It can still be beneficial to incorporate and extract funds by taking a small salary and extracting further profits in the form of dividends (see Tips 25, 26 and 27). However, increases in the rates of corporation tax, employer’s National Insurance and dividend tax a cut in the dividend allowance, the abolition of Class 2 National Insurance contributions and the cut in the main rate of Class 4 National Insurance contributions have reduced the advantages of incorporation in recent years and muddied the waters, meaning that now incorporation is not always beneficial and will depend on the profit levels. There is no substitute for doing the sums.
A self-employed trader will pay income tax on their profits at 20% where these fall in the basic rate band, at 40% where these fall in the higher rate band and at 45% where these fall in the additional rate band. They will also pay Class 4 National Insurance contributions at 6% on profits between £12,570 and £50,270 and at 2% on profits in excess of £50,270.
For a personal company, a typical tax-efficient profit extraction strategy is to pay a small salary and to extract further profits as dividends. For 2025/26, assuming the personal allowance has not been used up elsewhere, the optimal salary is £12,570, equal to the personal allowance and the primary threshold.
Dividends do not attract National Insurance contributions, so by incorporating and extracting profits as dividends, you will save Class 4 National Insurance contributions. Dividends also benefit from a tax-free dividend allowance, set at £500 for 2025/26. Once the dividend allowance has been used up, dividends, taxed as the top slice of income, are taxed at 8.75% to the extent they fall in the basic rate band, 33.75% to the extent that they fall within the higher rate band and at 39.35% where they fall in the additional rate band.
It should be noted that dividends can only be paid from retained profits and for each class of share, shareholders must receive dividends in proportion to their shareholdings. The company is a separate legal entity which pays corporation tax on its profits. From 1 April 2023 onwards, the rate of corporation tax depends on the level of profits. A small profits rate of 19% applies where taxable profits do not exceed the lower limit, with a main rate of 25% applying where taxable profits are more than the upper limit. However, the effective rate is reduced by marginal relief where profits are between the lower limit and the upper limit.
Where the company has no associated companies, the lower limit is £50,000 and the upper limit is £250,000. If the company has one or more associated companies, these limits are divided by the number of associated companies plus one. The limits are reduced proportionately where the accounting period is less than 12 months. The rate at which corporation tax is paid will affect the post-tax profits available for distribution as a dividend.
As personal circumstances differ, there is no substitute for crunching the numbers. Consideration should also be given as to whether the costs of incorporation outweigh the tax and National Insurance savings.
Self-Employed? Is Incorporation Worthwhile? Harry is a sole trader, making profits of £50,000 a year. If he remains self-employed, in 2025/26, he will pay tax of £7,486 ((£50,000 – £12,570) @ 20%) on his profits. He will also pay Class 4 NICs of £2,245.80 ((£50,000 – £12,570) @ 6%). His total tax and NIC bill will be £9,731.80 leaving him with profits of £40,268.20.
If he incorporates the business and pays himself a salary of £12,570, assuming he is the sole employee and the director, he will not be entitled to the Employment Allowance. Therefore, the company will pay secondary NICs on the salary of £1,135.50 ((£12,570 – £5,000) @ 15%). The salary and the employer’s NIC are deductible in computing the company’s taxable profits, reducing the taxable profits to £36,295. As the profits are below the lower profits limit of £50,000, the company pays corporation tax at 19%, a tax bill of £6,8966, leaving post-tax profits of £29,399 to be extracted as a dividend. The first £500 of the dividend is tax-free. The remaining £28,899 is taxed at 8.75%, a tax bill of £2,528.66 leaving him with £26,870.34 of the dividend. Together with the salary of £12,570, Harry retains £38,440.34 of his profits.
For 2025/26, he is marginally better off by remaining self-employed. He also saves the additional administration associated with running a company. However, if he incorporates, he will have the choice as to whether to extract income from the company and pay personal taxes on it or leave it in the company and only incur corporation tax on his profits.
These figures apply to non-savings non-dividend income, including income from employment, property, or pensions. From 2017 to 2018, the main rates were separated into the main rates, the savings rates and the default rates.
Savings rates
Savings rates
Tax year 2024 to 2025
Tax year 2025 to 2026
Starting rate for savings
0%
0%
Savings basic rate
20%
20%
Savings higher rate
40%
40%
Savings additional rate
45%
45%
These figures apply to savings income.
Dividend rates
Tax year 2024 to 2025
Tax year 2025 to 2026
Dividend ordinary rate — for dividends otherwise taxable at the basic rate
8.75%
8.75%
Dividend upper rate — for dividends otherwise taxable at the higher rate
33.75%
33.75%
Dividend additional rate — for dividends otherwise taxable at the additional rate
39.35%
39.35%
These figures apply to dividend income received above the £500 tax-free dividend allowance.
Default rates
Tax year 2024 to 2025
Tax year 2025 to 2026
Default basic rate
20%
20%
Default higher rate
40%
40%
Default additional rate
45%
45%
These figures apply to non-savings and non-dividend income of any taxpayer that is not subject to either the main rates or the Scottish rates of Income Tax.
Starting rates for savings income
Tax year 2024 to 2025
Tax year 2025 to 2026
Starting rate for savings
0%
0%
Starting rate limit for savings
£5,000
£5,000
Income Tax rates for trustees’ income
Tax year 2024 to 2025
Tax year 2025 to 2026
Thresholds
£500 de minimis trusts amount
£500 de minimis trusts amount
Dividend ordinary rate
8.75%
8.75%
Default basic rate
20%
20%
Dividend trust rate for accumulated and discretionary dividend income
39.35%
39.35%
Trust rate for other accumulated and discretionary income
45%
45%
Income Tax allowances
Personal Allowance
Tax year 2024 to 2025
Tax year 2025 to 2026
Personal allowance
£12,570
£12,570
Income limit for Personal Allowance
£100,000
£100,000
Income limit for Married Couple’s Allowance
£37,000
£37,700
The Personal Allowance reduces where the income is above £100,000 — by £1 for every £2 of income above the £100,000 limit. This reduction applies irrespective of date of birth.
