The 2025/26 tax year brings significant changes for UK small businesses. These tax changes affect everything from payroll to business rates relief.
Understanding UK tax changes helps you plan better. This guide covers what matters most to limited company tax UK obligations and small operations.
Understanding the 2025/26 tax year timeline
The current tax year started on 6 April 2025. It runs until 5 April 2026. These dates matter for your Corporation tax return and planning.
UK tax deadlines shifted this year with the 2024/25 tax year ending on Saturday 5 April 2025 and the 2025/26 tax year commencing on Sunday 6 April 2025.
Many business tax rates UK have changed already. Your HMRC online account now reflects updated rates. Early preparation prevents costly mistakes later.
National Insurance changes hit employers hard
Employer national insurance rate increase
From 6 April 2025, Employer’s national insurance contributions increased from 13.8% to 15%, representing a 1.2% rise in the employment tax burden.
This affects your payroll software UK calculations. Every employee costs more to employ now. Budget accordingly for these higher overheads.
Lower NIC threshold
The threshold at which employers must start paying National insurance dropped significantly from £9,100 to £5,000 annually per employee.
This means you pay employer NIC much earlier. Part-time workers trigger contributions faster now. Review your workforce costs immediately.
Employment allowance relief
The good news: Employment allowance increased from £5,000 to £10,500 for the 2025/26 tax year, more than doubling the amount eligible employers can reduce from their National insurance liability.
Employment allowance comparison table
| Tax year | Allowance amount | Eligibility cap |
|---|---|---|
| 2024/25 | £5,000 | £100,000 employer NIC |
| 2025/26 | £10,500 | No cap |
Check your eligibility through your accountant. This relief helps offset the rate increase. Many small businesses will benefit significantly.
Corporation tax rate in UK remains stable
Corporation tax rate UK stays at 25% for larger companies. The government confirmed this throughout the current Parliament.
Small profits rate remains 19% for companies with profits under £50,000. The tapered relief applies between £50,000 and £250,000.
Corporation tax rates 2025/26
| Profit band | Rate | Notes |
|---|---|---|
| £0 – £50,000 | 19% | Small profits rate |
| £50,001 – £250,000 | Tapered | Marginal relief applies |
| Over £250,000 | 25% | Main rate |
Your Corporation tax return preparation needs accurate profit forecasts. Use accounting software to track your position throughout the year.
VAT Threshold UK stays at £90,000
The VAT registration threshold remains at £90,000 for the 2025/26 tax year, representing the highest threshold in Europe alongside Switzerland.
The VAT threshold UK hasn’t changed since April 2024. This helps small businesses avoid complex VAT administration until they grow larger.
When you must register for VAT?
You must register if your taxable turnover exceeds £90,000 in any rolling 12-month period. Or if you expect to exceed it within 30 days.
The deregistration threshold sits at £88,000, positioned lower than the registration threshold to prevent businesses from constantly registering and deregistering around the boundary.
Track your turnover monthly, not yearly. VAT runs on rolling 12-month calculations. Missing the registration deadline triggers penalties.
Capital Gains Tax increases for business assets
Capital gains tax rates for Business asset disposal relief increased from 10% to 14% from 6 April 2025, with a further rise to 18% planned for April 2026.
This impacts business sales and asset disposals. Plan exits carefully considering these higher rates. Capital allowances UK schemes may offer alternatives.
CGT rates for business assets
| Relief type | Old rate | 2025/26 rate | 2026/27 rate |
|---|---|---|---|
| Business asset disposal relief | 10% | 14% | 18% |
| Investors’ relief | 10% | 14% | 18% |
Business expense claims can reduce taxable gains. Keep detailed records of all qualifying expenditure. Professional advice saves money on larger disposals.
Business rates relief reduced for retail
Business rates relief for retail, hospitality, and leisure businesses dropped from 75% to 40% for 2025/26, capped at £110,000 per business.
