The new tax year got underway on 6 April 2025, and as with any tax year, that brought with it a raft of changes to taxation. Navigating these changes can be a minefield, and as we move into 2025/26 in earnest, you want to make sure that you are maximising the tax reliefs available and avoiding any pitfalls brought by any new legislation.
At Haines Watts, we have you covered. This brief guide will highlight some of the key considerations that you should be aware of as a business owner.
National Insurance
The 2025/26 tax year sees the introduction of the much-publicised increases to national insurance, as announced in the Autumn Budget. In short, these changes are:
1. An increase in the headline employers’ contribution rate from 13.8% to 15%
2. A reduction in the threshold at which employers’ pay national insurance from £9,100 to £5,000
3. An increase in the employment allowance from £5,000 to £10,500
What does this mean for you as an employer?
A common answer when such questions are posed is ‘it depends’. The number of staff and their annual salary are the key variables. Businesses with less than 10 employees will see little difference and may even be better off, whilst business with over 10 employees will see payroll costs increase. The reduction in the threshold will see businesses who never had to pay employers’ national insurance - perhaps because they are seasonal workers, and only employee people for parts of the year – now face increase costs.
The table below highlights the changes in cost for a sample of average employee salaries and employee numbers:
The increase in employment allowance of £5,500 will offset and protect the smallest businesses from any immediate cost increase. Thereafter the incremental cost to business quickly becomes significant. We don’t consider national minimum wage increases in this blog, but this will further compound the cost increase.
The increased cost in unavoidable. So what can and should you be doing as a business owner to minimise the impact?
Remuneration planning
For many years now, the standard advice was for directors to draw a salary of £12,570. The company received a corporation tax deduction, no national insurance was payable, and the director received a qualifying year’s contribution against their entitlement to state pension. A win-win all around!
Any further income requirements were then topped up with dividends, payable from the post-tax profits of the company.
This tax strategy results in a lower tax burden overall for both individual and company. However, that tax saving has been eroded over the years, and in cases where you are a particularly high earner, taking a salary can actually be more efficient.
The reduction in the threshold for employers’ national insurance will see employers now facing a tax cost on the salary element of this strategy. As the tax landscape is always changing, and as your business and personal needs also change, regular reviews of your remuneration strategy should be considered. Get in touch with one of our experts for personalised advice.
Pensions
Employer pension contributions are a very efficient way of extracting income from your company, with one key drawback – you will not get your hands on the money until you reach 55 years old. The company receives a corporation tax deduction on the payment, with no other immediate tax costs.
The annual allowance for contributions into your pension is £60,000, subject to certain conditions, and will see corporation tax savings of 19% (£11,400) or 25% (£15,000) depending on the level of profit.
Read our blog post about pensions and inheritance tax here.
Company car
Your company may provide a vehicle, including fuel, for your use. Whilst this will attract a tax charge on you as an individual, known as a benefit in kind, that tax charge is known and can therefore be anticipated and mitigated. The company will receive a corporation tax deduction for the purchase or lease of the vehicle.
The benefit in kind on a vehicle is calculated as a percentage of the list price. The percentage is determined by the fuel emissions of the car and ranges from 3% to 37%. A full-electric or hybrid vehicle will therefore be taxable at the lower end of the scale and will be more efficient than funding a lease or purchase from your personal, post-tax, earnings.
Insurance
In a similar vein as company cars, your company can also provide insurance covering both yourself as owner and other staff. This could be private health, private dental, life insurance or keyman insurance. A benefit in kind may arise depending on the policy.
Keyman insurance is a policy which covers an individual, or individuals, that are key to the ongoing success and prosperity of the business, and whose death or critical illness could lead to a financial loss. The cost of the policy is usually tax deductible, resulting in a corporation tax saving on the premiums.
By your side
As an entrepreneur, you have enough on your plate running a business. As your trusted advisor, Haines Watts work alongside you and ensure that you have all the necessary information to make the best, most informed decision for your benefit today and tomorrow.
The above list is a flavour of some of the things that you should be thinking about. Reach out to us for more information on how we can help you succeed.
