What’s changing in the 2025-26 tax year? 

The 2025-26 tax year starts on 6 April 2025. This article provides an overview of 14 changes that will take effect on that date, most notably to the rate of employer National Insurance contributions (NICs), the NIC secondary threshold, and the Employment Allowance.  

If you’re an employer, these changes – in addition to minimum wage and statutory pay increases – may lead to higher staffing costs. However, some smaller businesses may be better off financially due to increases in the Employment Allowance and Small Employers’ Relief.   

1. Employer NIC rate – increasing

From 6 April 2025, the secondary Class 1 National Insurance contributions (NIC) rate for employers will increase by 1.2 percentage points, from 13.8% to 15%. Employers are liable to pay secondary Class 1 NICs on employees’ earnings and company directors’ salaries above the Secondary Threshold.  

Employer Class 1A and Class 1B NIC rates will also increase to 15%. These contributions are payable on most expenses and work benefits employers provide their employees.

2. NIC Secondary Threshold – decreasing

The NIC Secondary Threshold will reduce from £9,100 to £5,000 a year from 6 April 2025. This is the earnings threshold at which employers become liable to pay secondary National Insurance contributions on employees’ earnings and directors’ salaries.  

The Secondary Threshold will remain at £5,000 until 5 April 2028, thereafter increasing in line with the Consumer Price Index (CPI). 

3. Employment Allowance – increasing

To help small employers offset their increased secondary NIC liabilities, the UK government will increase the maximum Employment Allowance by 110%, from £5,000 to £10,500 a year.  

Additionally, the £100,000 eligibility cap that currently applies to the Employment Allowance will be removed. Since April 2020, this cap has prevented employers with a secondary NIC liability below £100,000 in the previous tax year from claiming Employment Allowance.  

Laws that UK business owners should know

UK tax year dates and deadlines 2025-26

Self Assessment – your questions answered 

According to the government’s policy paper on changes to employer National Insurance, “The removal of the £100,000 eligibility cap changes the nature of the Employment Allowance from a relief targeted at helping small businesses grow and incentivising employment, to a structural feature of the NICs system available to all eligible businesses.” 

These measures will take effect at the start of the 2025-26 tax year. 

4. NIC Lower Earnings Limit – increasing

From 6 April 2026, the NIC Lower Earnings Limit (LEL) will increase from £6,396 to £6,500 a year. This earnings threshold applies to employees, including company directors.  

An employee must earn at least the LEL to qualify for entitlement to certain benefits, including the State Pension. If they earn between the LEL and the Primary Threshold (£12,570 a year), their contributions are ‘treated as paid’ without the need to pay NICs. 

5. Small Profits Threshold – increasing

The Small Profits Threshold (SPT) will also increase at the start of the 2025-26 tax year, from £6,725 to £6,845 a year. This threshold applies to the self-employed, including sole traders and partners in business partnerships.  

Self-employed individuals start to receive National Insurance credits when their profits exceed the SPT. This means they qualify for contributory benefits but don’t need to pay Class 4 NICs until their profits exceed the Lower Profits Limit (£12,570 a year). 

6. Voluntary National Insurance weekly rates – increasing

From 6 April 2025, voluntary NIC rates will rise by 1.7%. Class 2 voluntary contributions will increase from £3.45 to £3.50 a week, while Class 3 voluntary contributions will increase from £17.45 to £17.75 a week. 

Individuals may be eligible to pay voluntary National Insurance contributions to HMRC to fill gaps in their NIC record and top up their State Pension. 

The deadline to make voluntary NICs for gaps from 2006 to 2016 is 5 April 2025. It’s worth checking your National Insurance record for any missing years since 2006 and determining whether paying voluntary NICs will increase your State Pension forecast. 

7. Minimum wage rates – annual increase

National Living Wage and National Minimum Wage hourly rates increase every year. From 1 April 2025, the new rates are as follows: 

• National Living Wage (aged 21 and over) – £12.21 

• National Minimum Wage (aged 18-20) – £10.00 

• National Minimum Wage (aged 16-17) – £7.55 

• Apprentice rate – £7.55 

The UK government sets these hourly rates per the recommendations of the Low Pay Commission. UK employers must pay their employees at least the minimum wage rate for their age.  

8. Statutory pay rates – annual increase

Employees will see a boost in their Statutory Sick Pay (SSP) and statutory parental pay rates from the start of the 2025-26 tax year. The changes are as follows: 

• Statutory Sick Pay – increasing to £118.75 a week 

• Statutory Maternity, Paternity, Adoption, Shared Parental, and Parental Bereavement Pay – increasing to £187.18 a week 

• Maternity Allowance – increasing to £187.18 a week 

A new right to neonatal care leave and pay will also take effect from 6 April 2025. This measure will entitle parents with babies in neonatal care to additional time off, with Statutory Neonatal Care Pay of £187.18 a week.  