The small business multiplier stays at 49.9p. However, the standard multiplier for properties with rateable values of £51,000 or more increased to 55.5p.
This increases costs for larger retail premises. Small shops benefit from the frozen multiplier. Budget for higher business rates this year.
R&D tax credits UK merged scheme
From accounting periods beginning on or after 1 April 2024, companies access R&D relief through either the new Research and development expenditure credit or the Enhanced R&D intensive support scheme.
New RDEC merged scheme
The new RDEC offers tax relief of approximately 15p-16p for every £1 spent on qualifying R&D expenditure as an above-the-line tax credit.
This represents less generous relief than before. SMEs previously claiming under the old scheme receive lower benefits under merged RDEC.
Enhanced R&D Intensive Support (ERIS)
The Enhanced R&D intensive support scheme provides a higher rate of 14.5%, potentially offering up to 27% back on qualifying R&D expenses for loss-making, R&D-intensive SMEs.
R&D relief comparison 2025/26
| Scheme | Eligible companies | Relief rate | Cash benefit |
|---|---|---|---|
| Merged RDEC | All companies | 20% credit | 15-16.2% |
| ERIS | Loss-making R&D intensive SMEs | 186% deduction | Up to 27% |
Notify HMRC within six months of your accounting period end if claiming R&D tax credits UK. This prior notification rule prevents late claims.
Key R&D rule changes
From 1 April 2024, expenses related to overseas subcontractors and externally provided workers conducting R&D outside the UK became ineligible for R&D tax credits.
The work must occur physically in the UK. Exceptions exist where UK conditions aren’t available. Document your R&D activities thoroughly.
Dividend allowance UK remains low
Dividend tax rates remain unchanged for 2025/26, but the tax-free dividend allowance stands at just £500 after reductions over previous years.
This low dividend allowance UK affects owner-managers. Plan salary versus dividend splits carefully. Tax deductions for business expenses help overall efficiency.
Dividend tax rates 2025/26
| Income band | Dividend tax rate |
|---|---|
| Basic rate (£12,571-£50,270) | 8.75% |
| Higher rate (£50,271-£125,140) | 33.75% |
| Additional rate (over £125,140) | 39.35% |
Only £500 of dividends are tax-free. Everything above pays the relevant rate. Consider pension contributions as tax-efficient alternatives.
PAYE thresholds & statutory pay rates
National living wage increases
From 1 April 2025, the National living wage for workers over 21 increased, adding to employer costs alongside the National insurance changes.
These wage increases combine with higher NIC. Total employment costs rose significantly. Review your PAYE thresholds in payroll software UK.
Statutory payment rates
Statutory sick pay increased to £118.75 per week from 6 April 2025, whilst Statutory maternity, paternity, adoption, shared parental, and parental bereavement pay rose to £187.18 per week.
A new Neonatal care pay entitlement commenced at £187.18 per week for eligible employees.
Budget for these increased statutory payments. They affect workforce planning and costs. Your payroll software UK should update automatically.
Small business tax relief opportunities
Annual investment allowance
The Annual investment allowance stays at £1 million. This covers capital allowances UK on equipment. Claim 100% first-year relief on qualifying assets.
Full expensing for companies runs until 31 March 2026, providing 100% first-year relief on most plant and machinery.
Order major equipment before this deadline. Install items to qualify for maximum tax deductions for business. Contract timing affects which year claims apply.
Making tax digital expansion
Making tax digital for Income tax applies from April 2026 to landlords and sole traders with annual income above £50,000.
The 2025/26 year lets you test digital bookkeeping before mandatory compliance. Choose MTD-compatible software now to prepare properly.
Business expense claims rules tightened
HMRC introduced tougher penalties for late tax payments from 6 April 2025, including penalties for VAT and Income tax delays.
Keep meticulous records of business expense claims. Late payments trigger escalating penalties. The initial penalty reaches 5% after 15 days.
