Budget 2025 Implications for Entrepreneurs and Businesses

The 2025 Budget inevitably had implications for businesses and entrepreneurs, which now need to be carefully considered. In this article, we take a quick look at changes to corporation tax, capital allowances, National Insurance, and the National Living and National Minimum Wage. 

Business Tax

Corporation Tax

The government has confirmed that the rates of Corporation Tax will remain unchanged, which means that, from April 2026, the rate will stay at 25% for companies with profits over £250,000. The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.

The government has committed to capping the main rate of Corporation Tax at 25% for the duration of the Parliament. 

The penalty for taxpayers submitting a Corporation Tax return late will double for returns for which the filing date is on or after 1 April 2026. 

Capital allowances

The Full Expensing rules for companies allow a 100% write-off on qualifying expenditure on most plant and machinery (excluding cars) as long as it is new and unused. Similar rules apply to integral features and long-life assets at a rate of 50%.

The government will reduce the main rate Writing Down Allowance (WDA) from 18% to 14% per year from 1 April 2026 for Corporation Tax purposes and 6 April 2026 for Income Tax purposes. For businesses with chargeable periods which span 1 April (Corporation Tax) or 6 April (Income Tax), a hybrid rate will apply. The WDA on the special rate pool remains at 6% per year.

For expenditure incurred on or after 1 January 2026, the government will introduce a new first year allowance (FYA) of 40% for all businesses on main rate assets, including most expenditure on assets for leasing. Cars, second-hand assets and assets for leasing overseas will not be eligible.

The Annual Investment Allowance is available to both incorporated and unincorporated businesses. It gives a 100% write-off on certain types of plant and machinery up to certain financial limits per 12-month period. The limit remains at £1 million.

The 100% FYA for qualifying expenditure on zero-emission cars and the 100% FYA for qualifying expenditure on plant or machinery for electric vehicle chargepoints have been extended to 31 March 2027 for Corporation Tax purposes and 5 April 2027 for Income Tax purposes. 

Close companies

The Government will consult on a proposal for close companies to report transactions between close companies and their shareholders to HMRC.  A close company is a company controlled by five or fewer shareholders or any number of shareholder directors.

National Insurance Contributions 

Employees and NICs

For 2026/27 the rates of Class 1 employee NICs are 8% and 2%. The employer rate is 15%.

The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee’s earnings and is currently set at £5,000 a year from 6 April 2025. The government announced that this will be maintained at this level until April 2031.

The Employment Allowance allows eligible businesses with employer NICs bills to deduct £10,500 from their employer NICs bill.

The self-employed and NICs

For 2026/27 the rates of Class 4 self-employed NICs are 6% and 2%. These rates remain the same for 2026/27.

For Class 2 NICs from 6 April 2026:

• Self-employed people with profits of £6,845 and above get access to contributory benefits, including the State Pension, through a National Insurance Credit, without paying Class 2 NICs.
• Those with profits under £6,845 who pay Class 2 NICs voluntarily to get access to contributory benefits, including the State Pension, will continue to be able to do so.

Changes for 2026/27

The government will increase the Lower Earnings Limit (LEL) and the Small Profits Threshold (SPT) from 2026/27. For those paying voluntarily, the government will also increase Class 2 and Class 3 NICs for 2026/27.

The LEL will be £6,708 per annum (£129 per week) and the SPT will be £7,105 per annum. The main Class 2 rate will be £3.65 per week and the Class 3 rate will be £18.40 per week.

Employer NICs relief for veterans

The government will extend the employer NICs relief for employers hiring qualifying veterans to April 2028.

Changes to salary sacrifice for pensions from April 2029

The government is changing how salary sacrifice for pension contributions works.

Salary sacrifice is when you agree to reduce your gross salary or sacrifice a bonus and, in return, your employer pays the same amount into your pension.

From April 2029, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions through salary sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to the usual limits).

Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions.

Employers will need to report the total amount sacrificed through their existing payroll. All employer pension contributions will continue to be free of NICs.

Employees, as well as employers, will pay NICs on the amount above £2,000 for employee contributions through salary sacrifice.

Employees who choose to salary sacrifice to receive Tax Free Childcare or Child Benefit can keep doing so.

The government states that just under 75% of basic rate taxpayers and their employers are using salary sacrifice schemes.  They will not be affected by these proposals if the employment income diverted is less than £2,000 per annum.

This change is therefore directed at higher-rate taxpayers and it remains to be seen what behavioural changes arise as a result, and if changes in employment contractual terms can defeat these proposals.

National Living Wage and National Minimum Wage

The government has announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW), which will come into force from 1 April 2026. The rates which will apply are as follows:

The apprenticeship rate applies to apprentices under 19 or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.

VAT

The VAT registration threshold

From 1 April 2026, the VAT registration threshold remains at £90,000 and the deregistration threshold at £88,000.

As always, these articles provide an overview of the various measures available, and no action should be taken without seeking professional advice.  At Ritchie Phillips, we pride ourselves on providing clear, pragmatic advice to help businesses, individuals and families. If you’d like to discuss any of the above, please get in touch.