What small business owners need to know about the new 2025/26 tax year

April is a busy time for small business owners. Many of the changes announced in Labour’s first Autumn Budget come into effect this month.

One of the main headlines was an increase in the cost to employ staff, driven primarily by a rise to employer National Insurance Contributions. But, several other changes that will affect small business owners also come into force in the 2025/26 tax year. Some were only recently announced in Rachel Reeves’s Spring Statement.

So here’s our round-up of all the changes small business owners need to know as we start the new 2025/26 tax year. 

When does the new tax year start?

The 2024/25 tax year ended on Saturday 5th April 2025. The 2025/26 tax year runs from Sunday 6th April 2025 to Sunday 5th April 2026. 

What changes will affect my small business in the 2025/26 tax year?

From Sunday 6th April 2025, the following changes come into effect:

Change to company size thresholds

New legislation will reclassify the size of a business. It’s hoped that this will lead to simpler reporting and auditing requirements for small businesses.

The classification of your business as a micro-entity, small or medium-sized is based on turnover, balance sheet total and average number of employees (which remains unchanged).

Increase in HMRC interest rates for late payments

To encourage people to pay HMRC on time, interest rates on late payments for all taxes will increase by 1.5%. Late payment interest will now be set at base rate plus 4% for most taxes.

Increase in penalties for late tax returns 

Further to the interest rate rise, the Spring Statement announced an increase in penalty fees for self-employed individuals and landlords who file their tax returns late.

Starting from the 2025/26 tax year, these changes will affect VAT and income tax Self Assessment taxpayers who report their earnings through HMRC’s Making Tax Digital.

 The new late payment penalties are:

• 3% of the outstanding tax if overdue by 15 days
• Plus an additional 3% if overdue by 30 days
• Plus 10% per annum for tax overdue by 31 days or more.

Increase in Business Asset Disposal Relief 

When you dispose of any business assets, you will now pay a higher rate of Capital Gains Tax on any profit. Where Business Asset Disposal Relief applies, Capital Gains Tax increases from 10% to 14%. The rate will increase further – to 18% – next April.   

Increases to staffing costs

• Employer’s National Insurance Contributions (NICs) is increasing by 1.2%, from 13.8% to 15%. At the same time, the threshold at which employers must start paying NICs reduces from £9,100 to £5,000 a year per employee.

• Employment Allowance is increasing from £5,000 to £10,500. This means that the amount by which eligible employers will be able to reduce their National Insurance liability will more than double. 

• Statutory Sick Pay is increasing to £118.75 per week (up from £116.75).

• Statutory family-related pay increases. The amount of statutory maternity, paternity, adoption, shared parental leave and parental bereavement pay is increasing to £187.18 per week (up from £184.30).

• The Neonatal Care (Pay and Leave) Act comes into force. This means eligible parents will be entitled to up to 12 weeks’ paid leave.

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06/04/25: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.