Personal and Company Tax Planning for 2025

The current tax year will end on 5th April 2025, so now is a good time for you to check that you’re not going to pay more tax than necessary this tax year and during the next tax year.

HIGHLIGHTS – FROM 6TH APRIL 2025:

• No changes to income tax rates, allowances and thresholds.
• No changes to corporation tax rates, allowances and thresholds.
• No changes to Employee and self-employed NIC, allowances and thresholds.
• Employer NIC starting threshold reduces from £9,100 to £5,000.
• Employer NIC rate increases from 13.8% to 15%.
• Employment Allowance increases from £5,000 to £10,500pa
• Directors should take a salary of between £5,000 (was £9,100) and £12,570, plus dividends.
• Business asset disposal relief rates increase from 10% to 14%
• In case you missed it: main capital gains tax rates increased in October 2024 to 18% (basic) or 24% (higher)
• Double Cab Pick Up vehicle purchases will be taxed as cars – purchase now or sell by 2029

Below are some suggestions to consider first for directors/shareholders only, then for everyone.

DIRECTORS/SHAREHOLDERS ONLY

Background information

A Recap

It’s important to remember that your company is a completely separate entity from you and is taxed differently. A company pays corporation tax on its profits and National Insurance Contributions (NIC) on salaries. You personally pay income tax and NIC on salaries received as a director or employee, and income tax on dividends received as a shareholder (owner) of a company. However, the way you take money from your company may affect the company’s tax, so it’s important to consider all taxes when you decide how to pay yourself. A company usually pays salaries to directors, and has the option of paying dividends (if there is any profit) to its shareholders. Your company’s taxable profit includes a deduction for salaries and most expenses but not for dividends. So salaries will reduce corporation tax but dividends don’t affect it.

Corporation Tax Rates

Your company will pay corporation tax on the profit it makes in its accounting year, which is usually different to the tax year. The corporation tax rate is 19% for companies with annual taxable profits that are less than a lower threshold. Companies with annual taxable profits of over an upper threshold will pay tax at 25%. Companies between these thresholds will pay a tapered rate of between 19% and 25%. The lower and upper thresholds are £50,000 and £250,000, however these thresholds are divided by the number of associated companies plus one. A company is associated with another company if they are both owned 50% or more by the same person or the same group of people, or if there is a commercial relationship and adding close relatives’ shares means there is common control. Click on the links for more information on the new corporation tax rates and what is an associated company?

Tax on what you take from your company

You will pay income tax on your total income in the tax year, including any salary and dividends taken from your company, but not on expenses or loans. See below for the various tax bands and rates.

Small salary plus dividends

Even if your corporation tax rate increases to 25%, the most tax-efficient way to take money from your company is still with a small salary and then dividends. That’s because the income tax (20% then 40%), employee NIC (8% then 2%), employer NIC (15%) minus corporation tax relief (19-25%) is still more than the tax on dividends (8.75% then 33.75%). Even in the higher rate band when the employee NIC drops to 2%, it’s not enough to claw back the savings made in the basic rate band.

What to do this month

Check that you’ve received trivial benefits from the company of up to £50, up to 6 times per tax year for directors. Trivial benefits can be gifts or vouchers but not cash. The cost of each trivial benefit must not exceed £50.

On or before 5th April 2025 make sure you’ve used up your tax-free personal allowance of £12,570 with salary/earnings/dividends.

Last year we advised a salary of between £9,100 and £12,570, depending on whether your company is profitable and whether you would benefit from the Employment Allowance. If you have sufficient profit reserves in the company, you should also pay yourself dividends covering:

1. Any remaining personal allowance after your salary (£12,570 minus your salary);
2. Your tax-free dividend allowance of £500, then;
3. Your remaining basic rate band of up to £37,200, taxed at 8.75% (above this dividends are taxed at 33.75% or more).

It’s best to have a similar amount of total income from year to year, rather than not using up your basic rate band one year, then going into your higher rate band in the following year. You will save tax of about £9k by declaring total dividends of £35k this year and £35k next year, instead of none this year and £70k next year.

