Corporation Tax Changes in 2025: What Businesses Should Prepare For
Tax season can be one of the most stressful times of the year for businesses. If you’re a sole trader, freelancer, or running a limited company, getting your tax right is crucial to avoid penalties, stay compliant, and make the most of tax-saving opportunities.
Corporation Tax Rates
The main rate of corporation tax remains at 25% for companies with profits exceeding £250,000.
For companies with profits under £50,000, a small profits rate of 19% continues to apply.
Companies with profits between £50,000 and £250,000 will benefit from marginal relief, providing a gradual increase in the effective corporation tax rate.
Employer's National Insurance Contributions (NICs)
From 6 April 2025, the rate of employer NICs will increase by 1.2%, rising from 13.8% to 15%.
Additionally, the threshold at which employer NICs become payable will decrease from £9,100 to £5,000.
These changes will result in higher payroll costs for employers.
Employment Allowance
To mitigate the impact of increased NICs, the Employment Allowance will rise from £5,000 to £10,500 starting 6 April 2025.
This allowance enables eligible businesses to reduce their employer NICs bill. Notably, the £100,000 eligibility threshold will be removed, allowing more employers to benefit from this relief.
Capital Gains Tax (CGT) Rates
From 6 April 2025, CGT rates on assets such as shares will increase. Specifically, the CGT rate for Business Asset Disposal Relief (BADR) and Investors’ Relief will rise from 10% to 14%.
This change affects business owners considering the sale of assets and should be factored into succession planning.
Full Expensing for Capital Expenditure
The government has made ‘full expensing’ a permanent feature of the capital allowances regime.
This allows companies to claim the full cost of qualifying expenditure on IT equipment, plant, or machinery against tax in the year the investment is made, encouraging business investment.
Research and Development (R&D) Tax Relief
The transition to a modernised R&D regime continues in 2025. Companies operating on a December year-end will enter the new merged regime from 1 January 2025.
Additionally, a new R&D-specific disclosure facility will be available from 1 January 2025, allowing companies that have previously over-claimed R&D tax relief to rectify their position.
Abolition of the Non-Domiciled Tax Regime
The non-domiciled (non-dom) tax regime will be abolished from April 2025. Currently, UK resident individuals who are non-domiciled can claim to be taxed on non-UK income and gains only if these are remitted into the UK. This change will affect individuals who previously benefited from this regime.
Inheritance Tax (IHT) Changes
From April 2026, agricultural property will no longer be fully exempt from inheritance tax. The first £1 million will remain exempt, with tax charged on the excess at half the standard rate. This change will impact succession planning for business owners and farmers.
VAT on Private Education Fees
From January 2025, private education fees will be subject to VAT at 20%. This change will affect private schools and parents paying for private education.
Business Rates Relief
Retail, hospitality, and leisure businesses will retain their business rates relief during 2025 (until April 2026), although at a reduced discount rate of 40% from April 2025.
Preparation is key
These changes underscore the importance of proactive tax planning. Businesses should assess how these adjustments impact their operations and seek professional advice to navigate the evolving tax landscape effectively.
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