Employer’s National Insurance rose considerably from 6 April 2025. Not only did the rate increase from 13.8% to 15%, but the secondary threshold also fell from £9,100 to £5,000. This is the amount that an employer can pay before a liability to secondary Class 1 National Insurance contributions arises. For 2025/26, the secondary threshold is equivalent to only £96 per week and £417 per month.

For employers who are able to benefit from the Employment Allowance, there is an element of relief as this was increased to £10,500 for 2025/26. However, this does not help personal companies where the sole employee is also the director as they are not entitled to the Employment Allowance.

NIC hit on a small salary

For 2025/26, at £96 per week the secondary threshold is now less than the lower earnings limit, which has increased to £125 per week for 2025/26. For a year to be a qualifying year, an individual must receive earnings of at least 52 times the weekly lower earnings limit. For 2025/26, the minimum salary to achieve this is £6,500.

In the absence of the Employment Allowance, a secondary liability of £225 will arise on a salary of £6,500. However, there are no employee contributions to pay as where earnings are between the lower earnings limit and the primary threshold, the employee is treated as paying contributions at a zero cost. If the director is paid a salary equal to the personal allowance of £12,570, the associated secondary liability is £1,135.50.

Access the Employment Allowance

By taking on an employee and paying them earnings in excess of the secondary threshold, a personal company is able to access the Employment Allowance, which can be set against their secondary Class 1 National Insurance liability. The eligibility test is simply that the secondary contributor incurs liabilities to pay secondary contributions in respect of the employee – there is no minimum period for which these liabilities need to be incurred; employing another employee for £97 for one week will do the trick. However, a safer option to avoid unwanted attention from HMRC may be to take on, say, a student during the summer holidays to do some work, or to employ a spouse on a part-time basis.

The other way to access the Employment Allowance is to ensure that the sole employee is also not a director. Resigning as director and appointing a spouse as the director instead will access the Employment Allowance without needing to take on another employee.

Accessing the Employment Allowance will shelter the secondary liability that would otherwise arise, allowing the director to be paid a salary of up to £12,570 for 2025/26 free of tax and National Insurance.

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is introduced progressively from 6 April 2026. It will require unincorporated traders and landlords whose income is over the trigger threshold to keep digital records and make quarterly returns and a final declaration to HMRC using MTD-compatible software.

The start dates for traders and landlords with trading and/or property income in excess of £30,000 have been known for some time (albeit they are now later than originally announced). At the time of the Autumn 2024 Budget, the Government stated that MTD for ITSA would be extended to apply to traders and landlord with trading and/or property income of £20,000 or more before the end of the current Parliament. At the time of the 2025 Spring Statement, it was announced that it will apply to them from 6 April 2028.

Start dates

The first start date is 6 April 2026. This is for individuals with income from an unincorporated trading and/or property business of at least £50,000.

The second start date is 6 April 2027. This is for individuals not already within MTD for ITSA with income from an unincorporated trading and/or property business of at least £30,000.

The final start date is 6 April 2028. This is for individuals not already within MTD for ITSA with income from an unincorporated trading and/or property business of at least £20,000.

As of yet, no date has been announced from which individuals with combined trading and property income of less than £20,000 will be brought within MTD for ITSA.

The income is the combined trading and property income from all sources before the deduction of expenses. An individual will be within MTD for ITSA if their total trading and property income exceeds the trigger threshold even if the income from each individual business is below it. The relevant income for assessing whether an individual is within the scope of MTD for ITSA from 6 April 2026 is that for 2024/25.

Once within MTD for ITSA, an individual must remain within it unless their income is below the prevailing threshold for three consecutive tax years.

Case studies

Abigail is a sole trader with trading income of £45,000 in 2024/25. She also receives rental income from a buy-to-let of £12,000. Although individually neither her trading nor her property income is more than £50,000, as her combined trading and property income at £57,000 is more than the threshold, she will be within MTD for ITSA from April 2026.

Billy has trading income of £35,000. As long as he remains at this level, he will be within MTD for ITSA from April 2027

Caitlin runs two small sole trader businesses. Her income from one is £15,000 a year and her income from the other is £7,000 a year. If her income remains at this level, she will be within MTD for ITSA from 6 April 2028.

