Preparing for the 2025/2026 tax year
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Posted: Tue 18th Feb 2025
As the 2024/2025 tax year draws to a close, small business owners in London must prepare for several key changes coming into effect from April 2025.
Staying informed and proactive can help your business meet the new rules and regulations and keep its finances in good order.
As Stephanie Odgie-Jones of Co-Accounting says:
"Taxes are a non-negotiable part of doing business. Don't be afraid of them – knowledge is power. If you know your obligations, you can plan accordingly and avoid surprises."
This blog outlines the crucial updates and offers practical tips so early-stage businesses like yours can navigate the new financial year with confidence.
Key changes for the 2025/2026 tax year
1. National Minimum Wage and National Living Wage increases
From 1 April 2025, the National Minimum Wage (NMW) and National Living Wage (NLW) will rise.
This adjustment affects you if your business employs staff across various age groups (see below).
National Living Wage (21 and over): £12.21 (up by £0.77 or 6.7%)
People aged 18 to 20: £10 (up by £1.40 or 16.3%)
People aged 16 and 17: £7.55 (up by £1.15 or 18%)
Apprentices: £7.55 (up by £1.15 or 18%)
What to do: update your payroll systems to reflect the new rates, and review all your employment contracts to make sure you're keeping to the law.
2. Changes to statutory sick pay and parental pay
From 6 April 2025, statutory sick pay (SSP) will increase from £116.75 to £118.75 per week.
There are new rates too for statutory maternity pay, maternity allowance, paternity pay, adoption pay, shared parental pay and parental bereavement pay. Each will rise from £184.30 to £187.70 per week.
What to do: adjust your HR policies to reflect these changes and make sure you're calculating employees' sick leave correctly.
Keeping detailed records of sickness absences is a really important aspect of operating your business in line with the law.
3. Higher National Insurance rates
Increases to National Insurance contributions will affect both you as an employer and your staff.
Employer's National Insurance contributions will increase by 1.2 percentage points to 15%.
The secondary threshold – which is the point at which employers start paying National Insurance on an employee's salary – will be cut from £9,100 a year to £5,000.
What to do: review your payroll budget to accommodate these higher costs and consider their impact on take-home pay and overall business expenses.
4. Increase to Employment Allowance
The Employment Allowance – which reduces the amount of National Insurance contributions eligible businesses pay – is set to rise from £5,000 to £10,500.
This change can lead to significant savings for small businesses like you.
What to do: check whether your business is eligible and adjust your payroll calculations to make the most of this benefit.
5. Other notable updates
Adjustments to corporation tax: check if your business falls into new tax brackets or if there are changes to your deductions.
Changes to the VAT threshold: stay informed about any shifts in thresholds that might affect your registration for VAT.
Stephanie says:
"No-one wants to pay more tax than they need, but significant savings are rare. Proactivity, consistency and attention to detail are key to maximising efficiency."
Preparing for the end of the tax year: practical tips
Review your financial records: make sure all accounts are up to date and match bank statements, invoices and receipts with the relevant bank transactions (known as "reconciling").
Assess your cash flow: look at your cash flow to anticipate how upcoming tax changes and new rates will affect your finances.
Focus on strategies that drive growth: although successful businesses often pay more tax, prioritising tax savings over business growth can hold back your potential, says Co-Accounting's Stephanie.
Budget for new costs: factor higher wage bills, National Insurance contributions and other adjustments into your financial planning.
Consult an accountant: a professional can give you tailored advice on how to keep to the law and ways to lower your tax bills.
Self-management tools and accounting apps
Using the right tools can make financial management so much simpler. Consider these popular apps:
QuickBooks: great for invoicing, tracking expenses and calculating taxes.
Xero: ideal for monitoring your business finances in real time.
FreeAgent: designed specifically for small businesses and freelancers.
Tide: combines banking with easy expense tracking.
End-of-tax-year checklist for London small businesses
Update payroll systems with new minimum wage and National Insurance rates.
Review employment contracts so you're paying staff the correct wage.
Adjust budgets to reflect the increase in costs.
Check whether you're eligible for Employment Allowance.
Reconcile accounts and produce financial statements.
Plan for tax payments and upcoming deadlines.
Consult an accountant for personalised advice.
Back up your financial data securely.
Final thoughts
Staying ahead of these changes is vital for your business' financial health.
By preparing early, making use of technology and seeking professional guidance when you need it, you'll be able to navigate the 2025/2026 financial year with greater ease and confidence.
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