As we bid farewell to the 2024/25 tax year and step into 2025/26, a host of tax changes are set to impact both businesses and individuals. Here’s a breakdown of what’s coming your way and how you can prepare.
High-Income Child Benefit Charge (HICBC)
Starting in the 2025/26 tax year, individuals earning over £60,000 will need to account for the High-Income Child Benefit Charge (HICBC). If you receive Child Benefit for a child residing with you, even if you’re not their parent, you could be liable. For couples, the charge is imposed on the higher earner.
The charge is 1% of Child Benefit for every £200 earned over £60,000. Once income reaches £80,000, the benefit is fully reclaimed. A new digital PAYE process will roll out in summer 2025, allowing affected employees to declare and pay this charge without registering for self-assessment.
Reporting income from side hustles
Generating extra income from selling goods, renting property, or providing services? You may need to report it to HMRC. The good news is that earnings below £1,000 remain tax-free. However, if your trading or rental income exceeds this threshold, reporting becomes mandatory.
Currently, if your earnings surpass £1,000, you must file a full self-assessment tax return. However, a streamlined online tool is in development for individuals earning between £1,000 and £3,000. This will simplify tax reporting without requiring a full return. If your income is above £3,000 or includes rental income, you’ll still need to file a self-assessment.
From April 2026, digital reporting for many traders and landlords will become the norm.
Making Tax Digital (MTD) expands
HMRC’s Making Tax Digital (MTD) initiative is moving ahead, starting with sole traders and landlords earning over £50,000 from 6 April 2026. Future phases will include:
- From April 2027: those earning over £30,000
- From April 2028: those earning over £20,000
Under MTD, affected individuals must maintain digital records and submit quarterly tax updates via MTD-compatible software. Although an end-of-year tax return will still be required, HMRC’s free online filing service will no longer be available. Now is the perfect time to evaluate your digital tax systems and prepare for these changes.
Employment tax changes
Employers will see significant shifts in National Insurance Contributions (NICs) from 6 April 2025:
- Employer NICs rise from 13.8% to 15%
- The salary threshold for NICs drops from £9,100 to £5,000
- The higher threshold (£50,270) remains for employees under 21 and apprentices under 25
- The Employment Allowance increases from £5,000 to £10,500, with more businesses qualifying
Capital Gains Tax (CGT) adjustments
From April 2025, CGT rates will shift:
- Basic rate taxpayers: 18%
- Higher/additional rate taxpayers: 24%
- Business Asset Disposal Relief (BADR) increases from 10% to 14% (rising to 18% from April 2026)
Timing asset sales carefully can help mitigate tax liabilities. Speak to your accountant to strategize effectively.
Inheritance Tax (IHT) relief reform
Major changes to IHT reliefs for business owners and farmers are on the horizon from April 2026. The government is reviewing Agricultural Property Relief (APR) and Business Property Relief (BPR), potentially reducing reliefs from 100% to 50% for certain assets.
Given the complexity, early estate planning is advisable to maximise tax efficiency.
E-Invoicing and Digital Trade Developments
A government consultation is underway to explore e-invoicing adoption, aiming to enhance payment efficiency and reduce errors. Additionally, a UK-US digital trade pilot is in progress to streamline international business transactions.
R&D Tax Relief and compliance crackdowns
The government is reviewing how R&D tax relief is granted, potentially expanding HMRC’s advance clearance system to reduce fraud and improve certainty for claimants. Expect stricter oversight and possible mandatory pre-approval for high-risk claims.
Additionally, HMRC is intensifying its crackdown on ‘phoenixism’—the practice of dissolving companies to evade tax liabilities. New measures will include enhanced director accountability and upfront tax security demands.
Stamp Duty Land Tax (SDLT) changes
From April 2025, SDLT thresholds in England and Northern Ireland will change:
- The 0% rate drops from £250,000 to £125,000
- The 2% SDLT band applies from £125,001 to £250,000
- First-time buyer relief reduces from £425,000 to £300,000
For property investors, higher rates for additional properties remain in place.
HMRC’s modernisation plan
HMRC is pushing forward with a digital transformation, set to be outlined in its ‘Plan for Change’ this summer. Key updates include:
- New PAYE portal (April 2025): Enables 34 million employees and pensioners to access income data, update records, and understand tax code changes.
- AI-powered customer support: Automated tools will streamline assistance on GOV.UK and through voice recognition software.
- Stronger compliance measures: HMRC will increase penalties for tax avoidance, including a new whistleblower reward scheme targeting corporate tax fraud.
- Enhanced data sharing: More pre-filled tax returns and real-time PAYE adjustments to simplify compliance.
Penalty increases & interest rate adjustments
From April 2025, late tax payments will incur higher penalties:
- 15+ days late: 3%
- 30+ days late: an additional 3%
- 31+ days late: 10% per annum
Additionally, HMRC’s late payment interest will increase by 1.5 percentage points, aligning with the Bank of England’s base rate plus 4%.
Final thoughts
The 2025/26 tax year brings significant changes across multiple areas of taxation. Whether you’re an individual taxpayer, a business owner, or a landlord, proactive planning is key. Get in touch to ensure you remain compliant while making the most of available reliefs and exemptions.
Disclaimer: This is intended for informational purposes only and does not constitute financial advice. Please talk to us before making any financial decisions.