It is important that traders and landlords are aware of their start date and plan ahead so that they are ready to comply from that date.

Employees may pay for the fuel that they use for business journeys undertaken in their own car or in a company car. Often, an employer will reimburse this cost by paying a mileage allowance. However, where employees meet the costs themselves, they are able to claim tax relief. The relief available depends on whether the employee is using their own car or a company car. Employees are also able to claim relief if their employer pays a mileage allowance which is less than the tax-free rates set by HMRC.

Employees using their own car for business travel

Where an employee uses their own vehicle for business travel, they are able to claim tax relief using the approved mileage rates set by HMRC. A claim is not limited to cars – relief can also be claimed if an employee uses their van, motorbike or bicycle for business travel. The amount that they can claim is the amount at the approved rates less any amount received from their employer towards the costs. The approved rates, which are set out in the table below, include an element for deprecation, insurance and maintenance, as well as the cost of the fuel. For cars and vans, a higher rate applies to the first 10,000 business miles in the tax year.

Type of vehicle	Rate per mile
Cars and vans	First 10,000 business miles in the tax year: 45p Subsequent business miles: 25p
Motorcycles	24p
Bicycles	20p

Example

Wendy uses her own car for business travel, driving 2,100 miles in the tax year. Her employer pays a mileage rate of 30p per mile.

The approved amount is £945 (2,100 miles @ 45p per mile). Wendy receives mileage payments of £630 from her employer (2,100 miles @ 30p per mile). Wendy is able to claim tax relief for the shortfall of £315.

Company car drivers

Company car drivers can claim tax relief for the cost of fuel or electricity used for business journeys in a company car to the extent that this is not reimbursed by their employer. They will need to keep records of the actual fuel or electricity costs. The approved mileage rates do not apply to company car drivers.

Making a claim

A claim can be made using HMRC’s online service or, where the employee needs to complete a Self Assessment tax return, in the employment pages of their tax return. A claim can also be made by post on form P87. The employee will need to provide evidence in support of their claim in the form of a mileage log. This must show:

• the reason for every journey;
• the postcode for the start point; and
• the postcode for the end point.

Where a claim is made for more than one employment, a copy of the mileage log must be provided for each claim.

As the 2024/25 tax year has now come to an end, individuals who need to file a Self Assessment tax return for that year can now do so. Although the return does not have to be filed online until 31 January 2026, there are benefits of filing early.

1. Get it out of the way

There is something very satisfying about ticking an item off a ‘to do’ list. Filing your 2024/25 tax return sooner rather than later will get it out of the way and mean that is no longer hanging over you. This will give you peace of mind.

• Certainty as to your tax bill

Once you have filed your 2024/25 tax return you will know how much tax you need to pay. This will give you plenty of time to set funds aside to pay the January 2026 bill, and also to set up a Time to Pay arrangement if you will need to pay in instalments.

• Code out underpayments

If you are a PAYE taxpayer and you owe £3,000 or less, as long as you file your 2024/25 tax return by 30 December 2025, you can opt to have the tax that you owe collected through your 2026/27 tax code. This delays the payment date and effectively gives you an interest-free instalment plan.

• Get a repayment sooner

If you have overpaid tax for 2024/25, the sooner you file your tax return, the sooner you will be able to receive a refund of the overpaid tax.

• Review your payments on account

The final payment on account for the 2024/25 tax year is due by 31 July 2025. If you already know your 2024/25 liability, you can review your payments on account and reduce them to the correct level if they are too high, so you do not pay more than you need to in July.

• Ascertain whether you are within MTD for ITSA from April 2026

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) applies from 6 April 2026 onwards to individuals running unincorporated trading and/or property businesses with trading and/or property income of £50,000 or more. The relevant income is that for 2024/25. Once the 2024/25 tax return has been filed, traders and landlords will be able to determine whether they must comply with MTD for ITSA from April 2026. The earlier they know, the longer they have to prepare.