Any extra salary and dividends don’t have to be paid. They can be credited to your directors loan account to draw out tax-free at a later date, or to repay what you’ve already taken out.

The company must have net profit reserves remaining after any dividends are declared. You must approve the dividend and pay or credit the dividend by 5th April for it to be taxed in the current tax year. As always, you must also prepare the meeting minutes and dividend voucher to support the dividend.

Double Cab Pick Up

If your business relies on the use of a Double-Cab Pick Up (DCPU) vehicle consider replacing it before 1st April 2025. DCPUs purchased after this date will be taxed as if it a car rather than a van, which means significantly less capital allowances and significantly more benefit in kind tax. The current tax treatment will apply to contracts entered into before 1st April 2025 and completed before 1st October 2025.

A DCPU purchased before 1st April 2025 will be taxed as a van until either: it is disposed, the lease expires, or April 2029 (whichever happens first). If you have a company owned Double-Cab Pick Up vehicle, consider selling it before then because it (and the fuel) will be taxed as if it is a car rather than a van. You could replace it with an actual van, a tax-efficient electric car, or use a personal car and claim 45p (or 25p) per business mile for up to 10,000 miles (or more) per tax year.

The Changes

The main changes on 6th April 2025 are:

• Employer NIC rate increases from 13.8% to 15%.
• Salary threshold at which you potentially start paying Employer NIC reduces from £9,100 to £5,000 (per year per employee).
• Employment Allowance, which is the amount of Employer NIC that doesn’t have to be paid each year, increases from £5,000 to £10,500.

So paying an employee £10,000pa could potentially cost an employer £625 more per year, however, the smallest employers won’t need to pay any Employer NIC due to the Employment Allowance of £10,500. So an employer with 14 employees each receiving £10,000pa wouldn’t pay any NIC. If employees are paid £20,000pa you’ll start paying NIC if you have 5 employees. The Employment Allowance is not available to an employer whose only employee earning over £5,000pa is a director. The Employment Allowance is shared between connected companies.

Even if you do have to pay Employer NIC, you will still pay less tax overall by taking a small salary plus dividends. With company profits of £50,000 (per director/shareholder) the saving from paying all of the profit out as salary and dividends instead of just salary is just under £5,000 if the corporation tax rate is 19%, or just under £3,000 if the corporation tax rate is 25%.

What to do from next month

Our general advice on extracting funds from your own company is set out below. However, due to the numerous scenarios which could also change during the year, we may advise you differently on an individual basis.

From 6th April 2025 our advice is that each director/shareholder should take money from the company in the following order:

1. If the company is not profitable yet or you have another job:
   • Salary of £5,000pa or £416pcm, tax-free and NIC-free
2. If the company is profitable or you don’t have to pay employer NIC on your salary because of the Employment Allowance:
   • Additional salary of £7,570pa (total salary £12,570pa or £1,047.50pcm)
3. If the company has sufficient profit reserves:
   1. Dividends of £500, tax-free (all dividends are NIC-free)
   2. Dividends of £37,200, taxed at 8.75% (total income up to £50,270)
   3. Dividends of £49,730, taxed at 33.75% (total income up to £100,000)
   4. The next £25,140 of dividends are taxed at 60% (see ‘Avoid’ sections below)
   5. The remaining dividends are taxed at 39.35%

This assumes you have no other income (excluding point 1) and there are sufficient profit reserves in the company to take dividends. Profit reserves are the net profits/losses since the company started, less dividends since the company started. The relevant amounts can be found on the company’s balance sheet within the capital and reserves section.

EVERYONE

Use up Income Tax allowances

A Recap
Everyone receives a tax-free personal allowance of £12,570. Income above that is taxed at different rates depending on the type of income it is and which tax band that income falls into, and whether you live in Scotland or the rest of the UK. Earned income, such as a salary or self-employed profit, use up your tax bands before investment income, such as interest and dividends. For example, if you have a £50,270 salary and £40,000 dividends all in one tax year, all of the salary uses up your basic rate band, so will all be taxed at the basic rate of income tax (except the first £12,570 which is tax-free). Consequently, all of the dividends fall into your higher rate band so will all be taxed at the higher tax rate for dividends (except the first £500 which is tax-free).