Small Employers’ Relief will also increase in the new tax year, rising from 103% to 108.5%. This means eligible smaller employers can reclaim 100% of employees’ statutory parental payments plus an extra 8.5% compensation. Businesses that aren’t eligible can continue to reclaim 92%. 

9. State Pension – annual increase

The two types of State Pension (basic and new) will increase by 4.1% at the start of the 2025-26 tax year. The changes are as follows: 

• The new State Pension – increasing from £221.20 to £230.25 a week  

• The basic State Pension – increasing from £169.50 to £176.45 a week 

This year’s increases align with wage growth under the triple lock system. They represent a rise of £470 a year for the new State Pension and £361 a year for the basic State Pension.

10. Scottish Income Tax – increase to certain thresholds

Announced at the Scottish Budget on 4 December 2024, the Scottish government will increase the earnings thresholds for the Starter rate and Basic rate tax bands for the 2025-26 tax year. There won’t be any changes to Scottish Income Tax rates or other earnings thresholds. 

Tax band	Taxable income 2024-25	Rate	Taxable income 2025-26	Rate
Starter rate	£12,571 to £14,876*	19%	£12,571 to £15,397*	19%
Basic rate	£14,877 to £26,561	20%	£15,398 to £27,491	20%
Intermediate rate	£26,562 to £43,662	21%	£27,492 to £43,662	21%
Higher rate	£43,663 to £75,000	42%	£43,663 to £75,000	42%
Advanced rate	£75,001 to £125,140	45%	£75,001 to £125,140	45%
Top rate	over £125,140	48%	Over £125,140	48%

*Assumes the individual taxpayer receives the standard UK Personal Allowance of £12,570 a year.  

11. Student Loans – repayment thresholds increasing

The repayment thresholds for Plan 1, Plan 2, and Plan 4 Student Loans will increase for the 2025-26 tax year.  

From 6 April 2025, borrowers must begin repaying their loans when their income exceeds the applicable threshold for their plan, as shown below: 

Plan type	2024-25 threshold	2025-26 threshold	Repayment rate
Plan 1	£24,990	£26,065	9% of earnings above threshold
Plan 2	£27,295	£28,470	9% of earnings above threshold
Plan 4	£31,395	£32,745	9% of earnings above threshold
Postgraduate Loan	£21,000	£21,000	6% of earnings above threshold

These changes could result in lower repayments for some employees and self-employed individuals – or no repayments if the increase means their earnings now fall below the threshold. 

12. Business Asset Disposal Relief (BADR) and Investors Relief

The 10% rate of Capital Gains Tax that applies to Business Asset Disposal Relief (BADR) and Investors’ Relief will increase to: 

• 14% for disposals made on or after 6 April 2025, then 

• 18% for disposals made on or after 6 April 2026  

These increases are part of a package of changes to Capital Gains Tax announced at the Autumn Budget 2024. 

13. Business Rates Relief Scheme for RHL properties – extended

The Retail, Hospitality and Leisure (RHL) Business Rates Relief Scheme has been extended for another year. However, relief on business rates for RHL properties in 2025-26 will be reduced from 75% to 40%, subject to a cash cap limit of £110,000 per business.  

Businesses in England may qualify for RHL relief if they occupy a property that is mainly used as one of the following: 

• Shop 

• Restaurant, café, bar or pub 

• Cinema or music venue 

• Hospitality or leisure business (e.g. a gym, spa, or hotel) 

The small business multiplier for RHL properties will remain at 49.9p, while the standard multiplier will rise to 55.5p. 

14. Furnished Holiday Lettings regime – abolished

The UK government will abolish the Furnished Holiday Lettings (FHL) tax regime from 6 April 2025. This will remove the beneficial tax treatment and separate reporting requirements for FHLs. 

From the start of the 2025-26 tax year, income and gains from FHL properties will instead form part of the person’s property business and be treated in line with their other property income and gains. 

Thanks for reading

If you need help with your personal or business finances for the 2025-26 tax year, we recommend consulting an accountant, tax advisor, or financial adviser for professional guidance.  

Please feel free to comment below if you have any questions, or explore the Rapid Formations Blog for more business advice and limited company guidance. If you would like to register a company, you can start by visiting Rapid Formations’ homepage to check if your preferred company name is available to use.