The income limit for Married Couple’s Allowance is an age-related allowance. It is reduced by £1 for every £2 of income over this limit.
Marriage Allowance
Tax year 2024 to 2025
Tax year 2025 to 2026
Marriage Allowance
£1,260
£1,260
This transferable allowance is available to married couples and civil partners who are not in receipt of Married Couple’s Allowance. A spouse or civil partner who is not liable to Income Tax, or not liable at the higher or additional rates, can transfer this amount of their unused personal allowance to their spouse or civil partner. The recipient must not be liable to Income Tax at the higher or additional rates.
Married Couple’s Allowance for those born before 6 April 1935
Tax year 2024 to 2025
Tax year 2025 to 2026
Maximum amount of Married Couple’s Allowance
£11,080
£11,270
Minimum amount of Married Couple’s Allowance
£4,280
£4,360
The relief for this allowance is given at 10%.
Blind Person’s Allowance
Tax year 2024 to 2025
Tax year 2025 to 2026
Blind Person’s Allowance
£3,070
£3,130
Dividend Allowance
Tax year 2024 to 2025
Tax year 2025 to 2026
Dividend Allowance
£500
£500
Personal Savings Allowance
Tax year 2024 to 2025
Tax year 2025 to 2026
Personal Savings Allowance for basic rate taxpayers
£1,000
£1,000
Personal Savings Allowance for higher taxpayers
£500
£500
From April 2016, the new Personal Savings Allowance means that basic rate taxpayers do not have to pay tax on the first £1,000 of savings income they receive and higher rate taxpayers do not have tax to pay on their first £500 of savings income.
Qualifying Care relief
As announced at Spring Budget 2023, the government will legislate to increase the amount of Income Tax relief available for foster carers and shared lives carers using Qualifying Care Relief. This is an annual increase in line with CPI inflation. The changes will take effect from 6 April 2025, for the tax year 2025 to 2026.
Tax year 2024 to 2025
Tax year 2025 to 2026
Annual fixed amount
£19,360
£19,690
Weekly amount — children under 11 years
£405
£415
Weekly amount — children 11 years or older
£485
£495
Weekly amount — adults
£485
£495
Company car tax — all cars
CO2 emissions, g/km
Electric range (miles)
Appropriate percentage (%) for 2024 to 2025
Appropriate percentage (%) for 2025 to 2026
Appropriate percentage (%) for 2026 to 2027
Appropriate percentage (%) for 2027 to 2028
Appropriate percentage (%) for 2028 to 2029
Appropriate percentage (%) for 2029 to 2030
0
Not applicable
2
3
4
5
7
9
1 to 50
More than 130
2
3
4
5
18
19
1 to 50
70 to 129
5
6
7
8
18
19
1 to 50
40 to 69
8
9
10
11
18
19
1 to 50
30 to 39
12
13
14
15
18
19
1 to 50
Less than 30
14
15
16
17
18
19
51 to 54
—
15
16
17
18
19
20
55 to 59
—
16
17
18
19
20
21
60 to 64
—
17
18
19
20
21
22
65 to 69
—
18
19
20
21
22
23
70 to 74
—
19
20
21
21
22
23
75 to 79
—
20
21
21
21
22
23
80 to 84
—
21
22
22
22
23
24
85 to 89
—
22
23
23
23
24
25
90 to 94
—
23
24
24
24
25
26
95 to 99
—
24
25
25
25
26
27
100 to 104
—
25
26
26
26
27
28
105 to 109
—
26
27
27
27
28
29
110 to 114
—
27
28
28
28
29
30
115 to 119
—
28
29
29
29
30
31
120 to 124
—
29
30
30
30
31
32
125 to 129
—
30
31
31
31
32
33
130 to 134
—
31
32
32
32
33
34
135 to 139
—
32
33
33
33
34
35
140 to 144
—
33
34
34
34
35
36
145 to 149
—
34
35
35
35
36
37
150 to 154
—
35
36
36
36
37
38
155 to 159
—
36
37
37
37
38
39
160 and over
—
37
37
37
37
38
39
For all cars, drivers must add 4% to their appropriate percentage if the car is propelled solely by diesel (up to a maximum of 37%). Cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt from the diesel supplement. The RDE2 standard sets a maximum permitted level of car NOx emissions in real world driving situations, and it is measured through portable emissions-measuring equipment in a variety of real driving trips. Rates for fully electric cars (0 grams per km) are capped at 5%.
Rates for ultra-low emission cars (1 to 74 grams per km) are capped at 20% for the tax year 2025 to 2026. They are capped at 21% for the tax years 2026 to 2027 and 2027 to 2028. Rates for bands 75 to 170 grams per km and above will remain frozen for the 2026 to 2027 and 2027 to 2028 tax years.
