Spring Statement 2025

National Insurance Changes

Employer’s rate of NI increased from 13.8% to 15% from April 2025.

Starting band for NI drop from £9,100 to £5,000.

Employment Allowance [‘free’ employer’s NI] up from £5,000 to £10,500.

This is quite a complex set of interactions, but essentially if your small company:

• Has two directors, or two employees this will be largely neutral
• If you are a sole director with no employees, this is expensive

Sole Directors client should consider employing a second director, and paying them for a single month around £417, which will save you (after all taxes) circa £800.

We are actively talking to clients about this point.

Companies House Changes

There are a number of changes at Companies House which are ongoing, which I cover again here.

These include:

Much increased levels of checks on ID and filed documents.

From ‘Spring‘ “Autumn” 2025, Companies House are going to check ID for major shareholders and directors. This is likely to be quite painful as each will need to use the government “verify” service. If you haven’t got a valid passport, I would get one now. Please look out for guidance as it’s issued to you, we think it will be tied into your Confirmation Statement cycle.

Higher fees, including confirmation statements which are now £34 rather than £13.

This is supposed to be to pay for the enhanced level of checking of documents.

Increased reporting requirements, including the need to file a Profit and Loss account.

We still don’t know at this stage what level of disclosure will be required nor the start date. I will let you know when I do.

Business Asset Taper Relief

Increase from 10% to 14% from April 2025, and 18% April 2026.

This is the tax that is paid on selling a trading business.  The main use by our clients is distributing reserves on closing a business without declaring dividends. By putting in a ratchet there is a clear encouragement to ‘get on with it’ in order to raise revenue.

Making Tax Digital (Quarterly Reporting)

From April 2026 (in theory) landlords will need to file a quarterly turnover figure to HMRC, if your rents exceed £50,000 per annum, falling to £30,000 (April 2027) and £20,000 (April 2028)

I explore this in more detail in the final Appendix below. This a very bad news.

Worth reminding you of:

SDLT Threshold

The temporary expansion of the nil rate SDLT band to £250,000 will end in March 2025.

Changes to Furnished Holiday Lettings Rules

Furnished Holiday Lettings status removed from April 2025, and I have spoken to most of you about this.

This will apply to traditional holiday lets and shorter term AirBnB.

The impacts are:

• Rate of CGT on sale rises from 20% to 24% for higher rate tax payers in line with residential lettings.
• Removal of ‘business asset’ tax breaks which allowed roll over relief.
• Mortgage interest relief moves to the residential regime, which treats interest as a basic rate deduction from tax and not a business expense.
• Initial furnishings will be a “tax nothing” with no deduction.

The biggest impact is to remove the ability to claim tax relief on initial furnishings. This is essentially a historical quirk for BTL. Given furnishings are a major claim for holiday letting businesses in the first year, this is likely to have a major impact. Replacement furniture is OK, so this perhaps points to a return to “granny sofa” style accommodation, which is swiftly replaced after a year or two.

The only good news is that any losses can now be pooled against regular BTL’s. This benefits some clients with a loss making FHL and a profit making BTL.

You will still however need to track your FHL for VAT purposes, the rules for which are unchanged.

From a tax planning point of view married couples with jointly held furnished holiday properties will have a default ownership of 50/50 applied from April 2025, so if you currently vary the percentage of income declared per person then talk to me if we have not done so already. An unequal split can be achieved using a deed of trust and Form 17 application to HMRC, albeit not retrospectively.

60 Day Report and Pay

If you sell your let property any Capital Gains Tax needs to be reported and paid within 60 days of the sale, unless you sell during February or March and we can file your 2024/25 tax return before the 60 day clock runs out.

Clients are still missing this!

Sole Traders, Making Tax Digital (Quarterly Reporting)

From April 2026 (in theory) sole traders will need to file a quarterly turnover figure to HMRC, if your turnover exceed £50,000 per annum, falling to £30,000 (April 2027) and £20,000 (April 2028).

I explore this in more detail in the final Appendix below. This a very bad news.