Tax Bands

Unused personal allowances and tax bands are not available to be carried forward, so it is important to check that you are using them efficiently each year. If it’s possible to increase or decrease your income, it’s best to use up the lower rate bands and avoid the higher rate bands. Some tax planning can achieve this, such as changing ownership of assets (e.g. transferring shares of a company and therefore the amount of dividends paid out), or changing employment income or dividends. The bands and rates for Scottish residents are here and for Welsh residents are here, and for everyone else in the UK are currently as follows:

• £0 – £12,570 Personal allowance
• £12,571 – £50,270 Basic rate band
• £50,271 – £125,140 Higher rate band
• Over £125,140 Additional rate

Other allowances and bands to consider:

• £500 tax-free dividend allowance per person per tax year. This still counts as income so also uses up your tax bands.
• £60,000 – £80,000: child benefit repaid – see Avoid over £50k below.
• £100,000 – £125,140: personal allowance withdrawn – see Avoid over £100k below.

The different tax rates for Income and Dividends are as follows:

Employers beware

Please refer to The Changes section above for details of changes to Employer NIC rates and thresholds that affect you too.

Use up National Insurance allowances

National Insurance (NI) is payable by employers, employees, and the self-employed. Each of whom have different bands and rates to consider. As with income tax above, it’s best to use up lower bands and avoid higher bands. You need to have a salary or self-employed profits that exceed the lower earnings limit for the tax year, or voluntarily pay sufficient NI in the tax year, for it to be a qualifying year for your state pension. You need 35 qualifying years for a full state pension. If self-employed profits are below the lower earnings limit you need to voluntarily pay class 2 NIC to make it a qualifying year for your state pension. Class 2 NI is £179.40pa for 2024/25 and £182.00pa for 2025/26.

Below are the national insurance thresholds and rates for the 2024/25 and 2025/26 tax years. 

Check your National Insurance history now

As mentioned above, for a full state pension you need 35 qualifying years of employment or credits. You can check how many qualifying years you have on your personal HMRC online account. If it looks like you will fall short before your statutory retirement age, you may be able to make voluntary NI contributions to add missing years, if they are recent enough. From 6th April 2025 the rules are restricted so you can only top up any missing years from just the previous 6 years. See here for more details.

Avoid earning over £50k

You pay higher tax rates on income over £50,270 (£43,663 in Scotland). So if your total income is around this level and you are able to control it, try to avoid going over this threshold. For example, your lower tax rate paying spouse could receive some dividends instead of those dividends taking you into the higher tax rates.

The High Income Child Benefit Charge (HICBC) means that any child benefit received needs to be partly paid back if a parent’s income exceeds a lower HICBC threshold which is now £60,000. Child benefit needs to be fully repaid if a parent’s income exceeds a higher HICBC threshold which is now £80,000. So if one parent or the other receives child benefit, and if one parent or the other has an income over the lower HICBC threshold, the higher earner will need to repay at least some of the child benefit. A proportion of it is repaid if his/her income is between the thresholds. This can result in high marginal tax rates e.g. 50% for 2 children and over 60% for 4 children (i.e. your tax bill increases by 50p or 60p for every £1 your income increases between the thresholds). If the repayment can’t be avoided, consider stopping the child benefit, as this may spare any need to file a tax return. To calculate the amount of child benefit to be repaid, your income is adjusted down for any personal pension contributions and charity contributions. So you could pay more of these contributions to reduce your adjusted income within the thresholds in order to save tax at 50% or more. The plan is to base the HICBC on total family income from 2026 to make it fairer.

