New tax year: Key changes and initiatives for 2025/26

Following the election of the Labour government in July 2024, the Autumn Budget introduced a number of changes that affect businesses and the self-employed, and many of them have come into force in this new tax year.

Staying informed and reviewing your tax matters promptly is crucial to navigating these updates effectively.

This article explores all the tax changes and initiatives that have come into effect in the 2025/26 tax year, which started on 6 April 2025 (some changes applied from 1 April 2025), and provides guidance to help your business stay compliant and prepared for the year ahead.

Here’s what we cover:

1. Increase to employers’ National Insurance

On 6 April 2025, the rate of employers’ National Insurance contributions (NICs) rose from 13.8% to 15%.

In addition, the threshold at which employers start to pay NICs (known as the secondary threshold) has decreased from £9,100 to £5,000 per year.

The Chancellor announced these changes in the 2024 Autumn Budget, which will lead to around 940,000 employers with an increased NIC liability for the 2025/26 tax year.

As payroll is the biggest cost for many small and medium-sized businesses, this has the potential to significantly impact cash flow and profits.

Your business needs to update its payroll software to reflect the rate increase and changes to the secondary threshold.

2. Employment Allowance changes to benefit small businesses

To help protect smaller businesses from the employer’s NICs increase, the Employment Allowance was raised from £5,000 to £10,500 per year from 6 April 2025.

In addition, the current £100,000 threshold for eligibility has been removed, expanding the allowance to all eligible employers with employer NIC payments.

With these changes, according to the Budget, 865,000 small employers will pay no NICS in the 2025/26 tax year.

You can claim the Employment Allowance using your payroll software.

While you can apply at any time during the year, claiming early ensures you receive the allowance sooner.

3. Other National Insurance changes

Both the Lower Earnings Limit (LEL) and Small Profits Threshold (SPT) rates increased by 1.7% on 6 April 2025.

The LEL is £6,500 per year, which is the minimum amount an employee must earn before the employee has to pay NICs.

The SPT is £6,845 per year, and the minimum level of annual profit that a self-employed person must earn before they are required to pay Class 2 NICS.

For individuals paying voluntarily, Class 2 and Class 3 NICs have increased by 1.7% in 2025/26. The main Class 2 rate is £3.50 per week and the Class 3 rate is £17.75 per week.

The employer NI relief for hiring qualifying veterans has been extended an additional year until 5 April 2026.

This means your business will remain exempt from employer NICs on a veteran’s first year of civilian employment, up to an annual salary of £50,270.

4. Minimum wage increase

As an employer, you’ll need to consider wage increases to both the National Living Wage and the National Minimum Wage.

Since 1 April 2025, the National Living Wage rate is £12.21 for employees aged 21 and above.

At the same time, the National Minimum Wage rate has increased to:

• £10 for employees aged 18 to 20
• £7.55 for employees who are under 18
• £7.55 for apprentices.

These wage changes should be easy to implement, but make sure your payroll provider is ready.

If the wage increases are likely to increase your payroll costs, speak to your advisors to identify where possible cost-saving opportunities exist elsewhere.

5. Statutory pay and employer relief changes

Just like the minimum wage, statutory parental pay has increased in the 2025/26 tax year to £187.18 per week. This came into force on 6 April 2025.

The new rate applies to Statutory Maternity and Paternity Pay (SPP and SMP), Shared Parental Pay (ShPP), Statutory Neonatal Care (SNCP), Statutory Adoption Pay (SAP), and Statutory Parental Bereavement Pay (SPBP).

Additionally, Statutory Sick Pay (SSP) has risen to £118.75 per week. This also came into play on 6 April 2025.

The small employer’s relief rate has increased from 103% (100% + 3% compensation) to 108.5% (100% + 8.5% compensation).

So if you’re an eligible small employer and provide statutory payments, such as Statutory Maternity Pay (SMP), you can reclaim 100% of the payment, plus an additional 8.5% relief from HMRC in 2025/26.

Larger employers can still reclaim 92%.

6. New Scottish tax band and thresholds

The 2025/26 Scottish Budget announced changes to the income tax policy to ease the tax burden on lower income earners.

Here’s the bands and rates for 2025/26:

	Band	Rate
Personal Allowance	Up to £12,570	0%
Starter	£12,571 to £15,397	19%
Basic	£15,398 to £27,491	20%
Intermediate	£27,492 to £43,662	21%
Higher	£43,663 to £75,000	42%
Advanced*	£75,001 to £125,140	45%
Top	Over £125,140	48%

* For those individuals who earn more than £100,000, their Personal Allowance will be reduced by £1 for every £2 they earn over £100,000.

The higher, advanced, and top rate thresholds will remain frozen until at least the 2026/27 tax year.