Company Car Benefit in Kind

The BIK band for electric vehicles currently 2% rises to 3% per from April 2025.

This is the same policy as previously.  Starting low, and rising slowly. It impacts those driving an electric company car. The benefit in kind rate is applied to the list price of the vehicle, and you and your employer are taxed on the computed benefit. Electric cars are still however a brilliant tax break, as are some hybrids, and look to be for some years.

Qualifying Years for State Pension

Do remember to check your qualifying years for state pension are “as you expect”

You have but a week to top up any missing years back to April 2006, after which point you can only go back 6 years.  This has been extended twice and is unlikely to be extended again.  Remember we can’t do this for you!

Below I list some major allowances, and in brackets [date of last change, what the rate would be if it kept pace with inflation to Feb-25, and % effective reduction]

• Personal allowance stays at £12,570 [Apr-21, £15,527, 24% reduction]
• Higher rate threshold stays at £50,270 [Apr-21, £62,096, 24% reduction]
• Corporation Tax main rate remains 25% for profits over £250,000 [Apr-23, £260,736, 4% reduction]
• Corporation Tax 19% for profits under £50,000 [Apr-17, £66,084, 32% reduction]
• VAT threshold stays at £90,000
• Mileage stays at 45p for business use of private car under 10,000 miles, and 25p for additional miles [Apr-11 & Apr-02, 66p & 46p, 46% & 83% reduction]
• IHT threshold remains at £325,000 [Apr-09, £513,953, 58% reduction]
• IHT threshold for a married couple with a home announced 2017 remains at £1,000,000 [Apr-17, £1,321,672, 32% reduction]
• £100,000 threshold for loss of Personal Allowance remains (frozen since 2010) [Apr-10, £152,466, 52% reduction]

Well it’s not an Emergency Budget (it really wasn’t even close, and scheduled months ago), this is merely the new look “Spring Statement” and unlike the old Autumn Statement, there was virtually no new tax information arising and was mercifully brief at little over 30 minutes.

As jobs go, I don’t really fancy being Reeves right now in a world in a mess, no room for any meaningful policy, hemmed in by debt and political promises of her own government’s making. Then again I don’t really fancy being Starmer either, managing the Orange Manbaby.  A nice safe job on the other side of the dispatch box looks tempting right now given it’s a lot easier to criticise than suggest a sensible path from here.  Mel Stride waffled on in reply with almost nothing of substance to say other than tedious points which might make sense in the political bubble but little back in the real world.  It was almost unique in that is didn’t mention a single specific policy causing the long list of grievances, but perhaps I don’t watch enough GB news.  What did irk me was the noticeably sexist rift on a shrill “she”.  @He, there are women now in politics, including your boss, get over it.

In terms of where we are, no real change from 5 months ago, we are still flat broke and in a hole as a country, parts of the economy still deflating slowly post Brexit (which is of course not mentioned) and there seem to be no real drivers of growth from other areas on the horizon.  Just wishing for some is not really a strategy, and I am not sure how taking away benefits is really very helpful given most benefits tend to go right back into the economy, albeit clearly something odd is happening with the rapid rises forecast.

Reeves has limited options to raise cash.  Fiscal drag which I have covered many times is still running albeit slowly with lower inflation. A wealth tax might be more for show as its hard to collect.  Hitting middle class tax breaks would be unpopular amongst my client base, but saving doesn’t really help the economy, you need people to spend money.  Therefore hitting ISA limits, pension benefits and like might provide some stimulation, but for a Labour MP, Reeves seems to be rather allergic to that. The plan seems to be partly Austerity Mark II with civil service spending cuts, but does come with substantial capital spending on defence and some other capital projects.

Most of the speech was a “greatest hits” of things Labour have done in the past 9 months, which to be fair was a fairly long list.  The main buzzwords were “uncertain world” a very careful framing of the fact the US has effectively withdrawn their international co-operation to Europe.  The core of this really centered on a big boost to the UK defence industry with the implication of heavy spending to be made in the UK, rather than just import from our ex-allies in the US, albeit we will naturally miss out on the EU’s spending.