Avoid earning over £100k

When your total income exceeds £100,000 the tax-free personal allowance is gradually removed until you receive no personal allowance when your income reaches £125,140 or more. In this band of total income, you have a marginal tax rate of 60% on earned income or 53.75% on dividend income (i.e. your tax bill increases by 60p or 54p for every £1 your total income increases between £100k and £125k). Also, more benefits are removed such as tax-free childcare. As with the child benefit above, you could pay personal pension or charitable contributions to reduce your adjusted total income within the £100k – £125k band and save tax at 60%.

Claim Marriage Allowance

A spouse or civil partner who does not pay income tax above the basic rate for a tax year, can transfer £1,260 of their personal allowance to their spouse or civil partner, provided that the recipient of the transfer does not pay income tax above the basic rate. This can potentially mean a reduction in tax liability of £252. 

Transfer assets to a spouse

If a spouse or civil partner pays tax at a different rate, consider transferring income-producing assets (e.g. savings, company shares, investment property) to give the income to the person paying at the lower rate. Ideally, both you and your spouse should aim to have a total income of £50,270 or less.

Check your bank

If you have large sums of cash in ordinary accounts paying very little interest, consider moving cash to other accounts earning a higher interest rate. An Individual Savings Account (ISA) is tax free so make sure that ISA allowances have been fully utilised for all the family, where applicable.

Claim Tax-Free Childcare

Eligible parents can claim tax-free childcare by paying into a TFC account up to £8,000pa per child up to age 11 (£16,000pa per disabled child up to age 16). The government then adds 25% of what you pay in (i.e. up to £2,000pa or £4,000pa). That account can only be used to pay for approved childcare. You and your partner must be working at least 16 hours per week and must not earn over £100k.

Pay into savings

Savings allowances

£5,000pa of taxable interest received is tax-free if your total other income is £12,570pa or less. The £5,000pa is gradually reduced to £0 as your other income increases from £12,570pa to £17,570pa. There is also a personal savings allowance which means you don’t pay tax on taxable interest of £1,000pa for basic rate taxpayers, £500pa for higher rate taxpayers, and £0 for additional rate taxpayers.

ISAs
The ISA maximum investment limit is currently £20,000, which can be split across the different types of ISAs. These are: Cash, Stocks and Shares, Innovative Finance, and Lifetime ISAs. The overall investment limits on ISAs mean that a couple could save a substantial amount in tax-efficient savings accounts. Any adult under the age of 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year (until the age of 50) and savers will receive a 25% bonus from the government on this money. Broadly, money invested in this type of account can be saved until the investor reaches the age of 60 and used as retirement income, or it can be withdrawn to help buy a first home.

Junior ISAs
Junior ISAs are available to UK resident children (under-18s). Junior ISAs are tax-relieved and have many features in common with existing ISA products. The maximum annual subscription is currently £9,000. Investments may be made in any combination of qualifying cash or stocks and shares investments. Withdrawals are not permitted until the named child has reached the age of 18, except in cases of terminal illness. It’s possible to transfer Child Trust Funds (CTFs) to Junior ISAs.

Other Savings
Regular sums can be invested in National Savings (some products offer a tax-free return, which is particularly attractive to 40% and 45% taxpayers), banks and building societies. Those willing to accept the possibility of greater risk (perhaps equaling greater reward) might consider the stock market, stock market-linked investments or buy-to-let property.

Pay into pensions

Paying personal pension contributions can currently give tax relief at the individual’s highest income tax rate. Personal pension contributions are limited to your earnings. Employer pension contributions are not limited to earnings but give tax relief to the employer not the employee. Pension contributions are taxable if the total contributions from all sources into all of your pension schemes exceed an annual limit of £60,000 (or less if your total income exceeds £200,000). Unused allowances from the previous 3 years (at £60k, £60k and £40k) can be brought forward and used in the current year if you exceed your annual limit, which could give a total allowance of £220,000 in 2025/26.

Consider paying into pensions for family members. The introduction of stakeholder pensions allows contributions to be made for all UK residents, even children, as there is no requirement to have any earnings. Consider making payments of up to £3,600 for family members, as the fund will grow in a tax-free environment. The net cost is only £2,880.