An ongoing surcharge of 10% annually applies to amounts remaining unpaid beyond initial penalty points.
Set up Direct debits through your HMRC online account. Automatic payments prevent accidental delays. Interest charges compound quickly on overdue amounts.
Tax return preparation checklist
Prepare your tax return preparation early:
Essential tasks for 2025/26
- Update your HMRC online account details
- Review Employment allowance eligibility claims
- Check VAT threshold UK against rolling turnover
- Document all business expense claims thoroughly
- Notify HMRC of planned R&D tax credits UK claims
- Review Corporation tax rate UK bands applicable
- Update payroll software UK for new NIC rates
- Calculate capital allowances UK claims available
Start gathering records well before deadlines. Digital record-keeping helps avoid penalties. Most UK tax deadlines allow online filing extensions.
Changes to company size definitions
New legislation reclassifies business sizes with increased turnover thresholds for micro-entities, small, and medium-sized companies, leading to simpler reporting and auditing requirements.
New company size thresholds
| Size | Previous turnover | New turnover | Balance sheet | Employees |
|---|---|---|---|---|
| Micro | Not specified | Increased | Increased | Unchanged |
| Small | Lower threshold | Higher threshold | Increased | Unchanged |
| Medium | Lower threshold | Higher threshold | Increased | Unchanged |
More companies qualify as smaller entities now. This reduces filing obligations for many SMEs. Check your classification affects reporting requirements.
Tax planning strategies for SMEs
Timing capital expenditure
Purchase equipment before 31 March 2026. Full expensing maximises capital allowances UK relief. Defer other costs to manage taxable profits.
Salary vs dividend balance
With unchanged dividend tax rates but low dividend allowance and higher employer NIC, careful planning of salary versus dividend combinations remains key for limited company contractors.
Take salary up to personal allowance limits. Top up with dividends considering the low dividend allowance UK of £500 tax-free.
Maximising employment allowance
Claim the full £10,500 Employment allowance if eligible. This offsets higher employer NIC rates significantly for small employers.
Business structure review
Higher employment costs may justify incorporation for sole traders. Compare limited company tax UK versus self-employment thoroughly before changing.
Regional variations: Scottish income tax
Scottish income tax thresholds differ from England. Inflationary changes affected some Scottish income tax thresholds for 2025/26.
Check rates applying to your location. Scottish residents face different bands and rates. Your payroll software UK should handle this automatically.
Common tax mistakes to avoid
Missing VAT registration deadline
Track turnover monthly using accounting software. The VAT threshold UK applies on rolling 12-month basis, not calendar years.
You get 30 days after exceeding £90,000. Late registration triggers penalties and backdated VAT. Set alerts at £75,000 turnover.
Incorrect NIC calculations
Update your payroll software UK immediately. The £5,000 threshold catches many employers unaware. Double-check calculations for all employees.
Poor R&D documentation
HMRC increased compliance activities surrounding R&D incentives to combat perceived error and fraud.
Document projects thoroughly from the start. Technical narratives must clearly demonstrate qualifying activity. Poor records lead to rejected claims.
Late payment penalties
New tougher penalty rules apply to late tax payments, making timely compliance more critical than ever.
Set calendar reminders for all UK tax deadlines. Automated payment systems prevent costly errors. Interest compounds daily on late amounts.
Resources and support
HMRC online services
Your HMRC online account provides:
- Real-time tax position updates
- Digital submission of returns
- Payment history and records
- Penalty and interest tracking
Register all company officers and directors. Enable two-factor authentication for security. Check regularly for HMRC correspondence.
Professional advice
Complex tax changes demand expert guidance. Consider professional support for:
- R&D tax credits UK claims
- Corporation tax return preparation
- Business structure optimisation
- Tax planning strategies
Accountants save money through proper planning. Their fees often pay for themselves through improved tax efficiency and avoided penalties.