National Insurance contributions
Employee and employer Class 1 rates and thresholds (£ per week)
Tax year 2024 to 2025
Tax year 2025 to 2026
Lower Earnings Limit (LEL)
£123
£125
Primary Threshold (PT)
£242
£242
Secondary Threshold (ST)
£175
£96
Upper Earnings Limit (UEL)
£967
£967
Upper Secondary Threshold for under 21s
£967
£967
Apprentice Upper Secondary Threshold (AUST) for under 25s
£967
£967
Freeport Upper Secondary Threshold
£481
£481
Investment Zones Upper Secondary Threshold
£481
£481
Veteran Upper Secondary Threshold
£967
£967
Employment Allowance (per eligible employer)
£5,000 per year
£10,500 per year
Employee’s (primary) Class 1 contribution rates (per cent)
Earnings band
Tax year 2024 to 2025
Tax year 2025 to 2026
Below Lower Earnings Limit (LEL)
Not applicable
Not applicable
Lower Earning Limit (LEL) to Primary Threshold (PT)
0%
0%
Primary Threshold (PT) to Upper Earnings Limit (UEL)
8%
8%
Above Upper Earnings Limit (UEL)
2%
2%
Married woman’s reduced rate for (primary) Class 1 contribution rates
Tax year 2024 to 2025
Tax year 2025 to 2026
Weekly earnings from between the Primary Threshold (PT) and Upper Earnings Limit (UEL)
1.85%
1.85%
Weekly earnings above the Upper Earnings Limit (UEL)
2%
2%
Employer’s (secondary) Class 1 contribution rates
Earnings band
Tax year 2024 to 2025
Tax year 2025 to 2026
Below Secondary Threshold (ST)
0%
0%
Above Secondary Threshold (ST)
13.8%
15%
Employer’s (secondary) Class 1 contribution rates for employees under 21
Earnings band
Tax year 2024 to 2025
Tax year 2025 to 2026
Below Upper Secondary Threshold (UST)
0%
0%
Above Upper Secondary Threshold (UST)
13.8%
15%
Employer’s (secondary) Class 1 contribution rates for Apprentices under 25
Earnings band
Tax year 2024 to 2025
Tax year 2025 to 2026
Below Apprentice Upper Secondary Threshold (AUST)
0%
0%
Above Apprentice Upper Secondary Threshold (AUST)
13.8%
15%
Employer’s (secondary) Class 1 contribution rates for eligible employees of Freeports
Earnings band
Tax year 2024 to 2025
Tax year 2025 to 2026
Below Freeports Upper Secondary Threshold
0%
0%
Above Freeports Upper Secondary Threshold
13.8%
15%
Employer’s (secondary) Class 1 contribution rates for eligible employees of Investment Zones
Earnings band
Tax year 2024 to 2025
Tax year 2025 to 2026
Below Investment Zone Upper Secondary Threshold
0%
0%
Above Investment Zone Upper Secondary Threshold
13.8%
15%
Employer’s (secondary) Class 1 contribution rates for qualifying veterans
Earnings band
Tax year 2024 to 2025
Tax year 2025 to 2026
Below Veterans Upper Secondary Threshold (VUST)
0%
0%
Above Veterans Upper Secondary Threshold (VUST)
13.8%
15%
Self-employed Class 2 contributions rates and thresholds (£ per week)
Class 2 thresholds (£ annual profit)
Tax year 2024 to 2025
Tax year 2025 to 2026
Small Profits Thresholds (SPT)
£6,725
£6,845
Lower Profits Thresholds (LPT)
£12,570
£12,570
Class 2 contribution rates (£ per week)
Annual Profits Band
Tax year 2024 to 2025
Tax year 2025 to 2026
Below Small Profits Threshold (SPT)
£3.45 (voluntary)
£3.50 (voluntary)
Above Small Profits Threshold (SPT) to Lower Profits Threshold (LPT)
£0
£0
Above Lower Profits Threshold (LPT)
£0
£0
Special Class 2 rate for share fisherman
£4.10
£4.15
Special Class 2 rate for volunteer development workers
£6.15
£6.25
Class 3 National Insurance contributions: other rates and thresholds (£ per week)
Tax year 2024 to 2025
Tax year 2025 to 2026
Voluntary contributions
£17.45
£17.75
Self-employed Class 4 rates and thresholds (£ per year)
Tax year 2024 to 2025
Tax year 2025 to 2026
Lower Profits Limit (LPL)
£12,570
£12,570
Upper Profits Limit (UPL)
£50,270
£50,270
Class 4 contribution rates
Annual Profits band
Tax year 2024 to 2025
Tax year 2025 to 2026
Below Lower Profits Limit (LPL)
0%
0%
Lower profits Limit (LPL) to Upper Profits Limit (UPL)
6%
6%
Above Upper Profits Limit (UPL)
2%
2%
Self-employed National Insurance Contributions are calculated on an annual basis, therefore, the Lower Profits Limit was set at an average threshold of £11,908 for the 2022 to 2023 tax year which is equivalent to 13 weeks of the threshold at £9,880 and 39 weeks at £12,570, reflecting the position for employees.
Child Benefit, Guardian’s Allowance and tax credits
Following the publication of Consumer Price Index (CPI) figures for September 2023, the government announced at Autumn Statement 2023 the new benefits rates for 2024 to 2025.
Child Benefit (£ per week)
Tax year 2024 to 2025
Tax year 2025 to 2026
Eldest or only child
£25.60
£26.05
Other children
£16.95
£17.25
Guardian’s Allowance (£ per week)
Tax year 2024 to 2025
Tax year 2025 to 2026
Guardian’s Allowance
£21.75
£22.10
As there will be no tax credit awards after 5 April 2025, there will be no changes to rates for the tax year 2025 to 2026.