Hidden away in the notes is full commitment to the role out of the quarterly reporting project for landlords and sole traders, which seems uniquely pointless.  We are going to be tasked with submitting 4 quarterly reports, which functionally do nothing at HMRC’s end, to essentially demonstrate the keeping of digital records. At no point does anyone question “why should small business have their record keeping dictated to by central government?”.  The claims this will somehow  raise taxes is dismissed by the OBR’s own numbers which says it won’t.   The cost so far (which is very little to show for anything other than replacing online filing with VAT, for a different online system) is a staggering £1,200,000,000.  HMRC are somehow still spending £200 million a year on this thing.  The initial budget (for a much wider scope for the whole project) was £226 million, so a billion overspend and still counting. That’s a lot of money for nothing, and it’s not even launched yet.  Labour have blown their chance to kill off this project which was initially announced by David Gauke and George Osborne 10 years ago.  Yes the very same “he” across from RR today.  I am very unimpressed by how much harder this will make paying taxes in the UK, and lands us with effectively three tax systems, PAYE, the current self assessment system and the new (as yet unseen) tax return for sole trader and landlords.  Work for us, yes, but very much “busy work” and not productive in any way, and ultimately you the taxpayer are going to have to pay for all the software and time get your returns filed.

James Smith

2pm, 26th March 2025

The following gives some “ready reckoners” on what money to take from your small limited company, and how much your personal tax will be

Broad Strategies

Your gross income from the company (dividend+salary+other income) should be:

£50,270 if you want to stay basic rate

£60,000 if you want to keep all your child benefit

£100,000 if you want to preserve all your personal allowance

£125,140 if you want to avoid the additional (45%) rate of tax

You can then use the following rules of thumb for how much tax to keep back:

I have historically published tables to give typical extraction strategies undertaken by small Limited Companies and how they change as the tax bands change, however this has got so complex with the various bands of Corporation Taxes, salary strategies and other ‘noise’ there are now very few “normal” cases.

The interactions between company taxes, payroll taxes and personal taxes are so complex now we are having to plan each client on their own merits to optimise profit extraction and tax policy.

I enclose however some general pointers for those looking at their tax efficiency.

Things to Consider

The following costs are “no brainers” for most (but not all) clients, regardless of income.

• Having two directors and paying salaries to £12,570 for at least one of them
• Gross Company Pension Contributions vs payments out of net pay
• Company phones for each director (private use permitted)
• Take an “annual event” at £150/per employee (plus a guest)
• Electric vehicle as a company car [25 to 40% saving, reducing over time due to tax change and initial age of vehicle]
• Hybrid vehicle as a company car [5 to 20% saving again benefits reduce over time, and initial age of vehicle]
• For those working from home, a home office rental agreement

On a basic level the key questions right now are:

1. Is a limited company still right for my business?
2. If not, how do we go about closing it?

It is not possible to give a one size fits all answer, so let us look at some key factors of why companies are helpful, and when they are not. I am talking to all our relevant clients about any decisions to close, largely with your company year end work.

The following looks at “business profits”, so before director’s salaries. Payment of pensions will suppress business profits.

Sweet Points

• Business profits of £60,000 per annum
• Business profits of £125,000 per annum
• Variable profits bouncing around these points.

The reason these points are good, is that a sole trader would be entering higher rate tax at £50,270 of profit, but those working through a company remain basic rate tax payers as dividends are paid “post corporation tax”.  The same happens at £100,000 band, where personal allowances are withdrawn. For clients in this zone, being a company makes tax sense alone, as do those with fluctuating profits around this area as we can smooth your drawings year to year.

Painful Areas

Profits under £50,000 if a single director

This is painful. Whilst the headline marginal rates of tax are the same in theory (ie the compound rate of tax from Corporation tax plus dividend taxes, vs income tax plus self employed NI), the payment of Employer’s NI will make you around £800 worse off.  However engaging a second director with a single month of salary would swing this slightly positive

Company Profits in the range £90,000 to £110,000

In this range your marginal rate of tax will be 51% with a company vs 42% as a sole trader, so benefits of reaching the higher rate tax threshold later is offset by the higher “pound for pound” tax rate.  This reverses as you reach £100,000 business profits.  At its peak you can be approaching £2,000 per annum worse off than a sole trader.

