How April 6th 2025 tax changes hit limited company workers

With the 2025/26 tax year now underway, it’s essential for limited company contractors to be across updates from Spring Statement 2025 and Autumn Budget 2024 which both took effect on Sunday.  

Why “essential”?  Well, ranging from National Insurance and BADR increases to dividend tax and MTD considerations, the new financial year brings several significant tax changes either closer or actually into play, potentially impacting director income, expenses, and tax planning strategy, writes Louisa Drewett, director of Aardvark Accounting.

Key April 6th tax changes for limited companies now in force

Here’s my overview of the key tax changes in force since yesterday --Sunday April 6th 2025, largely as a result of changes announced at chancellor Rachel Reeves’s first two fiscal statements.

Employer’s National Insurance changes and Employment Allowance increase

There are two major National Insurance Contributions (NICs) changes for limited companies to be aware of: 

1. Employers’ National Insurance contributions will rise from 13.8% to 15% on employee earnings over £5,000.

2. The Employment Allowance will increase to £10,500, and the previous upper eligibility threshold of £100,000 will be scrapped. This means more companies may now qualify for the allowance.

However, one-person limited company directors were not addressed at either October’s Autumn Budget or March’s Spring Statement, meaning sole-person directors remain ineligible for the Employment Allowance.

Capital Gains Tax and Business Asset Disposal Relief

While no further changes were announced at last month’s Spring Statement 2025, measures confirmed at Autumn Budget 2024 are still going ahead:

1. Main CGT rates: For disposals made on or after October 30th 2024, the rates for assets other than residential property and carried interest have increased from 10% (basic rate taxpayers) and 20% (higher rate taxpayers) to 18% and 24%, respectively.

2. Business Asset Disposal Relief (BADR): Formerly known as Entrepreneurs’ Relief, the CGT rate under BADR has risen from 10% to 14% for disposals made on or after April 6th 2025 (with a further increase to 18% planned for disposals on or after April 6th 2026). The lifetime CGT limit for qualifying gains remains at £1 million.

If you are a limited company director planning an exit or a Members’ Voluntary Liquidation (MVL), BADR still offers a tax-efficient route—but it's always best to seek professional advice to ensure eligibility.

2025/26: Dividend tax rates and personal allowance

Dividend tax rates remain unchanged for the 2025/26 tax year:

• 8.75% for basic rate taxpayers
• 33.75% for higher-rate taxpayers
• 39.35% for additional rate taxpayers

However, it’s worth noting that the tax-free dividend allowance has been reduced over the past two years and is now just £500.

The tax-free personal allowance remains at £12,570, unchanged from previous tax years.

HMRC late payment penalties: what’s changing in April 2025

Effective since April 6th 2025 are tougher penalties from HMRC for late tax payments, including penalties related to VAT and income tax.

These changes form part of a broader HMRC effort to encourage prompt payment and reduce the overall tax gap.

The updated penalty structure is as follows: 

• 15–29 days late: 3% of the amount outstanding at day 15;
• 30+ days late: An additional 3% of the amount outstanding at day 30;
• Ongoing surcharge: A further 10% annual penalty will apply to amounts that remain unpaid beyond these points. 

Although these penalty rules currently apply to only VAT and income tax, they highlight HMRC’s increased focus on timely compliance across the board.

Contractors and small business owners should be aware of this toughening of the HMRC penalty regime and ensure payments are made on time to avoid unnecessary charges.

Making Tax Digital (MTD): What’s ahead

Although MTD for corporation tax is not yet in scope, self-employed individuals and landlords should be aware of what’s coming:

• From April 6th 2026, MTD for income tax will apply to those with income over £50,000, followed by those earning over £30,000 from April 6th 2027.
• A final MTD wave, affecting individuals with income over £20,000, begins on April 6th 2028.

While limited company contractors are not yet directly impacted by Making Tax Digital, these developments signal HMRC’s continued shift towards full digital compliance—and it’s important to stay prepared. 

So, 2025/26 for limited company workers be like…

For limited company contractors, the 2025/26 tax year brings both familiar planning opportunities and new challenges.

Rising employer NIC rates may put pressure on businesses with employees, while the continuation of Business Asset Disposal Relief (albeit at a new higher rate), and dividend taxation allows for some ongoing tax efficiency.

As ever, a carefully planned combination of salary and dividends—along with effective use of allowances—is key to making the most of your income as a limited company contractor, in 2025/26 and beyond.