Working Tax Credit (£ per year unless stated)
Tax year 2024 to 2025
Tax year 2025 to 2026
Basic element
£2,435
Not applicable
Couple and lone parent element
£2,500
Not applicable
30 hour element
£1,015
Not applicable
Disabled worker element
£3,935
Not applicable
Severe disability element
£1,705
Not applicable
Childcare element of Working Tax Credit (£ per year unless stated)
Tax year 2024 to 2025
Tax year 2025 to 2026
Maximum eligible cost for one child
£175 per week
Not applicable
Maximum eligible cost for two or more children
£300 per week
Not applicable
Percentage of eligible costs covered
70%
Not applicable
Child Tax Credit (£ per year unless stated)
Tax year 2024 to 2025
Tax year 2025 to 2026
Family element
£545
Not applicable
Child element
£3,455
Not applicable
Disabled child element
£4,170
Not applicable
Severely disabled child element
£5,850
Not applicable
Income threshold
£7,955
Not applicable
Withdrawal rate (%)
41%
Not applicable
First threshold for those entitled to Child Tax Credit only
£19,995
Not applicable
Income rise disregard
£2,500
Not applicable
Income fall disregard
£2,500
Not applicable
Capital, assets and property
Pensions tax relief
Tax year 2024 to 2025
Tax year 2025 to 2026
Lump Sum Allowance
£268,275
£268,275
Lump Sum and Death Benefit Allowance
£1,073,100
£1,073,100
Overseas Transfer Allowance
£1,073,100
£1,073,100
Annual Allowance Limit
£60,000
£60,000
Money Purchase Annual Allowance
£10,000
£10,000
Tapered Annual Allowance (applies when an individual has ‘adjusted income’ over this amount provided the ‘threshold income’ test is met)
Rates for gains on assets other than residential property and carried interest
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
10%
18%
18%
Income Tax higher rate payer
20%
24%
24%
Rates for individuals for gains on residential property which is not eligible for Private Residence Relief
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
18%
18%
18%
Income Tax higher rate payer
24%
24%
24%
Rates for individuals for gains on carried interest
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
18%
18%
32%
Income Tax higher rate payer
28%
28%
32%
Rate for trustees and personal representatives for gains on assets other than residential property and carried interest
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
20%
24%
24%
Income Tax higher rate payer
20%
24%
24%
Rate for trustees and personal representatives for gains on residential property which is not eligible for Private Residence Relief
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
24%
24%
24%
Income Tax higher rate payer
24%
24%
24%
Rate for personal representatives for gains on carried interest
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
28%
28%
32%
Income Tax higher rate payer
28%
28%
32%
Annual exempt amount (AEA) for individuals and personal representatives
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
£3,000
£3,000
£3,000
Income Tax higher rate payer
£3,000
£3,000
£3,000
Annual exempt amount (AEA) for most trustees
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
£1,500
£1,500
£1,500
Income Tax higher rate payer
£1,500
£1,500
£1,500
Rate on gains subject to business asset disposal relief
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
10%
10%
14%
Income Tax higher rate payer
10%
10%
14%
Rate on gains subject to investors’ relief
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
10%
10%
14%
Income Tax higher rate payer
10%
10%
14%
Business asset disposal relief: lifetime limit on qualifying gains
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
£1 million
£1 million
£1 million
Income Tax higher rate payer
£1 million
£1 million
£1 million
Investors’ relief: lifetime limit on gains for external investors
Tax year 2024 to 2025 (6 April 2024 to 29 October 2024)
Tax year 2024 to 2025 (30 October 2024 to 5 April 2025)
Tax year 2025 to 2026
Income Tax basic rate payer
£10 million
£1 million
£1 million
Income Tax higher rate payer
£10 million
£1 million
£1 million
Temporary Repatriation Facility
Tax year 2025 to 2026
Tax year 2026 to 2027
Tax year 2027 to 2028
Rate of designated foreign income and gains (FIG)
12%
12%
15%
The Temporary Repatriation Facility (TRF) is available to former remittance basis users who have unremitted foreign income and gains for tax years prior to 2025 to 2026. Individuals can elect to pay tax at the TRF rate on offshore funds that they designate. The designated funds will then not be taxed on remittance to the UK. Former remittance basis users can also use the TRF to designate distributions from trust structures, which are matched to foreign income and gains which arose prior to April 2025.
Inheritance Tax
Tax year 2024 to 2025
Tax year 2025 to 2026
Rate (for estates)
40%
40%
Reduced rate (for estates leaving 10% or more to charity)
36%
36%
Rate (for chargeable lifetime transfers)
20%
20%
Nil-rate band limit
£325,000
£325,000
Residence nil-rate band limit
£175,000
£175,000
Taper threshold for residence nil-rate band
£2 million
£2 million
Stamp Duty Land Tax — residential property from 23 September 2022 to 30 October 2024
Property value
Rate (on portion of value above threshold)
Rate (on portion of value above threshold) if purchase is of an additional residential property
Rate (on portion of value above threshold) if purchase is of residential property by certain non-UK residents
Rate (on portion of value above threshold) if purchase is of an additional residential property and by certain non-UK residents
£0 to £250,000
0%
3%
2%
5%
£250,001 to £925,000
5%
8%
7%
10%
£925,001 to £1.5 million
10%
13%
12%
15%
Over £1.5 million
12%
15%
14%
17%
Stamp Duty Land Tax — residential property from 31 October 2024 to 31 March 2025
Property value
Rate (on portion of value above threshold)
Rate (on portion of value above threshold) if purchase is of an additional residential property
Rate (on portion of value above threshold) if purchase is of residential property by certain non-UK residents
Rate (on portion of value above threshold) if purchase is of an additional residential property and by certain non-UK residents
£0 to £250,000
0%
5%
2%
7%
£250,001 to £925,000
5%
10%
7%
12%
£925,001 to £1.5 million
10%
15%
12%
17%
Over £1.5 million
12%
17%
14%
19%
Stamp Duty Land Tax — residential property from 1 April 2025
Property value
Rate (on portion of value above threshold)
Rate (on portion of value above threshold) if purchase is of an additional residential property
Rate (on portion of value above threshold) if purchase is of residential property by certain non-UK residents
Rate (on portion of value above threshold) if purchase is of an additional residential property and by certain non-UK residents
£0 to £125,000
0%
5%
2%
7%
£125,001 to £250,000
2%
7%
4%
9%
£250,001 to £925,000
5%
10%
7%
12%
£925,001 to £1.5 million
10%
15%
12%
17%
Over £1.5 million
12%
17%
14%
19%
Check HMRC guidance on whether the higher rate applies and whether a purchase is a ‘non-resident’ transaction.
Stamp Duty Land Tax — residential leases between 23 September 2022 and 31 March 2025
Net Present Value (NPV) of the rent
Rate (on portion of value above threshold)
£0 to £250,000
0%
Over £250,000
1%
Rates are increased by 2 percentage points (%) for certain ‘non-resident’ transactions.