• Assess transitional profits

Self-employed earners with an accounting date other than one between 31 March and 5 April may have transition profits in 2023/24. These profits are normally spread over five years (2023/24 to 2027/28 inclusive) unless the trader elects for these to be assessed earlier. Once the 2024/25 return has been filed, you will know your profits and marginal rate of tax for this year and can assess whether it would be beneficial to bring forward some transition profits to 2024/25. This will be advantageous if they will be taxed at a lower rate in 2024/25 than in later years, or if the personal allowance has not been fully used.

• Proof of income

Your tax return calculation provides you with proof of income which may be needed if you want to apply for a mortgage or a loan.

• Assist with tax planning

Filing your 2024/25 tax return will provide you with information to enable you to review your tax affairs and take advantage of planning opportunities to save tax going forward.

1. Earn brownie points with your tax adviser

The run up to the 31 January deadline is a very busy time for accountants and tax advisers. They are likely to look favourably on clients who provide their tax return information early in the following tax year, allowing them to file the return ahead of the January rush.

Employees with a company car available for their private use pay tax on the benefit. The amount that is charged to tax is a percentage of the list price of the car and any optional accessories, as adjusted to reflect any capital contributions made by the employee up to £5,000. The percentage, which is known as the ‘appropriate percentage’, depends on the level of the car’s CO2 emissions. A supplement applies to diesel cars that fail to meet emissions standards. The charge is adjusted to reflect certain periods during the tax year when the car was not available to the employee for their private use, and also any contributions made by the employee in respect of their private use of the car.

Changes applying from 2025/26

For the 2025/26 tax year, having a company car will become slightly more expensive. The appropriate percentages are increased by one percentage point up to the maximum charge of 37%. This means that an employee with an electric car will now be taxed on 3% of the list price of the car and optional accessories, compared to a charge of 2% for 2024/25. At the other end of the scale, the maximum charge of 37% will apply to cars with CO2 emissions of 155g/km and above.

This change will mean that an employee with a company car with a list price of £30,000 paying tax at the higher rate will pay £120 more in tax on their company car in 2025/26 than in 2024/25. Employers will also pay more in Class 1A National Insurance, both as a result of the increase in the appropriate percentage and also as a result of the increase in the Class 1A charge from 13.8% to 15%.

Looking ahead – 2026/27 and beyond

With the number of company car drivers choosing electric company cars increasing, the Government are reducing the tax breaks in order to maintain their revenue stream. For 2026/27, the appropriate percentages applying to cars with CO2 emissions of 74g/km or less are increased by one percentage point, while the appropriate percentages for cars with CO2 emissions of 75g/km and above are maintained at their 2025/26 level. It is a similar story for 2027/28 – the appropriate percentages for cars with CO2 emissions of 69g/km and below are increased by one percentage point, with the appropriate percentages for cars with CO2 emissions of 70g/km and above remaining unchanged.

There are further changes to come in both 2028/29 and 2029/30. In each of those years, the appropriate percentage for zero emission cars will increase by two percentage points. This means that for 2028/29, electric company car drivers will be taxed on 7% of the list price of their car and optional accessories. For 2029/30, this will increase to 9%.

From 2028/29, the amount charged to tax in respect of cars in the 1 to 50g/km band will no longer depend on the car’s electric range. Instead, the appropriate percentage for cars in this band will be set at 18% in 2028/29 and at 19% in 2029/30. For cars with the greatest electric range (more than 130 miles), this is a significant hike – from 5% in 2027/28 to 18% in 2028/29.

As far as other cars are concerned, the appropriate percentages will increase by one percentage point in both 2028/29 and in 2029/30. The maximum charge will also rise – to 38% in 2028/29 and to 39% in 2029/30.

Plan ahead

Drivers typically have a company car for three or four years. When changing their company car, employees should not only consider the current rates, but also those applying in future tax years. For electric and low emission cars in particular, significant tax hikes are on the horizon.

Putting money into a registered pension scheme can be tax efficient. Individuals can make contributions in their own right, or even for someone else, and employers can make contributions on their employees’ behalf (and indeed must do so under auto-enrolment). Tax relief is available on contributions up to certain limits.

