What the 2025 UK tax changes mean for small businesses

Every Spring Budget brings tinkering, but the 2025/26 UK tax changes add up to more than background noise for owner-managed businesses. From 6 April 2025 companies will live with a higher employer national insurance rate, unchanged yet tiered corporation tax, the slow-burn rollout of Making Tax Digital for income tax (MTD IT) and a countdown on full expensing relief. Add the abolition of Class 2 national insurance contributions (NIC) for sole traders and continuing wage pressure, and the difference between planning early and reacting late could be several thousand pounds on your year-end tax bill.

Small firms do not have large treasury departments: they have one or two directors juggling payroll, sales and compliance. They need clear information, free of jargon, and enough lead time to adjust cashflow. This guide sets out what is changing, why it matters and – most importantly – how to respond. By the end you will have a practical checklist covering profit projections, payroll settings, investment timing and digital record-keeping. The goal is simple: to help you spend less time worrying about HMRC and more time growing your business.

Key UK tax changes for 2025/26

Below is a clear tour of the measures most likely to move the numbers for a small company or sole trader. Where we quote figures, we link to official sources so you can follow up.

Corporation tax: Rates hold but planning matters

The main corporation tax rate stays at 25% for profits above £250,000, while the small-profits rate remains 19% for profits up to £50,000. Companies with profits between the two limits continue to claim marginal relief (HMRC, 2025).

Planning actions

• Profit forecasting: Model whether expected pay rises or higher sales will push you through the £50,000 or £250,000 thresholds sooner than planned.
• Associated companies: The limits are divided by the number of active subsidiaries – group structures may need revisiting.
• Quarterly instalments: If taxable profits exceed £1.5m (scaled for associated companies) corporation tax is payable in-year, not nine months after year end.

Employer national insurance: Payroll costs rise

From 6 April 2025 the employer Class 1 NIC rate rises from 13.8% to 15% and the secondary threshold falls to £5,000 (HM Treasury impact assessment, 2024).

What this means

• Budget pressure: A full-time employee on £35,000 will cost the business roughly £981 more in NIC over the year.
• Cashflow timing: NIC is due with each payroll run, so the higher cost bites immediately in April.
• Salary versus dividend: Director-shareholders should review their mix to keep overall tax efficient without triggering higher-rate dividend tax.

Self-employed national insurance: lower Class 4, Class 2 abolished

Sole traders continue to pay 6% Class 4 NIC on profits between £12,570 and £50,270 and 2% above that level. Compulsory Class 2 NIC has been abolished; it is treated as paid for entitlement purposes from April 2025 (HMRC, 2025).

Action points

• Profit extraction: Compare the 6% Class 4 rate with the combined corporation tax and dividend tax you would pay if you incorporated.
• State pension record: If your profits are below the small-profit threshold (£6,725) you may still pay voluntary Class 2 to protect benefits.
• Payment on account: Remember Class 4 NIC is settled each 31 January and 31 July alongside income tax, so budget accordingly.

Capital allowances: Full expensing edges closer to the deadline

Full expensing – 100 % first-year relief for most plant and machinery – runs until 31 March 2026 for companies (HMRC policy paper, 2023). 

How to use it

• Major kit: If you need new machinery, ordering and installing before 31 March 2026 maximises the deduction.
• Contract timing: Transitional rules protect spend committed before 1 April 2025 but incurred by 30 September 2025 – check supplier schedules.
• Sole traders: Unincorporated businesses rely on the annual investment allowance (AIA) of £1m. Consider incorporation if your capital spend regularly exceeds the cap.

Making Tax Digital for income tax: Rehearse now

MTD IT applies from April 2026 to landlords and sole traders with annual income above £50,000. The 2025/26 year is therefore the last full cycle to test digital bookkeeping without penalty.

• Quarterly updates: Practise generating the four submissions even though they are not mandatory yet.
• Software choice: Ensure your chosen package can file directly to HMRC to avoid spreadsheet workarounds.
• Error tracking: Compare digital totals with your final accounts to spot mapping issues early.

Cashflow under pressure: Why timely forecasting matters

Inflation is easing, but overheads are still rising. Office for National Statistics (ONS) survey data shows 19% of UK businesses with 10 or more staff reported worker shortages in early October 2024, a drag that usually feeds through to higher wages (ONS, 2024).

Add the higher employer NIC rate and many firms will feel a squeeze. A rolling 12-month forecast lets you do the following.

• Map tax peaks: Corporation tax nine months after year end; self-assessment payments on account each 31 January and 31 July; VAT every quarter.
• Build buffers: Aim for at least one month’s overheads in accessible reserves.
• Stress-test scenarios: Model a 5% fall in sales or a one-month payment delay from a top customer.

Practical checklist: Prepare before the tax year starts

1. Profit projections: Refresh monthly, not quarterly.
2. Payroll settings: Update employer NIC rates in software ready for the April run.
3. Capital purchases: Schedule big-ticket assets for maximum allowances.
4. Bookkeeping review: Ensure expenses are correctly coded for MTD submissions.
5. Professional advice: Book a pre-year-end review with us – small adjustments before 5 April can save thousands.

The big picture: Small businesses still drive the economy

The UK hosted 2.72m VAT- or PAYE-registered businesses in March 2024 (ONS, 2024). Owner-managed firms employ around 60% of the private-sector workforce, so policy tweaks that look minor on a Treasury spreadsheet ripple quickly through local communities. Staying informed turns change from a threat into an opportunity.

Ready to adapt?

UK tax changes are inevitable, but unplanned surprises are not. By tackling profit forecasts, payroll settings, investment timing and digital records now, you can turn 2025/26 into a year of confident growth rather than reactive firefighting. We blend tax know-how with practical business insight, so owner-managers like you can focus on sales, staff and strategy while we handle HMRC. Talk to Stapletons today for tailored advice on everything from corporation tax to MTD – your next step starts with a conversation.

Ready to act? Talk to us about the tax-saving opportunities for business owners that fit your goals – our tax-planning specialists will help you put a plan in place.