Stamp Duty Land Tax — residential leases from 1 April 2025
Net Present Value (NPV) of the rent
Rate (on portion of value above threshold)
£0 to £125,000
0%
Over £125,000
1%
Rates are increased by 2 percentage points (%) for certain ‘non-resident’ transactions.
Stamp Duty Land Tax — rates for first-time buyers purchasing properties worth £625,000 or less from 23 September 2022 to 31 March 2025
Property value
Rate (on portion of value above threshold) if purchase qualifies for first-time buyer relief
£0 to £425,000
0%
£425,001 to £625,000
5%
Rates are increased by 2 percentage points (%) for certain ‘non-resident’ transactions.
Stamp Duty Land Tax — rates for first time-buyers purchasing properties worth £500,000 or less from 1 April 2025
Property value
Rate (on portion of value above threshold) if purchase qualifies for first-time buyer relief
£0 to £300,000
0%
£300,001 to £500,000
5%
Rates are increased by 2 percentage points (%) for certain ‘non-resident’ transactions.
Stamp Duty Land Tax — higher rate for certain corporate transactions involving dwellings worth more than £500,000 from 20 March 2014 to 30 October 2024
Property value
Rate on whole of purchase price
Over £500,000
15%
Rates are increased by 2 percentage points (%) for certain ‘non-resident’ transactions.
Stamp Duty Land Tax — higher rate for certain corporate transactions involving dwellings worth more than £500,000 from 31 October 2024
Property value
Rate on whole of purchase price
Over £500,000
17%
Rates are increased by 2 percentage points (%) for certain ‘non-resident’ transactions.
Stamp Duty Land Tax — non-residential property on or after 17 March 2016
Purchase and Premium Transactions
Property Value
Rate (on portion of value above threshold)
£0 to £150,000
0%
£150,001 to £250,000
2%
£250,001 and over
5%
Stamp Duty Land Tax — non-residential leases on or after 17 March 2016
Net Present Value (NPV) of the lease
Rate (on portion of value above threshold)
£0 to £150,000
0%
£150,001 to £5 million
1%
Over £5 million
2%
Annual Tax on Enveloped Dwellings (ATED)
The ATED charges increase automatically each year in line with inflation (based on the previous September’s Consumer Price Index (CPI)).
The ATED annual charges will rise by 1.7% from 1 April 2025 in line with the September 2024 CPI.
The following table shows the property value band and what the revised charges will be for the 2024 to 2025 and 2025 to 2026 chargeable period.
Taxable value of the property
Charge for tax year 2024 to 2025
Charge for tax year 2025 to 2026
£500,001 to £1 million
£4,400
£4,450
£1,000,001 to £2 million
£9,000
£9,150
£2,000,001 to £5 million
£30,550
£31,050
£5,000,001 to £10 million
£71,500
£72,700
£10,000,001 to £20 million
£143,550
£145,950
Over £20 million
£287,500
£292,350
Stamp Duty and Stamp Duty Reserve Tax
No Stamp Duty is charged where the certified consideration is less than £1,000.
Stamp Duty is charged on the purchase of own shares by a company under section 690 Companies Act 2006. The SH03 form is the chargeable instrument.
Where an instrument transfers either Intellectual Property (IP) or goodwill and shares, Stamp Duty is not chargeable on the consideration that relates to the IP or goodwill. A just and reasonable apportionment must be made.
Where an instrument grants a call option, and is itself a marketable security, Stamp Duty is charged at 0.5% of the consideration given for the premium.
Transfers of, and agreements to transfer securities
Standard Rate
Higher Rate
Stamp Duty
0.5% (rounded up to next £5)
Not applicable
Stamp Duty Reserve Tax
0.5%
Not applicable
Transfers of securities to clearance services and depositary receipt issuers
Standard Rate
Higher Rate
Stamp Duty
Not applicable
1.5% (rounded up to next £5)
Stamp Duty Reserve Tax
Not applicable
1.5%
Some clearance services choose to elect into the standard 0.5% STS regime. No 1.5% charge arises on transfers to such clearance services.
Rates for transfers on sale of interests in partnerships which hold shares and certain other securities
The Stamp Duty charge is capped at 0.5% of the market value of any shares held by the partnership (less any loans secured on them), multiplied by the percentage partnership interest transferred.
Bearer instruments
Transaction
Stamp Duty
Stamp Duty Reserve Tax
Transfer of bearer instrument
1.5% (rounded up to next £5)
0.5%
Transfer of non-UK bearer instrument by usage
0.2% of market value (rounded up to next £5)
Not applicable
Transfer of deposit certificate for stock of single non-UK company
0.2% of market value (rounded up to next £5)
Not applicable
In 2015 the Companies Act 2006 was amended to prohibit the creation of bearer shares by UK companies, and all existing bearer shares had to be cancelled or converted into registered shares.
Therefore, the charge remains only on the transfer on sale of bearer shares issued by or on behalf of non-UK companies, if the transfer occurs in the UK.
It may also apply on the transfer of certain bearer debt securities.
Stamp Duty on legacy land transactions
Where an agreement for a land transaction was entered into on or before 10 July 2003, but the instrument legally completing that contract is executed after that date, then the transaction will be subject to Stamp Duty, not Stamp Duty Land Tax. However, if the contract was not substantially performed before 10 July 2003 and has been varied, or rights under it have been assigned or sub-sold after 10 July 2003, Stamp Duty Land Tax may apply on completion.
If an instrument was executed to complete a land transaction at the time of the original transfer (but is only now being presented to HMRC), then the rate in force at that time will apply.
Freehold conveyances and transfers for instruments legally completing contracts made on or after 3 July 1997
The Stamp Duty charged is rounded to the next £5. For instruments legally completing contracts made on or before 2 July 1997, the rate is 1%.