Auto-enrolment

Under auto-enrolment, employers must enrol eligible employees into a registered pension scheme and make contributions on their behalf. An eligible employee is one who is between the ages of 22 and state pension age and who earns at least £10,000 a year. The total contribution to the scheme must be 8% of qualifying earnings, of which the employer must contribute at least 3%. While employees can choose to opt out of auto-enrolment, they will lose the valuable employer contributions, and as such, this is not a decision that should be made lightly.

Contributions to a personal pension scheme

Individuals can make tax-relieved contributions to a relevant pension scheme up to the lower of 100% of their earnings (or £3,600 if higher) and their available annual allowance. Tax relief is given at the contributor’s marginal rate of tax.

For 2025/26, the annual allowance is set at £60,000. However, where both threshold income (broadly income excluding pension contributions) exceeds £200,000 and adjusted net income (which includes pension contributions) exceeds £260,000, the annual allowance is reduced by £1 for every £2 by which adjusted net income exceeds £260,000 until the allowance is reduced to the minimum amount of £10,000.

Where the annual allowance is not used in full, it can be carried forward for up to three years. However, the current year’s allowance must be used before utilising those from earlier years (with allowances from earlier years being used in chronological order).

The annual allowance was set at £60,000 for 2024/25 and 2023/24 For 2022/23 it was set at £40,000 (with abatement applying where threshold income was more than £200,000 and adjusted net income was more than £240,000 until the minimum allowance of £4,000 is reached).

Individuals who have not made contributions in 2022/23 and later tax years can make tax-relieved contributions of up to £220,000 in 2025/26, earnings permitting. However, it should be remembered that high earners may have a reduced annual allowance as abatement may apply.

There is no longer any cap on lifetime tax-relieved pension savings following the removal of the former lifetime allowance. However, the maximum tax-free lump sum is capped at £268,275 where this is less than 25% of the value of the pension pot when accessed.

Once an individual has accessed their pension savings (currently an option on reaching the age of 55), they are only entitled to a lower annual allowance – the money purchase annual allowance – thereafter. For 2025/26 this is set at £10,000.

Personal and family companies

Directors of personal and family companies often only take a small salary equal to the personal allowance of £12,570 and withdraw further profits as dividends. This can limit the tax-relieved pension contributions that they are able to make, as dividends do not count as earnings, capping potential pension contributions at £12,570 a year. This problem can be overcome if the company makes employer contributions on their behalf, as while employer contributions count towards the annual allowance, they are not limited to 100% of the employee’s earnings. Making pension contributions to the director’s pension scheme can be a tax-effective way to withdraw profits from the company. The contributions are also deductible when calculating the company’s profits for corporation tax purposes.

Last October Chancellor Rachel Reeves announced some far-reaching National Insurance changes which will affect employers from April 2025. She also confirmed the rates applying to employees and to the self-employed.

Employers

The 2025/26 tax year starts on 6 April 2025. From that date, the secondary threshold (which is the point at which employers start paying secondary contributions on employees’ earnings unless one of the higher secondary thresholds applies) falls to £96 per week (£417 per month; £5,000 per year). From the same date, the rate at which employers pay secondary contributions is increased from 13.8% to 15%. The fall in the threshold will mean employers may now need to pay secondary contributions for the first time on the earnings of some part-time workers who previously were below the threshold.

There is some help at hand in the form of an increase in the Employment Allowance, which rises from £5,000 to £10,500. From 2025/26, it will be available to larger employers as the former condition that the secondary Class 1 NIC bill in the previous tax year must not exceed £100,000 in order to benefit from the Employment Allowance is lifted. However, personal companies in which the sole employee is also a director remain ineligible.

The rise in the Employment Allowance will mean that smaller employers may find their secondary National Insurance bill falls, despite the cut in the secondary threshold and the increase in the rate. However, at the other end of the spectrum, large employers will face significant hikes in their National Insurance bill.

There are no changes to the upper secondary thresholds. The upper secondary threshold for under 21s, the apprentice upper secondary threshold and the veterans’ upper secondary threshold remain at £967 per week (£4,189 per month; £50,270 per year). Employers looking to mitigate the impact of the changes may wish to take on more workers falling within these categories. The thresholds applying to new employees in Freeports and Investment Zones are also unchanged at £481 per week (£2,083 per month; £25,000 per year).