The Personal Allowance will also stay at £12,570.

While these changes are beneficial for low earners, there’s still a significant tax disparity between Scotland and the rest of the UK for high earners.

This may deter senior executives or specialists from relocating to Scotland, therefore Scottish businesses may need to consider offering higher salaries or additional incentives to offset this.

7. Capital Gains Tax changes

The tax rate for Business Asset Disposal Relief (BADR) and Investors’ Relief (IR)—previously known as Entrepreneur’s Relief—will increase in stages, rising from 10% to 14% from 6 April 2025, before reaching 18% from 6 April 2026.

If you’re planning to sell business assets, these changes could lead to higher tax liabilities.

To manage the impact, it’s a good idea to review your disposal plans with your advisors and consider the timing of any sales.

8. Apprenticeship Levy to be replaced by the Growth and Skills Levy

The Apprenticeship Levy is a scheme designed to fund apprenticeship training, but is soon to become the Growth and Skills Levy, backed by a £40 million investment.

Announced in September 2024, this transformation aims to provide businesses with greater flexibility in workforce training.

According to Skills England, the Levy “will enable employers to access a broader range of high-quality training offers and thereby address the rigidity of the current Apprenticeships Levy”.

Key updates that will take effect in 2025 include:

• Businesses can use funds for a wider range of courses (including shorter upskill programmes)
• Simplified access for small businesses
• Regional focus to align training with local skills gaps
• Support for training in high-demand industries to prepare businesses for their future needs.

The full rollout timeline is still being finalised.

9. Retail, Hospitality and Leisure Scheme extension

In the 2024 Autumn Budget, the Chancellor announced the Retail, Hospitality and Leisure (RHL) Business Rates Relief scheme will be extended for 2025/26 (worth over £1.5 billion).

If you run a retail, hospitality or leisure business in the UK, this means you can continue to claim 40% business rates relief, capped at £110,000 per business.

The small business multiplier remains frozen at 49.9p, while the standard multiplier has increased to 55.5p.

This relief provides interim support until permanently lower tax rates take effect in 2026/27.

10. New parental leave for neonatal care

The Neonatal Care (Leave and Pay) Act 2023 gives parents of babies in neonatal care the right to take up to 12 weeks of extra paid leave.

Any parent (or primary carer) is eligible if the baby is born on or after 6 April 2025 and admitted to neonatal care for at least seven continuous days within the first 28 days of life.

As a business, you should prepare for these changes by updating your HR policies, payroll systems and making your managers and employees aware.

Employment Rights Minister Justin Madders says, “This entitlement will deliver certainty to them and their employers, setting baseline protections that give them the peace of mind to look after the one thing that matters most—their newborn baby.”

11. Student loan threshold changes

Employers need to be aware that some student loan repayment thresholds has increased for the 2025/26 tax year, affecting borrowers on Plan 1, Plan 2, and Plan 4 loans.

The postgraduate loan (which are Plan 3 loans) threshold remains unchanged at £21,000.

Repayments only begin once earnings exceed the set threshold, with deductions taken as a fixed percentage of income above that amount.

These updates impact both employees repaying through PAYE and self-employed individuals completing Self Assessment tax returns, as they determine how much is deducted from earnings.

For employers, these threshold changes will need to be put through your payroll system.

12. Additional new tax year measures

Voluntarily sign up for Making Tax Digital for Income Tax

Since 6 April 2025, sole traders and those with self-employed income can choose to start implementing digital processes and sending updates as part of Making Tax Digital for Income Tax, ahead of the mandatory deadline.

From April 2026, MTD for Income Tax becomes mandatory for sole traders and landlords with an annual income of £50,000 or more.

Revised alcohol duty

Since February 2025, alcohol duty on draught products decreased by 1p per average-strength pint.

The mandatory duty stamps for spirits will be removed from 1 May 2025.

For businesses in the brewing and pub industry, these changes could help lower operational costs and improve financial stability.

Furnished holiday lettings tax treatment scrapped

The favourable tax treatment for Furnished Holiday Lettings (FHLs) has been abolished, as of 6 April 2025.

With these rule changes, FHL properties will be treated the same as other UK or overseas property businesses, following the same tax rules as non-FHL properties.

This will apply to individuals, companies, and trusts that own, operate, or sell FHL properties.

Final thoughts on the new tax year

With so many changes taking effect, it could be easy to feel overwhelmed while navigating the year ahead.

But with careful planning, you can start the new tax year with confidence, allowing you to focus on your business goals with greater certainty and peace of mind.

Consult with your advisors and payroll partners to ensure you fully understand the updates, can assess their impact, and take proactive steps to stay compliant.