Spring Statement 2025: No new taxes… For now

The most surprising thing from today’s Spring Statement is that the Chancellor kept to her word in making no changes to the tax system (being only days before we enter the new tax year). Then again, there are quite enough tax hikes coming in at the end of next week as it is! 

Amid jeers, the Chancellor announced that the growth forecast has improved, though the actual growth remains small. In reality, many businesses have reported nervousness in the local economy, with both businesses and consumers holding off on spending. Only time will tell whether this anticipated growth will materialise for small businesses, especially given rising employee costs and increasing prices.  

There was silence in regard to what she might do later in the year when we have another full Budget.  For now, I am glad there were no tax surprises (pending our review of the small print). However, if the economic picture is less rosy than the OBR has forecast, Rachel Reeves may need to revisit the tax system once again.  

Directors Salaries for owner managed limited companies 

Before last year’s Autumn Budget, the tax benefit of a remuneration structure involving a small salary and dividends for Limited Company owners was becoming increasingly narrow. However, next month’s increase to National Insurance has supported that a small salary and balance as dividends structure is actually increasing in tax efficiency. 

There is, however, an added complexity. Most company owner directors taking a salary of £1,047 per month will find that their company needs to pay £1,135 in Employers’ National Insurance over the course of the tax year. If you have employees, you may already be paying PAYE and NI most months, so this won’t be much of an administrative issue. However, for smaller limited companies where only the owner directors are on the payroll, this may be the first time they need to report and pay monthly amounts to HMRC. 

Why are we recommending a Director’s Salary that causes Employers NI? 

From 6 April 2025, employees earning over £5,000 per year (£416 per month) will cause their employers to be charged 15% Employers’ National Insurance on earnings above this amount. 

However, an employee must earn at least £9,096 per year to qualify for a National Insurance “stamp” that counts as a contributing year towards their State Pension. Therefore, a director’s salary should not fall below this level, or they risk losing a year’s worth of State Pension contributions. At this level of income, Employers’ National Insurance of £614 will be due. 

It is important to note that salary and Employers’ National Insurance attract Corporation Tax savings, reducing tax liabilities by between £1,845 and £2,573, depending on the business’s marginal Corporation Tax rate. There is no individual tax payable on a salary at this level for business owners with total taxable income below £100,000 and no other employment income. The net tax saving is £1,959. 

Maximising the salary to use the full personal allowance of £12,570, as we suggest, will save between £2,604 and £3,631 in Corporation Tax, resulting in an overall net saving (after the higher NI cost) of up to £2,496. While this structure does involve some tax being paid, it remains the most tax-efficient option. 

For businesses with no other employees, this means that from August 2025, there will be a monthly National Insurance bill. Directors’ NI is calculated on a cumulative basis, unlike non-director employees. This means that the salary in the first four months of the tax year will utilise the £5,000 NI-free band, delaying when the cost kicks in. 

Maximising your income up to the Basic Rate tax Band in the 2025-26 Tax year results in: 

This assumes that you have no other income using up your Basic Rate tax Band which would impact the calculations, such as interest, rental income etc. Dividend earnings above and beyond these levels will incur tax at 33.75% up to a total taxable income of £100,000.

The above is also based on the assumption that your business has the post tax profits to sustain dividends at this level.   

If you have any doubts or other considerations that need factoring in, we recommend that you contact your Client Manager for specific and tailored advice. 

Changes to reporting Benefit in Kind via normal payroll submissions from April 2026  

Something that is quietly creeping in is that from April next year the current Benefit in Kind system will move from submission of an end of year return, to being processed as part of normal payroll.  This change was originally scheduled for April 2025 but has been pushed back a year. 

Going forward, values and details of employee benefits—such as gifts, private medical insurance, company cars, and gym memberships—will be included on payslips. Tax will be collected via PAYE deductions rather than through changes to employees’ tax codes or self-assessment.  

This is likely to have two significant impacts next year: 

1. Many employers do not currently know the Benefit in Kind value until the end of the year. 
2. Employees’ tax codes may still reflect outdated Benefit in Kind values, potentially causing temporary double taxation.  

We hope that HMRC will have updated the tax code system before this comes into play.   

While we get our team geared up to prepare the 2024/25 P11D Benefit in Kind returns, based on the assumption that this won’t get delayed again, we think that now is a good time for you to formalise how you record these benefits for your staff, in preparation for next year’s transition.   

Changes to NI from 6 April 25 

As has already been discussed at length, the increases in National Insurance and National Living Wage are causing a considerable headache for businesses up and down the country.  With very little time before changes apply, we have been discussing the increased burden this is having and are recommending that this is factored into pricing as soon as possible. 

In the Spring Statement, the Chancellor projected inflation to rise to 3.2% in the short term. While we are not economists, this increase is clearly driven by higher wage costs for employers, which will push up prices. 

The expected drop back to “normal” inflation levels in 2026 also is indicative that any business not reviewing prices now, to compensate for increased costs, is likely to be unable to increase prices as much later in the year. It is far easier to increase prices while the rest of the economy is doing the same! 

If you need assistance, we can provide a tool for plugging in wages information and forecasting the impact of the NI changes.

Changes to Business Asset Disposal Relief (BADR) from 6 April 2025 

The Autumn Budget saw Capital Gains Tax rates increase immediately, with the basic rate rising from 10% to 18% and the higher rate increasing from 20% to 24%. 

The impact on Business Asset Disposal Relief (previously Entrepreneurs’ Relief) was delayed until 6 April 2025. Gains on business sales exchanging before 5 April 2025 can still qualify for the 10% rate on the first £1m—assuming this allowance hasn’t been used previously. However, from 6 April 2025, this rate will increase to 14%, and from April 2026, it will rise again to 18% for the foreseeable future, to match the lower general CGT rate. 

We are advising clients to consider this as part of overall wealth planning that involves the sale of their business for retirement. Forecasting your retirement income and asset requirements is now even more important. It can either be used to set targets and budgets for the business to secure what you need, or it can direct you towards alternative long-term planning, utilising other structures where not all the proceeds of sale would be needed for personal expenditure in your retirement. 

Future IHT changes 

One of the most contentious parts of the Autumn Budget was the intended changes to Inheritance Tax. 

From April 2026, where the value of a businesses or farm is included in a person’s death estate, the tax relief is far less generous than before. The new rules restrict relief so that only the first £1m of value remains free from an Inheritance Tax charge, with any value beyond this being taxed at an effective rate of 20%. 

For many business owners this represents a big impact, many not even knowing how much value they hold in their business, which could result in unwelcome tax charges for their family.   

An even more far-reaching change is that from April 2027 it is intended that pension savings will also be included in the death estate whereas previously this was not relevant for the majority of people.  This change alone has a very significant impact to the potential tax owed on death for our clients. 

It is not surprising that we have been doing more IHT planning in recent months than usual! If you have concerns, please talk to your Client Manager or Principal Adviser and we can help make an initial review of your potential estate and IHT risk today. From there we can then explore what options might be available to you.