The Class 1A and Class 1B rates are aligned with the secondary Class 1 rate and these too rise to 15% for 2025/26.

Employees

Employees have been spared from increases in their National Insurance bills. There is no change to the starting point at which contributions become payable as the primary threshold remains at £242 per week (£1,048 per month; £12,570 per year) and retains its alignment with the personal allowance. The upper earnings limit is also unchanged at £967 per week (£4,189 per month; £50,270 per year). The main primary rate remains at 8% and the additional primary rate remains at 2%.

Employed earners whose earnings are between the lower earnings limit and the primary threshold are treated as if they have paid contributions at a zero rate, which gives them a qualifying year for state pension purposes. The lower earnings limit is increased by £2 per week to £125 per week (£542 per month; £6,500 per year).

Self-employed earners

Self-employed earners pay Class 4 contributions if their earnings exceed the lower profits limit. This remains at £12,570 for 2025/26. The main Class 4 rate, payable on profits between the lower profits limit and the upper profits limit, which is also unchanged at £50,270, stays at 6% and the additional Class 4 rate, payable on profits above the upper profits limit, stays at 2%.

Self-employed earners whose profits are between the small  profits threshold and the lower profits limit receive a National Insurance credit, which provides them with a qualifying year for state pension purposes. The small profits threshold has increased to £6,845 for 2025/26. Self-employed earners with profits below this can opt to pay voluntary Class 2 contributions to secure a qualifying year. For 2025/26, these are payable at the rate of £3.50 per week.

Voluntary Class 3

Individuals who want to plug a gap in their contribution record can opt to pay voluntary Class 3 contributions if they are not eligible to pay voluntary Class 2. For 2025/26, Class 3 contributions are set at £17.75 per week.

Employees who incur expenses in undertaking their job may be able to claim tax relief for those expenses where they are not reimbursed by their employer. The expenses will qualify for relief if they are incurred wholly, exclusively and necessarily in the performance of the duties of their employment or meet the deductibility conditions for particular types of expenses, such as travel expenses or professional fees and subscriptions.

Last year, HMRC introduced new evidence requirements for claims for employment expenses. While the new rules were being implemented, they also closed their online expenses claim service for a limited period. During this time employees who wished to submit a claim for relief for employment expenses had to do so by post on form P87.

A new iForm went live in December, meaning employees can once again claim relief for employment expenses online.

Making an online claim

A claim can be made online using the new iForm by visiting the Gov.uk website at www.gov.uk/tax-relief-for-employees/travel-and-overnight-expenses, but only if the claim amounts to £2,500 or less in a single tax year.

Where the amount claimed is more than £2,500, it must be made in the tax return. Employees who are required to submit a Self Assessment tax return should make the claim in their return, even if it is for £2,500 or less.

Evidence required

Claims for tax relief for employment expenses must now be accompanied by evidence in support of the claim. The evidence that is required will depend on the nature of the claim.

For example, where the claim is for a subscription to a professional body, a receipt or other evidence of the amount paid to that body should be supplied. For mileage allowance claims, a mileage log should be maintained which shows each journey, the postcode for the start and end of the journey and the reason for the journey. The mileage log should be supplied with claims for mileage allowance relief.

Where an employee is required to work from home some or all of the time, a claim can be made for the additional household costs incurred as a result. Where such a claim is made, the claimant will need to submit a copy of their employment contract or such other document as makes it clear that the employee is required to work from home rather than working from home through personal choice.

For other expenses, a receipt or other evidence, such as a bank or credit card statement, must be provided which shows both the item in respect of which relief is claimed and also that the claimant paid for that item.

Evidence is not required for flat rate expenses claims made for uninforms, work clothing and tools.

For unincorporated businesses, from 6 April 2024 onwards the cash basis is the default basis of accounts preparation. Unlike the accruals basis under which income and expenditure must be matched to the accounting period to which it relates, where the cash basis is used, income is only taken into account when received and expenditure when paid. This presents some tax planning opportunities around the end of the tax year as regards the timing of income and expenditure.