Certified transfer value
Instruments executed between 28 March 2000 and 16 March 2005
Instruments executed between 17 March 2005 and 22 March 2006
Instruments executed after 22 March 2006
£60,000 and under
nil
nil
nil
£120,000 and under
1%
nil
nil
£125,000 and under
1%
1%
nil
£250,000 and under
1%
1%
1%
£500,000 and under
3%
3%
3%
Over £500,000 or uncertified
4%
4%
4%
Leasehold property — average rent of lease
The rates in the following table are based on the average rent of the lease.
The Stamp Duty charged is rounded to the next £5.
Stamp Duty rates: leasehold — average rent
Term of lease
Rate
7 years or less — annual rent £5,000 or less
nil
7 years or less — annual rent more than £5,000
1%
7 to 35 years
2%
35 to 100 years
12%
Over 100 years
24%
Leasehold property — lease premium
The rates in the following table are based on the certified value in the transfer document.
The Stamp Duty charged is rounded to the next £5.
Stamp Duty rates: leasehold — on lease premium
Certified value Rate
Rate
£60,000, annual rent £600 or less
nil
£250,000
1%
£500,000
3%
More than £500,000
4%
Business and financial services
Corporation Tax rates
Financial year 2023 to 2024
Financial year 2024 to 2025
Financial year 2025 to 2026
Main rate
25%
25%
25%
Small profits rate
19%
19%
19%
Lower threshold
£50,000
£50,000
£50,000
Upper threshold
£250,000
£250,000
£250,000
Marginal relief standard fraction
3/200ths
3/200ths
3/200ths
North Sea oil and gas ring fence profits
See footnote
See footnote
See footnote
Marginal relief is available for companies with profits between £50,000 and £250,000. Find out to how to calculate marginal relief.
For North Sea oil and gas ring fence profits the main rate is 30% and the small profits rate is 19%. The marginal relief ring fence fraction is 11/400ths. The lower and upper limits for ring fence profits are £50,000 and £250,000 respectively.
Corporation Tax allowance and reliefs
Financial year 2024 to 2025
Financial year 2025 to 2026
Plant and machinery: main rate expenditure
18%
18%
Plant and machinery: special rate expenditure
6%
6%
Structures and Building Allowance (SBA)
3%
3%
Annual investment allowance (AIA)
£1 million
£1 million
Enhanced Capital Allowances in Freeports
100%
100%
Enhanced Capital Allowances in Investment Zones
100%
100%
Enhanced Structures and Buildings Allowance in Freeports
10%
10%
Enhanced Structures and Buildings Allowance in Investment Zones
10%
10%
50% Special Rate First Year Allowance
50%
50%
Full Expensing: 100% First Year Allowance
100%
100%
Research and Development (R&D) tax credits SME scheme deduction rate
Not applicable
Not applicable
R&D tax credits SME scheme payable credit
Not applicable
Not applicable
R&D Intensive SME deduction rate
186%
186%
R&D Intensive SME payable credit
14.5%
14.5%
R&D Intensive SME intensity ratio
30%
30%
R&D Expenditure Credit
Not applicable
Not applicable
R&D Merged Scheme expenditure credit
20%
20%
Patent Box
10%
10%
Film tax relief
25% or 34%
25% or 34%
High-end TV tax relief
25% or 34%
25% or 34%
Videogames tax relief
25% or 34%
25% or 34%
Animation tax relief
25% or 39%
25% or 39%
Children’s TV tax relief
25% or 39%
25% or 39%
Open ended investment companies and authorised unit trusts
20%
20%
From 1 January 2024 an Audio-Visual Expenditure Credit and a Video Games Expenditure Credit will be implemented. The Video Games Expenditure Credit will have a rate of 34%. Under the Audio-Visual Expenditure Credit, film and high end TV will be eligible for a rate of 34% and animation and children’s TV will be eligible for a rate of 39%.
For open ended investment companies and authorised unit trusts the applicable corporation tax rate is 20%.
These are a guide only and will be updated during the year as more information gets released from HMRC. Most have now been confirmed and a note has been added to any sections that have not been.
Updated 6th March 2024 – Employee Primary Threshold NI Rate changed from 10% to 8% and Married women’s reduced rate changed from 3.85% to 1.85%.
The following rates apply from 6th April 2024 until 5th April 2025 unless stated otherwise.
PAYE tax and Class 1 National Insurance Contributions
When you operate payroll through Shape, the software will work out the tax and national insurance contributions every time you pay your employees based on the below thresholds for 2024-2025 tax year.
Tax thresholds, rates and codes
The amount that is deducted from the employee is dependent on the employee’s tax code and how much they earn above their personal allowance.
England and Northern Ireland
The standard employee personal allowance for the 2024 to 2025 tax year is:
£242 per week
£1,048 per month
£12,570 per year
PAYE tax rate
Rate of tax
Annual earnings the rate applies to (above the PAYE threshold)
Basic tax rate
20%
Up to £37,700
Higher tax rate
40%
From £37,701 to £125,140
Additional tax rate
45%
Above £125,140
Scotland
Subject to parliamentary approval
The standard employee personal allowance for the 2024 to 2025 tax year is:
£242 per week
£1,048 per month
£12,570 per year
PAYE tax rate
Rate of tax
Annual earnings the rate applies to (above the PAYE threshold)
Starter tax rate
19%
Up to £2,306
Basic tax rate
20%
From £2,307 to £13,991
Intermediate tax rate
21%
From £13,992 to £31,092
Higher tax rate
42%
From £31,093 to £62,430
Advanced tax rate
45%
From £62,431 to £125,140
Top tax rate
48%
Above £125,141
Wales
Subject to parliamentary approval
The standard employee personal allowance for the 2024 to 2025 tax year is:
£242 per week
£1,048 per month
£12,570 per year
PAYE tax rate
Rate of tax
Annual earnings the rate applies to (above the PAYE threshold)
National Insurance deductions are only made on earnings above the lower earnings limit.