Other tax Reasons

• Flexibility. One of the key strengths in having a limited company is the ability to “duck under” tax bands. A sole trader or partnership pays tax on an “arising” basis and has no flexibility about when you pay tax. If your income is sometimes below £50,000 profit, and sometimes much higher, then this will save you tax simply by smoothing your profit over all periods.
• Perks. There are a number of tax perks and quirks in having a company which can outweigh any headline rate differences. The biggest is an electric car.  At the smaller end is a perk phone (sole traders would be prorated for business use). Pension tax relief is also enhanced with a company, as there is no National Insurance if made via a gross company contribution.

Non-tax reasons to have a company

• Limited liability. If a sole trader fails, then you would be personally liable for the business debts. Similarly you are responsible personally if there was a claim against you for say negligence. This may not really be significant if you mainly sell your time and all business risks are comprehensively insured. If this is important a Limited Liability Partnership might be an option.
• Commercial Reasons. Will this affect your sales? For contractors, it may not be possible to even contract to an end client as a sole trader. For some businesses, you may not be able to get access to trade accounts. There may also be a perception about how “serious” your business is, but this is often more in the business owner’s mind.
• Reporting. You may end up having to deal with the “making tax digital” program and quarterly reporting if your turnover exceeds £30,000.  This is not on the cards for small limited companies but  make the costs of being a sole trader not much less than being a limited company. LLP’s compliance costs are about the same as a limited company.

Disincorporation Blues

Moving from a limited company to a sole trader can be problematic, some of the issues include:

Goodwill

The key issue for many business is they have inherent “goodwill” that is to say the value of the business which exceeds its balance sheet. A solvent business seeking to move from a limited company to a sole trade, would need to consider this, value it, and pay corporation tax on the value as part of the disincorporation process.

Disincorporation relief used to exist up until 2018, but does not seem to have been put back on the statute:

In short, this can get expensive if you are a “proper” business which could be sold to a third party. If it’s just a personal service business, then you are probably OK.

Banking and Practical Matters

• You will need to open new business accounts as a sole trader, including payment processors
• Any loans and debts in the company will need to be repaid or refinanced
• Contracts etc will need to be updated and resigned
• Payment details will change with customers for the new bank account

Reserves

If you have reserves built up in the company, you will need to (generally) declare those as a dividends which would generally give rise to a large tax bill.

Long term readers of these circulars will have noted my commentary on this for the past 10 years. This project requires quarterly reporting for sole traders and landlords in addition to a final tax return using a new (and yet unseen) tax return.

Much to my surprise HMRC seem to be determined to finally launch this in April 2026 “ready or not”, (and they are not) so you will probably be seeing a lot about this in the press and in particularly heavy advertising from software companies who are doing their best to pretend it’s compulsory to use their products.

I have contacted clients who we think will be in the first wave recently with more information, but for others:

Overview

Criteria and start dates:

Total turnover (rental business PLUS sole trader incomes)

• More than £50,000, April 2026
• More than £30,000, April 2027
• More than £20,000, April 2028

File What?

• Landlords               Rents only (One total figure a quarter)
• Sole Traders           Sales, and total expenses (two total figures a quarter)

File When?

• Quarter End                       Deadline
• Jun 2026                            7^th Aug 2026
• Sep 2026                           7^th Nov 2026
• Dec 2026                           7^th Feb 2027
• Mar 2027                           7^th May 2027
• Final Return                     31^st January 2028

File How?

• From bookkeeping software, or
• From excel with a plug in (which you will need to pay for), or
• Via a third party, or
• Via your accountant

File Why?

Because HMRC say so. To be clear this is not “five tax returns” as the quarterly data has no tax function at HMRC’s end. It’s proper old fashioned “busy work”

Do’s and Don’ts

These remain the same:

• Don’t buy software unless you actively want to use it for your record keeping
• Do use a dedicated business account
• Don’t sign up for the pilot