Navigating the 2025 Tax Changes: What Companies and Individuals Need to Know

As the new financial year for companies and the new tax year for individuals is now here, it's crucial to stay informed about the upcoming tax changes that could impact your financial planning and obligations. These changes, stemming from recent budgets and policy shifts, affect a wide range of taxpayers, including business owners and high-net-worth individuals. Understanding these adjustments will help you navigate the evolving tax landscape effectively.

1. National Insurance Contributions (NIC) Adjustments

One of the headline changes is the alteration in National Insurance Contributions (NIC) rates, thresholds, and allowances for employers. Announced in the Autumn Budget 2024, these modifications aim to balance the fiscal budget and address economic challenges. Employers should review these changes carefully to assess their impact on payroll expenses and overall financial planning.

2. Capital Gains Tax (CGT) Rate Increases

Significant changes are being implemented in Capital Gains Tax (CGT) rates:

• Business Asset Disposal Relief (BADR) and Investors’ Relief: The CGT rate on gains qualifying for BADR or investors’ relief will increase from 10% to 14% effective from 6 April 2025, with a further rise to 18% from 6 April 2026.
• Carried Interest Gains: The existing lower and higher CGT rates for carried interest gains (18% and 28%, respectively) will be replaced with a flat rate of 32% starting 6 April 2025. Additionally, from 6 April 2026, carried interest will be taxed under the income tax framework, applying a 72.5% multiplier to the amount subject to tax.

These changes underscore the importance of timely tax planning for individuals and entities involved in asset disposals and investment activities.

3. Abolition of Furnished Holiday Lettings (FHL) Tax Rules

The special tax rules for furnished holiday lettings (FHLs) will be abolished from 1 April 2025 for companies and 6 April 2025 for individuals. Previously, FHLs enjoyed several tax advantages, such as:

• Deductibility of interest in calculating taxable income.
• Eligibility to claim capital allowances for certain expenditures.
• Access to CGT reliefs like BADR upon property disposal.

Post-abolition, FHLs will be treated under the standard UK or overseas property business rules. Transitional provisions may apply in specific scenarios, allowing, for example, the claiming of capital allowances for expenditures in a capital allowances pool as of 1 or 5 April 2025.

4. Tax Treatment of Double Cab Pick-Ups (DCPUs)

From 1 April 2025 for corporation tax and 6 April 2025 for income tax and NICs, HMRC will revise its policy regarding double cab pick-ups (DCPUs). The new stance will classify a vehicle as a van if its construction at the time of manufacture indicates it is primarily suited for transporting goods. This reclassification could substantially affect the benefit-in-kind (BIK) calculations for employees and the associated tax liabilities for employers.

Example: A company leases a petrol-powered DCPU with a list price of £42,000 and CO₂ emissions of 190 g/km. Under the current policy, the vehicle is treated as a van, resulting in a BIK of £3,960 for 2024/25. The employee, taxed at the higher rate, pays £1,584 in income tax, and the company incurs £546 in Class 1A NICs. Under the revised policy, treating the vehicle as a car would increase the BIK to £15,540, leading to an income tax liability of £6,216 for the employee and £2,145 in Class 1A NICs for the company. This change underscores the need for businesses to reassess their vehicle policies and the potential tax implications.

5. New Tax Return Requirements for Sole Traders and Directors

Effective from 5 April 2025, new mandatory tax return requirements will apply to:

• Taxpayers commencing or ceasing a trade.
• Directors of close companies.

These requirements, applicable for tax returns from the 2025/26 tax year onwards, are estimated to impact approximately 1.2 million sole traders and 900,000 directors. Affected individuals should familiarize themselves with these obligations to ensure compliance and avoid potential penalties.

6. Changes to Capital Allowances

Adjustments to capital allowances are set to take effect, influencing how businesses can claim tax relief on capital expenditures. These changes aim to encourage investment while ensuring that tax reliefs are appropriately targeted. Businesses planning significant capital investments should review these changes to optimize their tax positions.

7. Modifications to National Insurance Contributions (NICs)

Beyond the employer-related NIC changes, individuals will also experience adjustments in NIC rates and thresholds. These modifications are designed to align NICs more closely with income tax structures, promoting fairness and simplicity in the tax system. Both employers and employees should assess these changes to understand their impact on net incomes and payroll costs.

8. Income Tax Rate Adjustments

The government has announced changes to income tax rates and bands, aiming to address fiscal challenges and income inequality. These adjustments may affect taxpayers differently based on their income levels. Individuals should review these changes to understand their implications and adjust their financial planning accordingly.

9. Revisions to VAT Registration Thresholds

The VAT registration thresholds are set to change, impacting businesses across various industries. These revisions could affect companies' cash flow and compliance obligations. Business owners should assess whether they will need to register for VAT or adjust their invoicing strategies accordingly.

10. Other Key Tax Developments

Additional tax reforms, including targeted reliefs and new compliance measures, are also expected to come into effect. Keeping abreast of these developments will be critical for both businesses and individuals aiming to minimize tax liabilities and ensure full compliance with new regulations.

Final Thoughts

With April 2025 bringing a raft of tax changes, companies and individuals must be proactive in their tax planning. Reviewing your financial position and seeking professional advice where necessary can help mitigate potential tax liabilities while taking advantage of any available reliefs. Stay informed and prepared to navigate the evolving tax landscape with confidence.