from A newsletter for proactive planning... In this edition... National Insurance changes from April 2025 Pension savings in 2025/26 Official rate of interest Taxation of company cars in 2025/26 and beyond Reporting 2024/25taxable expenses and benefits Tax Diary April 2025 Issue www.compassaccountants.co.uk
PAGE 2 National Insurance changes from April 2025 Last October Chancellor Rachel Reeves announced some far-reaching National Insurance changes which will affect employers from April 2025. She also confirmed the rates applying to employees and to the self-employed. Employers The 2025/26 tax year starts on 6 April 2025. From that date, the secondary threshold (which is the point at which employers start paying secondary contributions on employees’ earnings unless one of the higher secondary thresholds applies) falls to £96 per week (£417 per month; £5,000 per year). From the same date, the rate at which employers pay secondary contributions is increased from 13.8% to 15%. The fall in the threshold will mean employers may now need to pay secondary contributions for the first time on the earnings of some part-time workers who previously were below the threshold. There is some help at hand in the form of an increase in the Employment Allowance, which rises from £5,000 to £10,500. From 2025/26, it will be available to larger employers as the former condition that the secondary Class 1 NIC bill in the previous tax year must not exceed £100,000 in order to benefit from the Employment Allowance is lifted. However, personal companies in which the sole employee is also a director remain ineligible. The rise in the Employment Allowance will mean that smaller employers may find their secondary National Insurance bill falls, despite the cut in the secondary threshold and the increase in the rate. However, at the other end of the spectrum, large employers will face significant hikes in their National Insurance bill. There are no changes to the upper secondary thresholds. The upper secondary threshold for under 21s, the apprentice upper secondary threshold and the veterans’ upper secondary CONT ON PG 3
PAGE 3 threshold remain at £967 per week (£4,189 per month; £50,270 per year). Employers looking to mitigate the impact of the changes may wish to take on more workers falling within these categories. The thresholds applying to new employees in Freeports and Investment Zones are also unchanged at £481 per week (£2,083 per month; £25,000 per year). The Class 1A and Class 1B rates are aligned with the secondary Class 1 rate and these too rise to 15% for 2025/26. Employees Employees have been spared from increases in their National Insurance bills. There is no change to the starting point at which contributions become payable as the primary threshold remains at £242 per week (£1,048 per month; £12,570 per year) and retains its alignment with the personal allowance. The upper earnings limit is also unchanged at £967 per week (£4,189 per month; £50,270 per year). The main primary rate remains at 8% and the additional primary rate remains at 2%. Employed earners whose earnings are between the lower earnings limit and the primary threshold are treated as if they have paid contributions at a zero rate, which gives them a qualifying year for state pension purposes. The lower earnings limit is increased by £2 per week to £125 per week (£542 per month; £6,500 per year). Self-employed earners Self-employed earners pay Class 4 contributions if their earnings exceed the lower profits limit. This remains at £12,570 for 2025/26. The main Class 4 rate, payable on profits between the lower profits limit and the upper profits limit, which is also unchanged at £50,270, stays at 6% and the additional Class 4 rate, payable on profits above the upper profits limit, stays at 2%. Self-employed earners whose profits are between the small profits threshold and the lower profits limit receive a National Insurance credit, which provides them with a qualifying year for state pension purposes. The small profits threshold has increased to £6,845 for 2025/26. Self-employed earners with profits below this can opt to pay voluntary Class 2 contributions to secure a qualifying year. For 2025/26, these are payable at the rate of £3.50 per week. Voluntary Class 3 Individuals who want to plug a gap in their contribution record can opt to pay voluntary Class 3 contributions if they are not eligible to pay voluntary Class 2. For 2025/26, Class 3 contributions are set at £17.75 per week.