Sell a business – tax rates are increasing

The capital gains tax rate when selling most small businesses is increasing from 10% to 14% on 6th April 2025. These lower rates are available if you qualify for Business Asset Disposal Relief (formerly Entrepreneurs Relief). If you are in the process of selling a business or can sell one quickly, doing so before 6th April 2025 could save you 4% tax on the gain.

Sell some assets – tax rates have increased

The capital gains tax rates were increased immediately following the budget in October 2024 from 10% to 18% for basic rate taxpayers and from 20% to 24% for higher rate taxpayers. So you can save even more tax by selling some assets each year rather than waiting to sell them all at once. Everyone has an annual capital gains exemption of £3,000 and you are only taxed on total capital gains that exceed that annual allowance. Taxpayers should therefore consider selling taxable assets to make a capital gain up to this figure. Gifts between spouses and civil partners are tax free, so it is possible to double the yearly exemptions available by giving shares or other investments to a spouse or civil partner.

Realise losses

If you have shares standing at a loss, you should consider selling them so that the loss can be set against any gains made over and above the capital gains annual exemption. If you want to retain the investment, it could be bought back by the spouse or partner, within an ISA. It will not be tax effective for them to buy back the investment within 30 days of you selling it. In addition, care must be taken not to fall foul of anti-avoidance legislation which prevents loss relief being claimed where certain arrangements exist, the main purpose, or one of the main purposes, of which is to secure a tax advantage.

Capital gains tax may be deferred through the use of an Enterprise Investment Scheme investment.

Give to charity

Making charitable donations via the Gift Aid scheme is an effective way to reduce taxable income but only if you pay any income tax. If donations have been made and you pay income tax, tick the Gift Aid box so that the charity can benefit from the basic rate tax relief. Higher rate taxpayers should make the necessary claim on their tax return for further relief. If future donations are planned, you may wish to bring these forward to on or before 5th April to ensure the tax relief is obtained at an earlier date.

Check your PAYE code

Employees should check that their PAYE tax code is correct and contact HMRC if it needs to be amended. The standard PAYE tax code is 1257L which means you are receiving the full personal allowance of £12,570. If your PAYE tax code is different, you should receive a notice from HMRC to explain why.

Gift early or small to avoid Inheritance Tax

Inheritance tax is charged at 40% on the value of an estate exceeding the nil-rate band. Lifetime gifts are taxed at 20% if the donor dies within 7 years of the gift. Lifetime gifts can be tax-free if the donor lives at least 7 years after the gift. Small gifts can also be tax-free because each person also has an annual exemption on gifts which is £3,000. So gifts totalling up to £3,000 per year (plus any allowance not used in the previous year) will not be treated as a lifetime gift. In addition each person can give as many gifts as they like of up to £250 per person each tax year without it affecting their annual exemption or lifetime gifts. Birthday and Christmas gifts out of normal income are exempt.

Get married to avoid £200k Inheritance Tax

Each person has a nil-rate band of £325,000 plus a further £175,000 on home, which means there’s no inheritance tax (IHT) to pay if that person’s estate is worth £500,000 or less. However, any assets left to a spouse/civil partner are exempt from IHT. Also, any unused nil-rate band is passed onto a surviving spouse/civil partner. So a couple with an estate of £1m can leave £0 IHT to be paid if they were married, or if they were not married IHT of £200,000 would be payable (£1m estate minus £0.5m nil-rate band at 40%).

Don’t get fined!

There are penalties and surcharges for submitting your tax returns late and for paying any tax due late. These penalties increase substantially over time so if you’re already late for the previous tax year, further delays will cost you more – see here.

Your tax return for the year ending 5th April 2025 can usually be submitted from early in May 2025, and must be submitted by 31st January 2026. Look out for our Tax Return Due emails which will be sent by the end of April 2025. The amount of tax owed for the year ending 5th April 2025 (minus any payments on account and PAYE) will be due by 31st January 2026. If applicable, 50% of the amount of tax owed is payable as a payment on account which is also due by 31st January 2026. The other 50% payment on account will be due by 31st July 2026.

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