informed about any additional clarifications or amendments.
3. Communicate changes to clients clearly and timely
Proactive communication is key. Accountants should prepare informative newsletters or scheduled meetings to explain the impending changes to their clients. This clear communication can help demystify the new regulations and prepare clients for any adjustments they may need to make in their financial planning.
4. Be prepared to answer client questions
As clients often have concerns about how new tax rules might affect their financial situation, accountants should anticipate questions and prepare thorough responses. Understanding the nuances of each change allows accountants to reassure their clients and guide them through the implications of their individual tax circumstances.