1. Consider delaying invoicing

If income is likely to be taxed at a higher rate in 2024/25 than in 2025/26, consider delaying invoicing so that a receipt will fall in 2025/26 when it will be taxed at a lower rate.

Example

A sole trader is a higher rate taxpayer in 2024/25, but expects to be a basic rate taxpayer in 2025/26. In March 2025 he undertakes a job, the fee for which is £5,000. If he delays invoicing for the work until April 2025 so that he receives the fee in 2025/26, he will pay tax on it at 20% rather than at 40%.

Delaying invoicing will also delay the time at which the tax is payable on the work. Tax for 2024/25 is due by 31 January 2026, whereas that for 2025/26 is due by 31 January 2027.

• Consider invoicing early

Conversely, if the taxpayer is a basic rate taxpayer in 2024/25 but expects to be a higher rate taxpayer in 2025/26, or if they have not used their personal allowance for 2024/25, invoicing early so that the receipt falls in 2024/25 rather than 2025/26 will save tax.

• Consider advancing expenditure

Taxable profits can be reduced by reducing income or increasing expenditure. Where the cash basis is used, taxable profits for 2024/25 can be reduced by bringing forward planned expenditure so that it falls in 2024/25 rather than in 2025/26.

Example

A sole trader is planning to buy a van. The van will cost £15,000. If the van is purchased before the end of the 2024/25 tax year, the expenditure will fall in 2024/25 and can be deducted in calculating the taxable profits for 2024/25, reducing the tax that is payable for that year. If the purchase is delayed beyond 5 April 2025 so that it falls in the 2025/26 tax year, the sole trader will need to wait a further year to benefit from the tax deduction.

• Consider delaying expenditure

If the taxpayer is likely to pay tax at a higher rate in 2025/26 or has not fully used their 2024/25 personal allowance, it will be advantageous to delay planned expenditure so that it falls within the 2025/26 tax year to secure tax relief for the expenditure at the best possible rate.

Most individuals are entitled to receive a personal allowance. This is the amount that they are able to earn before they pay tax. For 2024/25, the personal allowance is set at £12,570. The allowance is for the tax year only – if you do not use it in the tax year, you lose the benefit of it; you cannot carry any unused amount forward to the next tax year.

As the end of the tax year approaches, if you have yet to use your 2024/25 personal allowance, you may want to consider whether there is scope to do so.

1. Pay a salary or a bonus

If you operate a personal or family company, you may wish to consider withdrawing further profits in the form of a salary or bonus before 6 April 2025. For 2024/25, the optimal salary is one equal to the personal allowance of £12,570 where the allowance is not used elsewhere. If you have yet to pay a salary of this level, there is still time to do so before the end of the tax year.

2. Advance income or defer expenses

For 2024/25 onwards, the cash basis is the default basis of assessment for unincorporated businesses. Under the cash basis, income is assessed when received and expenses recognised when paid. If your taxable profit for 2024/25 is less than your personal allowance and you have no other income, consider whether you can bring profit into 2024/25 rather than 2025/26 by accelerating income (for example, by invoicing early) or by delaying paying expenses.

3. Consider pension payments

If you have reached the age of 55 and have already flexibly accessed your pension, for example, by withdrawing your 25% tax-free lump sum, consider taking further payments from your pension to use up any remaining personal allowance as this will enable you to withdraw further amounts from your pension tax-free.

4. Preserve the allowance if you are a high earner

The personal allowance is reduced once adjusted net income reaches £100,000. For every £2 by which adjusted net income exceeds £100,000, the personal allowance is reduced by £1 until fully abated once income reaches £125,140. Individuals whose adjusted net income is £125,140 or more in 2024/25 do not receive a personal allowance. However, to prevent the loss of the personal allowance, consideration could be given to delaying income, for example, deferring bonus or dividend payments from a personal or family company, or reducing adjusted net income by making pension contributions or charitable donations.

5. Consider the marriage allowance

If you are married or in a civil partnership and are unable to use your 2024/25 personal allowance in full, consider whether you can make use of the marriage allowance to save tax. If your spouse or civil partner is a basic rate taxpayer, you can transfer £1,260 of your personal allowance to them by making a marriage allowance claim. This will reduce their tax bill by £252.