PAGE 4 Pension savings in 2025/26 Putting money into a registered pension scheme can be tax efficient. Individuals can make contributions in their own right, or even for someone else, and employers can make contributions on their employees’ behalf (and indeed must do so under auto-enrolment). Tax relief is available on contributions up to certain limits. Auto-enrolment Under auto-enrolment, employers must enrol eligible employees into a registered pension scheme and make contributions on their behalf. An eligible employee is one who is between the ages of 22 and state pension age and who earns at least £10,000 a year. The total contribution to the scheme must be 8% of qualifying earnings, of which the employer must contribute at least 3%. While employees can choose to opt out of auto-enrolment, they will lose the valuable employer contributions, and as such, this is not a decision that should be made lightly. Contributions to a personal pension scheme Individuals can make tax-relieved contributions to a relevant pension scheme up to the lower of 100% of their earnings (or £3,600 if higher) and their available annual allowance. Tax relief is given at the contributor’s marginal rate of tax. For 2025/26, the annual allowance is set at £60,000. However, where both threshold income (broadly income excluding pension contributions) exceeds £200,000 and adjusted net income (which includes pension contributions) exceeds £260,000, the annual allowance is reduced by £1 for every £2 by which adjusted net income exceeds £260,000 until the allowance is reduced to the minimum amount of £10,000. Where the annual allowance is not used in full, it can be carried forward for up to three years. However, the current year’s allowance must be used before utilising those from earlier years (with allowances from earlier years being used in chronological order). The annual allowance was set at £60,000 for 2024/25 and 2023/24 For 2022/23 it was set at £40,000 (with abatement applying where threshold income was more than £200,000 and adjusted net income was more than £240,000 until the minimum allowance of £4,000 is reached). Individuals who have not made contributions in 2022/23 and later tax years can make tax-relieved contributions of up to £220,000 in 2025/26, earnings permitting. However, it should be remembered that high earners may have a reduced annual allowance as abatement may apply. There is no longer any cap on lifetime tax-relieved pension savings following the removal of the former lifetime allowance. However, the maximum tax-free lump sum is capped at £268,275 where this is less than 25% of the value of the pension pot when accessed. Once an individual has accessed their pension savings (currently an option on reaching the age of 55), they are only entitled to a lower annual allowance – the money purchase annual allowance – thereafter. For 2025/26 this is set at £10,000. Personal and family companies Directors of personal and family companies often only take a small salary equal to the personal allowance of £12,570 and withdraw further profits as dividends. This can limit the tax-relieved pension contributions that they are able to make, as dividends do not count as earnings, capping potential pension contributions at £12,570 a year. This problem can be overcome if the company makes employer contributions on their behalf, as while employer contributions count towards the annual allowance, they are not limited to 100% of the employee’s earnings. Making pension contributions to the director’s pension scheme can be a tax-effective way to withdraw profits from the company. The contributions are also deductible when calculating the company’s profits for corporation tax purposes.
PAGE 5 Official rate of interest The official rate of interest is a rate set by HMRC which is used to calculate the benefit in kind tax charge on cheap employment-related loans, and also the amount charged to tax in respect of the provision of employer-provided living accommodation where the cost of that accommodation is more than £75,000. Employment-related loans The amount charged to tax in respect of the benefit of a taxable cheap employment-related loan is found by comparing the amount of interest paid by the employee (if any) with that which would have been payable had the employee paid interest at the official rate. Where the interest actually paid is less than that chargeable at the official rate, the employee is taxed on the difference. If the loan is interest free, the taxable amount is the interest that would be payable on the loan at the official rate. The charge may be calculated in one of two ways, either by using the average balance outstanding during the tax year (or such shorter period for which the loan was outstanding) or by using the precise method which is based on the actual balance outstanding on each day of the tax year. Living accommodation The official rate of interest is also relevant in calculating the additional yearly rent that applies where the cost (or market value, where appropriate) of living accommodation provided by an employer is more than £75,000. This is added to the difference between the annual value or, if greater, the rent paid by the employer and any rent paid by the employee to arrive at the measure of the taxable benefit. It is found by multiplying the official rate of interest by the amount by which the cost (or market value, as appropriate) of the accommodation exceeds £75,000. Move to quarterly updating In January 2000, the then Inland Revenue made a public commitment that the official rate of interest would not increase in-year. For 2024/25 and earlier tax years, the official rate of interest applying for the year was announced in advance. For 2024/25, the rate is 2.25%. However, from 6 April 2025, the public commitment made in 2000 will no longer stand and for 2025/26 and later tax years, the official rate of interest may be changed in-year where appropriate. The official rate of interest will be reviewed quarterly and any changes in the rate will be made following a quarterly review. Thus, from 6 April 2025, the official rate of interest may be increased, decreased or maintained following a quarterly review. This will allow the official rate of interest to track movements in actual interest rates more closely. From 6 April 2025, the official rate of interest is increased to 3.75%. The official rate of interest is published on the Gov.uk website at www.gov.uk/government/publications/rates-andallowances-beneficial-loan-arrangements-hmrcofficial-rates/beneficial-loan-arrangements-hmrcofficial-rates. The move to in-year changes will remove some of the certainty as to the tax that an employee will pay on the benefit of a cheap employment -related loan or on employer-provided living accommodation and potentially make the calculation of the taxable amount more complex.