Class 1 National Insurance thresholds
2024 to 2025
Lower earnings limit
£123 per week £533 per month £6,396 per year
Primary threshold
£242 per week £1,048 per month £12,570 per year
Secondary threshold
£175 per week £758 per month £9,100 per year
Freeport upper secondary threshold
£481 per week £2,083 per month £25,000 per year
Upper secondary threshold (under 21)
£967 per week £4,189 per month £50,270 per year
Apprentice upper secondary threshold (apprentice under 25)
£967 per week £4,189 per month £50,270 per year
Veterans’ upper secondary threshold
£967 per week £4,189 per month £50,270 per year
Upper earnings limit
£967 per week £4,189 per month £50,270 per year
Class 1 National Insurance Rates
Employee (primary) contribution rates
National Insurance category letter
Earnings at or above the lower earnings limit up to and including the primary threshold
Earnings above the primary threshold up to and including the upper earnings limit
Balance of earnings above the upper earnings limit
A
0%
8%
2%
B
0%
1.85%
2%
C
nil
nil
nil
D (Investment Zone Deferment)
0%
2%
2%
E (Investment Zone MWRRE)
0%
3.85%
2%
F (Freeport)
0%
10%
2%
H (apprentice under 25)
0%
10%
2%
I (Freeport — married women and widows reduced rate)
0%
1.85%
2%
J (Deferment)
0%
2%
2%
K (Investment Zone over state pension age)
nil
nil
nil
L (Freeport — deferment)
0%
2%
2%
M (under 21)
0%
10%
2%
N (Investment Zone Standard)
0%
10%
2%
S (Freeport — over state pension age)
nil
nil
nil
V (veteran)
0%
10%
2%
Z (under 21 — deferment)
0%
2%
2%
Employer (secondary) contribution rates
National Insurance category letter
Earnings at or above the lower earnings limit up to and including the secondary threshold
Earnings above the secondary threshold up to and including the Freeport and Investment Zone upper secondary threshold
Earnings above Freeport and Investment Zone upper secondary threshold up to and including upper earnings limit, upper secondary thresholds for under 21s, apprentices and veterans
Balance of earnings above upper earnings limit, upper secondary thresholds for under 21s, apprentices and veterans
A
0%
13.8%
13.8%
13.8%
B
0%
13.8%
13.8%
13.8%
C
0%
13.8%
13.8%
13.8%
D (Investment Zone Deferment)
0%
0%
13.8%
13.8%
E (Investment Zone MWRRE)
0%
0%
13.8%
13.8%
F (Freeport)
0%
0%
13.8%
13.8%
H (apprentice under 25)
0%
0%
0%
13.8%
I (Freeport — married women and widows reduced rate)
0%
0%
13.8%
13.8%
J (Deferment)
0%
13.8%
13.8%
13.8%
K (Investment Zone over state pension age)
0%
0%
13.8%
13.8%
L (Freeport — deferment)
0%
0%
13.8%
13.8%
M (under 21)
0%
0%
0%
13.8%
N (Investment Zone Standard)
0%
0%
13.8%
13.8%
S (Freeport — state pensioner)
0%
0%
13.8%
13.8%
V (veteran)
0%
0%
0%
13.8%
Z (under 21 — deferment)
0%
0%
0%
13.8%
Class 1A National Insurance: expenses and benefits
The National Insurance Class 1A rate on expenses and benefits for 2024 to 2025 is 13.8%.
Class 1A National Insurance: termination awards and sporting testimonial payments
The National Insurance Class 1A rate on termination awards and sporting testimonial payments for 2024 to 2025 is 13.8%. More information on termination awards.
92% if your total Class 1 National Insurance (both employee and employer contributions) is above £45,000 for the previous tax year 103% if your total Class 1 National Insurance for the previous tax year is £45,000 or lower
Statutory Sick Pay
The same weekly Statutory Sick Pay rate applies to all employees. However, the amount you must pay an employee for each day they’re off work due to illness (the daily rate) depends on the number of ‘qualifying days’ they work each week.
For tax purposes: 45 pence for the first 10,000 business miles in a tax year, then 25 pence for each subsequent mile For National Insurance purposes: 45 pence for all business miles
Motorcycle
24 pence for both tax and National Insurance purposes and for all business miles
Cycle
20 pence for both tax and National Insurance purposes and for all business miles
Employment Allowance
Employment Allowance allows eligible employers to reduce their annual National Insurance liability by up to the annual allowance amount.
Allowance
2024 to 2025 rate
Employment Allowance
£5,000
Apprenticeship Levy
Employers and connected companies with a total annual pay bill of more than £3 million are liable to the Apprenticeship Levy, which is payable monthly. Employers who are not connected to another company or charity will have an annual allowance that reduces the amount of Apprenticeship Levy you have to pay. Apprenticeship Levy is charged at a percentage of your annual pay bill.
In this short guide, we’ll explain what the Making Tax Digital (MTD) delay means for businesses, accountants, and bookkeepers, and why you should still prepare for the legislation now.
According to HMRC, MTD for ITSA was delayed to ease the pressure on businesses given the current economic climate. It was also stated that the delay would give businesses more time to adapt to new ways of working.
What changes have been made to MTD for ITSA?
HMRC will now introduce MTD for Income Tax with a phased approach, with multiple income thresholds.
From April 2026, sole traders and landlords earning above £50,000 annually will need to follow ITSA rules.
From April 2027, sole traders and landlords earning above £30,000 annually will follow.
General partnerships and smaller businesses earning less than £30,000 annually are yet to be mandated. We’ll be sure to report on this as soon as the dates are announced.
For VAT-registered businesses already filing MTD for VAT returns, the new penalty system is already in place.
When sole traders and landlords earning above £50,000 are mandated for MTD for ITSA in April 2026, they will also be subject to the new penalty system.
