Navigating the April 2025 UK Tax Changes

Limited Company Dividends

If you haven’t yet utilised your £500 tax-free dividend allowance, be aware that you have until 5 April 2025 to pay any remaining dividends. This allowance cannot be carried over into the next tax year, so it’s important to act before the deadline. Keep in mind, dividends can only be paid if the business has sufficient profits and enough cash available in the company account.

The dividend tax rates for the 2024/25 tax year will vary depending on the income band you fall into. They are as follows:

Looking ahead to the 2025/26 tax year, there will be no change to the dividend tax rates, and the tax-free dividend allowance will remain at £500.

Sole Traders & Individuals – Income Tax

Sole traders and individuals, including directors of limited companies and partners in partnerships, pay tax based on their total income for the tax year. For taxpayers living in England, Wales, and Northern Ireland, the income tax thresholds and rates for the 2025/26 tax year remain unchanged, as outlined below:

For employees living in Scotland, the income tax bands and rates for the 2025/26 tax year are as follows:

Living Wage and Minimum Wage to increase from April 2025

From 1 April 2025, both the National Living Wage (NLW) and National Minimum Wage (NMW) rates will see an increase, providing a boost to workers across different age groups and employment types. The updated rates will be as follows:

• National Living Wage (21 and over): £12.21 per hour
• Ages 18–20: £10.00 per hour
• Ages 16–17: £7.55 per hour
• Apprentices: £7.55 per hour (for apprentices under 19 or those aged 19 and over in the first year of their apprenticeship)

The changes reflect the Government’s commitment to improving earnings for lower-paid workers while continuing to support apprenticeships and younger workers entering the job market. Employers should prepare for these changes by reviewing payroll systems to ensure compliance with the new rates.

An Increase in Employers National Insurance Contributions

From 6 April 2025, employers will see notable changes to National Insurance Contributions (NICs), impacting payroll costs. The employer NIC rate is set to rise from 13.8% to 15%, while the annual earnings threshold for employer NICs will drop from £9,100 to just £5,000, meaning businesses will begin contributing earlier on employee earnings.

On a positive note, the Employment Allowance will be expanded. Currently, eligible businesses with employer NIC bills of £100,000 or less can claim £5,000 as a deduction from their NIC liability. From April 2025, this allowance will increase to £10,500, and the £100,000 eligibility cap will be removed entirely, making the benefit accessible to all qualifying employers. These changes aim to balance increased contributions with additional support for businesses managing NIC obligations.

The increase in Company Size Thresholds

Starting April 2025, changes to company size thresholds will bring a shift in reporting and audit requirements for many UK businesses. These adjustments will increase the thresholds that define company size, resulting in a reclassification of thousands of companies and LLPs.

According to Government estimates, around 113,000 businesses will transition from the small to micro-entity category, 14,000 from medium to small, and 6,000 from large to medium. These shifts will significantly reduce administrative burdens for affected entities, allowing them to benefit from simplified accounting and reporting requirements.

For companies moving into the small entity regime, the changes are particularly impactful. They will no longer be required to conduct statutory audits of their annual accounts (unless group membership rules apply) or prepare a Strategic Report. Companies reclassified as micro-entities will gain additional exemptions, such as the removal of the requirement to produce a Directors’ Report. These updates mark an important step in easing compliance for smaller businesses while maintaining regulatory oversight.

Capital Gains Tax

The Capital Gains annual exempt amount will remain at £3,000 for the 2025/26 tax year. Following the changes that took effect in October 2024, there are no additional capital gains tax increases expected in April 2025.

An increase in Business Asset Disposal Relief tax rates

Business Asset Disposal Relief (BADR) offers a reduced Capital Gains Tax (CGT) rate for individuals disposing of qualifying business assets, such as shares in trading companies or holding companies of trading groups. This relief is a valuable tool for business owners seeking tax efficiency when selling their businesses.

However, significant changes to BADR rates will come into effect soon. For disposals made on or after 6 April 2025, the CGT rate on gains eligible for BADR will rise from 10% to 14%. This rate will increase further to 18% for disposals occurring on or after 6 April 2026. Despite these rate increases, the £1 million lifetime limit on gains eligible for BADR remains unchanged.

These adjustments underscore the importance of strategic tax planning, particularly for those considering business sales in the near future.

Changes to Benefit-in-Kind (BIK) Tax for Electric Vehicles (EVs)

Starting in April 2025, the Benefit-in-Kind (BIK) tax rate for electric vehicles (EVs) will rise as part of the government’s phased plan to increase tax on low-emission company cars. However, the BIK rates for petrol and diesel vehicles will remain significantly higher, making EVs and plug-in hybrids still the most tax-efficient options for company car drivers.

The BIK tax percentages for EVs will continue to rise each year, with increases expected until the 2029/2030 tax year. These increases are generally around 1% per year. Additionally, each level of CO2 emissions will have different maximum caps, which can affect the overall BIK rate.

For more detailed information on the upcoming increases, you can visit the Government’s website.

From April 2025, the BIK rate for electric vehicles (EVs) will rise from 2% to 3%, with further increases planned:

Double cab pick-up vehicles will be treated as cars

From April 2025, double cab pick-up vehicles (DCPUs) with a payload of one tonne or more will be classified as cars for certain tax purposes. This change will apply to Corporation Tax from 1 April 2025 and to Income Tax from 6 April 2025. The updated classification will impact the tax treatment for capital allowances, benefits in kind (BIK), and certain business profit deductions.

For businesses purchasing DCPUs before April 2025, the current capital allowances rules will continue to apply. Additionally, transitional arrangements will be in place for employers who have purchased, leased, or ordered a DCPU before 6 April 2025. These businesses can retain the existing BIK treatment until the earlier of the vehicle’s disposal, lease expiry, or 5 April 2029.

This change highlights the importance of planning vehicle acquisitions and considering the long-term tax implications of company vehicle fleets.

Furnished Holiday Lettings tax exemptions to be abolished

From April 2025, the Furnished Holiday Lettings (FHL) tax regime will be abolished, marking a significant change for those involved in the short-term rental market. Following this change, properties previously qualifying under the FHL rules will instead be treated as part of the owner’s UK or overseas property business and subject to the same tax rules as non-furnished holiday let properties.

This change will apply to individuals, companies, and trusts that operate or sell FHL accommodations. The abolition of the FHL regime means businesses will no longer benefit from specific advantages such as capital allowances, loss relief rules, and other tax incentives unique to FHL properties. Instead, they will be subject to general property business tax rules.

Property owners and operators should review their portfolios and consider the financial and operational impacts of these changes, particularly in terms of tax planning and compliance.