Running a small business or working for yourself comes with plenty of challenges, and staying on top of tax updates is one of them. The 2025/26 tax year introduces several important changes that could impact how much tax you pay and how you manage your finances. Whether you’re a sole trader, limited company director, or landlord, keeping up with these updates is key to avoiding surprises and staying compliant.
At BBK Accounts, we help small businesses and self-employed people in Southampton and beyond navigate tax changes with confidence. In this blog, we’ll walk you through the main updates for the new tax year, explain what they mean in plain English, and share practical tips to help you prepare.
Overview of Key Tax Changes in 2025
2025 has brought a few notable tax changes that small business owners and sole traders need to be aware of. Here’s a round-up of the most important ones:
1. Corporation Tax – Still Tiered
There’s no major change here for 2025, but it’s worth a reminder: Corporation Tax is still charged at a main rate of 25% for companies with profits over £250,000. If your profits are under £50,000, you’ll still pay the small profits rate of 19%, and those in the middle continue to pay a tapered rate. This tiered approach remains a key factor when budgeting for your year ahead.
2. National Insurance Cuts
As part of the government’s ongoing push to reduce the tax burden on workers and employers:
- Employee Class 1 NICs have been cut again from 8% to 6% from April 2025 (after already dropping from 12% to 8% in April 2024).
- Self-employed Class 4 NICs have been reduced from 6% to 5%, and Class 2 NICs have been scrapped entirely for most self-employed people.
These cuts aim to leave more money in your pocket; however, it’s still worth checking how they interact with your broader income mix.
3. Making Tax Digital (MTD) for Income Tax – Get Ready Now
MTD for Income Tax Self Assessment is still on track to start from April 2026 for businesses and landlords earning over £50,000, and from April 2027 for those earning over £30,000. If you’re self-employed or have rental income, this means you’ll need to:
- Keep digital records
- Use compatible software
- Send quarterly updates to HMRC
While it might still feel far off, switching now can give you time to get used to the new system without the stress.
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4. Dividend Allowance Reduced (Again)
For anyone taking dividends from their company, the tax-free dividend allowance has now dropped to just £500 (down from £1,000 in 2023/24 and £2,000 the year before). If you rely on dividends, this means a bigger slice of your income is now taxable, so it might be time to review your income strategy.
5. Basis Period Reform Now in Effect
For sole traders and partnerships not using a 5 April or 31 March year-end, basis period reform is now in place. From the 2024/25 tax year onwards, profits are taxed on the actual tax year basis—not your accounting year. This might create transitional profits in 2023/24 (if you haven’t already tackled this), so check in with your accountant if you’re unsure how it’s affecting you.
6. VAT Threshold Freeze
The VAT registration threshold remains frozen at £90,000 until at least March 2026. That means if your turnover is approaching this level—either through growth or by taking on new work—you may need to register sooner than you expect. For many small businesses, especially those near the threshold, it’s a good idea to keep an eye on income levels throughout the year and plan ahead. VAT registration can have cash flow implications, so early planning helps avoid last-minute stress.
7. HMRC’s New Penalty Points System
HMRC has introduced a points-based penalty system for late submissions of VAT returns—and this will also apply to Making Tax Digital for Income Tax when it rolls out. Under this system, every missed filing deadline adds a point. Once you reach a set number of points (usually four), you’ll face automatic fines. Points expire after a period of compliance, but frequent lateness can become costly. If you’ve ever relied on a last-minute filing, this is a good time to tighten up your deadlines!
How These Changes Might Affect You
- Corporation Tax: Still worth keeping your eye on if you’re nearing or crossing the £50,000 or £250,000 profit thresholds. The tapered rate can bite, so planning ahead is essential.
- NIC Cuts: These are a win for most people, especially those paying themselves a salary. But don’t forget – if you’re self-employed and not making voluntary Class 2 contributions, you may miss out on National Insurance credits unless you’ve covered your entitlement elsewhere.
- MTD: It’s going to be a big shift, especially for those still using spreadsheets or paper records. We recommend getting set up on digital software in the 2025/26 year, so you’re well ahead of the curve.
- Dividend Tax: With the allowance now so low, dividends are less tax-friendly than they were in the past. A blended approach (salary + dividends) might still work, but only if carefully planned.
- Basis Period Reform: This is a one-off headache for many sole traders and partnerships. If you’re not on a March or April year-end already, you’ll want to talk to your accountant pronto.
- VAT Threshold Freeze: With the threshold stuck at £90,000, more small businesses are finding themselves needing to register for VAT. If you’re getting close to that figure, it’s worth planning ahead now to avoid an unexpected admin rush later in the year.
- New HMRC Penalty System: Late filing now racks up penalty points, and once you hit the limit, the fines kick in. It’s more important than ever to stay on top of submission deadlines—especially for VAT and (soon) income tax under MTD.
Practical Steps to Stay Compliant
So what should you actually do about all this? Here’s a handy to-do list:
1. Review Your Income Mix
2. Switch to Digital Now
3. Check Your NIC Position
If you’re self-employed and not paying Class 2 anymore, make sure you’re still building up enough credits for your State Pension.
4. Budget for Corporation Tax
5. Get to Grips with Basis Period Reform
If you haven’t already had a chat about this with your accountant—book one! The transitional impact could be significant if you’re not prepared.
6. Monitor Your Turnover for VAT
If you’re approaching the £90,000 VAT threshold, set up a system to track your rolling 12-month turnover. A little forward planning can save you from a last-minute VAT registration panic—and help manage cash flow more smoothly when the time comes.
7. Get on Top of Deadlines
With HMRC’s new points-based penalty system, late submissions can quickly lead to fines. Set reminders, use accounting software with alerts, or ask your accountant to help manage key deadlines—especially for VAT returns.
Preparing for the 2025/26 Tax Year
Here are some final tips to make sure you’re in good shape for the year ahead:
- Schedule a Business Review: Don’t leave planning until it’s too late. A quick review could save you hundreds (or thousands) in tax.
- Talk to Your Team: If you have a finance team or even a bookkeeper, make sure they’re up to speed—especially on MTD and NIC changes.
- Explore Other Reliefs: From R&D tax credits to capital allowances, there are still plenty of tax-saving opportunities out there.
- Stay Curious: Sign up for webinars, keep an eye on HMRC updates, and don’t be afraid to ask questions—it’s your business, after all!
Let BBK Accounts Help You Plan Smarter
Tax changes don’t have to be scary. At BBK Accounts, we help small businesses and self-employed individuals across Southampton and beyond make sense of it all. Whether it’s reviewing your strategy, setting you up for MTD, or just having a jargon-free chat about your options—we’re here for you.
Get in touch today for a friendly chat and face the 2025/26 tax year with confidence.