Is Making Tax Digital going to happen?
Absolutely. Despite the slowdown in pace, digital transformation is still the direction of travel.
Making Tax Digital can help businesses run more efficiently, use resources more effectively, and save time on day-to-day admin. But right now, businesses are facing considerable challenges in light of economic uncertainty and will benefit from a little extra time to prepare.
Pushing the deadline back gives businesses and accounting practices more time to get confident about the legislation and learn how to use cloud-based accounting software to improve their overall business health.
Who is affected by the MTD for ITSA delay?
Self-employed individuals and landlords are impacted by the MTD for ITSA delay.
Sole traders and landlords earning above £50,000 annually will need to comply with ITSA rules from April 2026. Sole traders and landlords earning above £30,000 annually will follow in 2027.
General partnerships and those earning below £30,000 annually are yet to be mandated.
All this means is that the earliest ITSA rules will be mandated is April 2026 – so businesses, accountants, and bookkeepers have plenty of time to learn the new system and find ITSA-compatible software.
It’s also worth bearing in mind that, whilst thresholds have been established, you can voluntarily sign up to MTD for ITSA at any point once a public sign up process has been established and you’re using MTD for ITSA approved software.
Should you still prepare for MTD for ITSA now?
Definitely. Businesses, accountants, and bookkeepers should see the delay as an opportunity to find the right tools and hone their digital skills ahead of the deadline. Instead of pressing pause on your MTD preparations, use this time to learn how you can reap the most rewards from cloud-based software.
Don’t miss out on the benefits of digitalisation
Embracing digitalisation isn’t just about MTD compliance – tools and software can help you run a healthier business by demystifying your financial position with forecasts, reports, and live feeds.
Accountants and bookkeepers will also be able to provide real-time advice and guidance based on live data in their clients’ software. So both accounting practices and businesses benefit from having clear and accurate data, thanks to cloud-based software.
What’s more, some cloud-based accounting software packages allow you to integrate multiple tools and platforms. So you can join the dots between all kinds of business functions – such as project management, payroll, and financial planning. This means less hopping between tabs and more time spent focusing on your business.
From 1 January 2023, you’ll get penalty points if you submit a VAT Return late (including nil payment returns). Find out how points work and how to avoid a £200 penalty.
For VAT accounting periods starting on or after 1 January 2023, late submission penalties apply if you submit your VAT Return late.
The VAT default surcharge is being replaced by new penalties for returns that are submitted late and VAT which is paid late. The way interest is charged is also changing.
These changes affect everyone who submits VAT Returns, including a nil or repayment return.
How late submission penalties work
You must send a VAT Return by the deadline for your accounting period. Your accounting period is when you need to send a return to HMRC, for example, quarterly.
Late submission penalties work on a points-based system.
For each return you submit late you will receive a penalty point.
Once you’ve reached a penalty point threshold, you’ll receive a £200 penalty and a further £200 penalty for each subsequent late submission while you’re at the threshold.
The penalty point threshold for your accounting period
The penalty point threshold is set by your accounting period. The threshold is the maximum points you can receive.
Accounting period
Penalty points threshold
Annually
2
Quarterly
4
Monthly
5
Penalty example for a business making quarterly returns
A company submits their VAT Return quarterly. This means their penalty point threshold is 4.
They already have 3 penalty points because they submitted 3 previous returns late.
They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.
The company submits their next return on time. They stay at threshold of 4 penalty points but do not get a £200 penalty.
The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.
If you use a non-standard accounting period
If you have agreement from HMRC to use non-standard accounting periods, different rules apply.
Accounting period
Penalty points threshold
Rules that apply
Over 20 weeks
2
Annual
Over 8 weeks and no more than 20 weeks
4
Quarterly
8 weeks or less
5
Monthly
How changes to your business affect penalty points
Changing your accounting period
If you’ve agreed with HMRC to change how often you submit returns, we will adjust your threshold and penalty points.
This is how we will adjust your penalty points threshold:
Previous accounting period
Previous penalty point threshold
New accounting period
New penalty point threshold
Annual
2
Quarterly
4
Annual
2
Monthly
5
Quarterly
4
Annual
2
Quarterly
4
Monthly
5
Monthly
5
Annual
2
Monthly
5
Quarterly
4
If you have existing penalty points, this is how we will adjust your penalty points:
Previous accounting period
New accounting period
Penalty points adjustment
Annual
Quarterly
+ 2 points
Annual
Monthly
+ 3 points
Quarterly
Annual
– 2 points
Quarterly
Monthly
+ 1 point
Monthly
Annual
– 3 points
Monthly
Quarterly
-1 point
When you change your accounting period:
we’ll set your penalty points to zero if the adjustment gives you a minus figure
we will not make an adjustment if you have zero points
You cannot appeal adjustments to your penalty points.
When you change from a non-standard accounting period to the equivalent standard period, your points will not change.
Non-standard accounting period
Equivalent standard accounting period
Over 20 weeks
Annual
Over 8 weeks and no more than 20 weeks
Quarterly
8 weeks or less
Monthly
Taking over a business
If you take over a VAT-registered business as a ‘going concern’ any penalty points built-up by the business will not be transferred to your VAT registration number. This will be the case even if the VAT registration number is transferred from the previous owner to yourself.
Find out more about what ‘going concern’ for VAT means in paragraphs 1.3 and 1.4 of VAT Notice 700/9.
VAT groups and penalty points
If the representative member of a VAT group changes, any penalty points they’ve built-up are transferred to the new representative member.
The VAT groups’ penalty points total does not change if a person:
joins the group, even if the joining member had penalty points
leaves the group (the leaving member does not take points with them)
VAT Returns not affected
The late submission penalty rules do not apply to your:
first VAT return if you’re newly VAT registered
final VAT return after you cancel your VAT registration
one-off returns that cover a period other than a month, quarter or year
For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.
Debonair Management Services Limited 