The Chancellor’s Autumn Budget introduced some important changes that will reshape the tax landscape in 2025. These changes will affect both businesses and individuals, so it’s a good idea to start preparing now. Here’s a round-up of what’s to come to help you stay ahead in this evolving environment.
Increase in employer National Insurance contributions
Employer National Insurance (NI) contributions are going up by 1.25 percentage points, starting at a £5,000 salary (down from £9,700). This, coupled with an increase in the minimum wage, means payroll costs are set to rise. Certain businesses will be particularly hard hit, so it is a good time to review your staffing budgets to fully understand the impact of these changes on your business. You may need to adjust your staffing plans or find ways to improve efficiency. Jonathan Franks explores the ramifications of the NI increase and its potential effect on certain industries and sectors of the workforce here.
Changes to personal tax thresholds
Personal tax thresholds are frozen until 2028, which means more people will gradually move into higher tax brackets, without seeing any extra income from wage increases—a process called “fiscal drag.” This might leave some employees with less take-home pay, especially those moving into higher bands. Tax efficient employee benefits, salary sacrifice schemes and pension contributions can help to offset the impact of fiscal drag.
Inheritance tax adjustments
Inheritance tax thresholds are staying at £325,000, which doesn’t stretch as far as property and asset values rise. For business owners, this makes planning for the future even more important, especially when thinking about passing on the business to the next generation. Tools like Business Property Relief and trusts can help reduce the tax burden.
There may be further changes to Business Property Relief and Agricultural Property Relief in 2025, which could tighten the rules.
Corporation Tax and capital allowances
While the corporation tax rate remains at 25% for larger firms, the good news is that full expensing for capital investments has been extended, meaning you can offset qualifying investments against taxable profits. This can help ease some of the strain from rising costs—just be sure to balance this with your cash flow needs.
R&D tax credits and sustainability incentives
If your business claims R&D tax credits, the rules now require more detailed documentation of your activities. At the same time, sustainability is coming into focus, with potential taxes on carbon emissions. Preparing early and allocating resources thoughtfully will help you manage these changes.
How to tackle these tax changes in 2025
- Managing workforce costs: Consider flexible options like outsourcing or temporary contracts to ease the impact of higher NI contributions. Salary sacrifice schemes (for pensions or electric vehicles) can also reduce your NI bill while offering great perks to employees.
- Supporting your team: Help employees adjust to tax changes by offering benefits like enhanced pension contributions. If you’re a director or owner, now’s a good time to revisit your dividend strategy to stay as tax-efficient as possible.
- Planning for the future: With IHT thresholds frozen, it’s smart to plan ahead for passing on your business or assets. Options like family trusts, gifting, or restructuring ownership may help reduce the tax burden on your estate.
- Making the most of tax reliefs: Full expensing and R&D tax credits are great tools to offset costs and improve cash flow. Don’t leave money on the table—these reliefs can make a big difference!
- Investing in sustainability: Upgrading to energy-efficient systems or automating processes can save money in the long run and might qualify for green tax incentives.
Looking ahead to 2025 and beyond
With the Spring Statement scheduled for 26 March 2025, further tax changes may be on the horizon. Staying proactive, informed, and adaptable will help you manage today’s challenges and prepare for tomorrow’s opportunities. To keep abreast of all the developments you can sign up to receive our updates here.
What can you do now?
Start by engaging expert advisors to develop strategies tailored to your circumstances. Remember, your tax situation is to unique to you. General advice, articles, and even tools like Google or ChatGPT can provide helpful insights, but they can’t substitute the guidance of a trusted adviser who understands you and your business. Now is the time to lean on the experts for support.
For a detailed guide on all of the Budget Announcements, download our Budget Summary here.