Looking ahead: 2026/27 changes
Business asset disposal relief rates will increase again to 18% from April 2026.
Plan business sales considering these increases. Timing disposals carefully saves significant tax. Capital gains planning needs multi-year perspective.
Full expensing ends 31 March 2026. Major equipment purchases should occur before this. Annual investment allowance continues after.
Making tax digital for Income tax becomes mandatory April 2026. The 2025/26 year offers preparation time before compliance requirements hit.
Final thoughts
The 2025/26 tax changes create both challenges and opportunities for UK small businesses. Higher employer National insurance costs strain budgets.
However, increased Employment allowance helps offset this burden significantly. The stable VAT threshold UK and Corporation tax rate UK provide certainty.
Plan proactively using this guide. Update your payroll software UK immediately for new rates. Review business structure and expense policies.
Stay ahead of UK tax deadlines through calendar alerts. Maintain excellent records for business expense claims. Consider professional advice for complex areas.
Tax changes affect every limited company tax UK obligation and small business operation. Understanding these updates protects profits and ensures compliance.
Start implementing changes now. Don’t wait until tax return preparation deadlines approach. Early action prevents penalties and maximises relief.
Your HMRC online account tracks your position. Regular reviews identify issues before they escalate. Proper planning turns tax changes into advantages.
Frequently asked questions
What is the corporation tax rate UK for 2025/26?
The Corporation tax rate UK stands at 19% for profits up to £50,000. It rises to 25% for profits exceeding £250,000. Marginal relief applies between these thresholds for small businesses.
Has the VAT threshold UK changed for 2025/26?
No, the VAT threshold UK remains at £90,000. This threshold stayed unchanged from April 2024 and represents the highest in Europe. Businesses must register when taxable turnover exceeds this.
How much is the dividend allowance UK now?
The dividend allowance UK is just £500 for 2025/26, having decreased significantly over recent years. Any dividends above this amount face tax at rates from 8.75% to 39.35% depending on income.
What are the new PAYE thresholds for 2025/26?
The threshold where employer NIC starts dropped from £9,100 to £5,000 annually per employee from 6 April 2025. The personal allowance remains £12,570. National insurance employee threshold stays at £12,570 too.
Can I still claim R&D tax credits UK?
Yes, but rules changed significantly. For accounting periods from 1 April 2024, companies claim through either the merged RDEC scheme or Enhanced R&D intensive support. Notify HMRC within six months of accounting period end before claiming R&D tax credits UK.
What business rates relief is available?
Retail, hospitality, and leisure businesses receive 40% business rates relief for 2025/26, down from 75% previously, capped at £110,000 per business. Small business multiplier froze at 49.9p for properties with rateable values below £51,000.
How do I claim the Employment allowance?
Eligible employers can now claim £10,500 Employment allowance, more than double the previous £5,000, with the £100,000 eligibility threshold removed. Claim through your payroll software UK when submitting Employer payment summary returns.
What are the key UK tax deadlines?
Corporation tax return preparation deadline is 12 months after accounting period end. Payment due nine months and one day after period end.
Self-assessment tax returns due 31 January following tax year end. VAT returns typically quarterly, due one month and seven days after period end.
Do capital allowances UK rules still apply?
Yes, full expensing continues until 31 March 2026, providing 100% first-year relief on qualifying plant and machinery. Annual investment allowance remains at £1 million. Claim capital allowances UK through your Corporation tax return.
How does making tax digital affect me?
Making tax digital for Income tax becomes mandatory from April 2026 for sole traders and landlords with income over £50,000. VAT-registered businesses already comply with MTD. Use compatible software to maintain digital records.
Parul is a dedicated writer and expert in the accounting industry, known for her insightful and well researched content. Her writing covers a wide range of topics, including tax regulations, financial reporting standards, and best practices for compliance. She is committed to producing content that not only informs but also empowers readers to make informed decisions.