PAGE 6 Taxation of company cars in 2025/26 and beyond Employees with a company car available for their private use pay tax on the benefit. The amount that is charged to tax is a percentage of the list price of the car and any optional accessories, as adjusted to reflect any capital contributions made by the employee up to £5,000. The percentage, which is known as the ‘appropriate percentage’, depends on the level of the car’s CO2 emissions. A supplement applies to diesel cars that fail to meet emissions standards. The charge is adjusted to reflect certain periods during the tax year when the car was not available to the employee for their private use, and also any contributions made by the employee in respect of their private use of the car. Changes applying from 2025/26 For the 2025/26 tax year, having a company car will become slightly more expensive. The appropriate percentages are increased by one percentage point up to the maximum charge of 37%. This means that an employee with an electric car will now be taxed on 3% of the list price of the car and optional accessories, compared to a charge of 2% for 2024/25. At the other end of the scale, the maximum charge of 37% will apply to cars with CO2 emissions of 155g/km and above. This change will mean that an employee with a company car with a list price of £30,000 paying tax at the higher rate will pay £120 more in tax on their company car in 2025/26 than in 2024/25. Employers will also pay more in Class 1A National Insurance, both as a result of the increase in the appropriate percentage and also as a result of the increase in the Class 1A charge from 13.8% to 15%. Looking ahead – 2026/27 and beyond With the number of company car drivers choosing electric company cars increasing, the Government are reducing the tax breaks in order to maintain their revenue stream. For 2026/27, the appropriate percentages applying to cars with CO2 emissions of 74g/km or less are increased by one percentage point, while the appropriate percentages for cars with CO2 emissions of 75g/km and above are maintained at their 2025/26 level. It is a similar story for 2027/28 – the appropriate percentages for cars with CO2 emissions of 69g/km and below are increased by one percentage point, with the appropriate percentages for cars with CO2 emissions of 70g/km and above remaining unchanged. There are further changes to come in both 2028/29 and 2029/30. In each of those years, the appropriate percentage for zero emission cars will increase by two percentage points. This means that for 2028/29, electric company car drivers will be taxed on 7% of the list price of their car and optional accessories. For 2029/30, this will increase to 9%. From 2028/29, the amount charged to tax in respect of cars in the 1 to 50g/km band will no longer depend on the car’s electric range. Instead, the appropriate percentage for cars in this band will be set at 18% in 2028/29 and at 19% in 2029/30. For cars with the greatest electric range (more than 130 miles), this is a significant hike – from 5% in 2027/28 to 18% in 2028/29. As far as other cars are concerned, the appropriate percentages will increase by one percentage point in both 2028/29 and in 2029/30. The maximum charge will also rise – to 38% in 2028/29 and to 39% in 2029/30. Plan ahead Drivers typically have a company car for three or four years. When changing their company car, employees should not only consider the current rates, but also those applying in future tax years. For electric and low emission cars in particular, significant tax hikes are on the horizon.
PAGE 7 Reporting 2024/25 taxable expenses and benefits If as an employer you provided employees with taxable expenses and benefits in the 2024/25 tax year, you will need to ensure that you meet your reporting obligations in respect of those benefits. This will include providing information to HMRC and to your employees. The exact nature of your reporting obligations will depend on whether or not you payrolled those benefits. Payrolled benefits Where benefits are taxed through the payroll (payrolling), much of the reporting to HMRC is done on an ongoing basis throughout the tax year under real time information. However, this does not mean that there is nothing to do after the end of the tax year. As an employer, you must provide employees with details of their 2024/25 payrolled benefits before 1 June 2025. This can be done by email, by letter or on their payslip. It is also important to include payrolled benefits in the calculation of your 2024/25 Class 1A National Insurance liability on your P11D(b). Even if all benefits provided to employees in 2024/25 have been payrolled, it is still necessary to file a P11D(b) as this is the Class 1A National Insurance return. This must be filed online, either via PAYE Online for Employers or by using a commercial software package. It must reach HMRC by 6 July 2025. Other taxable benefits Taxable benefits that have not been payrolled and which have not been included within a PAYE Settlement Agreement must be reported to HMRC on form P11D. This must be filed online by 6 July 2025, either via HMRC’S PAYE Online for Employers service or by using commercial software. It should be noted that HMRC’s PAYE Online service can only be used by employers who have fewer than 500 employees. Paper forms are not accepted. Employers must also file a P11D(b) online by 6 July 2025. This is their declaration that all required P11Ds have been submitted, and also their Class 1A return. When calculating the Class 1A liability, it is important to include both payrolled benefits and those reported on P11Ds. Employers must provide employees with details of their taxable benefits as reported on their P11D by 6 July 2025. The easiest way to do this is to give the employee a copy of their P11D. The information can also be provided by email or by letter. It is important that the deadlines are met and returns are correct as penalties may be charged for both late and incorrect returns, and these can be significant.
PAGE 8 TAX DIARY APRIL 1 April 2025 – Due date for corporation tax due for the year ended 30 June 2024. 19 April 2025 – PAYE and NIC deductions due for month ended 5 April 2025. (If you pay your tax electronically the due date is 22 April 2025). 19 April 2025 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2025. 19 April 2025 – CIS tax deducted for the month ended 5 April 2025 is payable by today. 30 April 2025 – 2023-24 tax returns filed after this date will be subject to an additional £10 per day late filing penalty for a maximum of 90 days. For further information on any of the stories in this month’s newsletter, or for any other matter that Compass Accountants can assist you with, please contact us on 01329 844145 or contact@compassaccountants.co.uk To subscribe to the newsletter, so that each edition is delivered to your inbox, go to www.compassaccountants.co.uk and add your contact details. Compass Accountants, Venture House, The Tanneries, East Street, Titchfield Hampshire. PO14 4AR
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