How taxing will 2025 be?

The beginning of a new year is a natural time for tax professionals and businesses alike to plan ahead. The impact of last year’s Autumn Budget is still to be fully felt while further changes may be announced in March’s Spring Forecast. Meanwhile, the start of the new tax year in April will see a number of measures take effect. Mercia’s tax experts recently made their predictions of what 2025 might hold. Here we take a look at their predictions.

Changes anticipated to Budget measures

Chancellor Rachel Reeves made waves with her first Budget last October and the repercussions are continuing into 2025.

Ms Reeves announced that the employers’ National Insurance Contributions (NICs) rate will increase from 13.8% to 15% from 6 April 2025.

The Secondary Threshold, currently set at £9,100 a year, is the point at which employers become liable to pay NICs on an individual employee’s earnings. The government will reduce the Secondary Threshold to £5,000 a year from 6 April 2025 until 6 April 2028, and then increase it by Consumer Price Index (CPI) thereafter.

Meanwhile, agricultural property relief (APR), which reduces the amount of tax that farmers and landowners must pay when farmland is passed to the next generation also saw changes at the Autumn Budget. 

From 6 April 2026, the full 100% relief from Inheritance Tax will be restricted to the first £1 million of combined agricultural and business property.

Concede ground

However, Mark Morton, Technical Lecturer and Consultant at Mercia has two main predictions for 2025 following the Autumn Budget.

He says: ‘The first is that the government will concede ground on some of the major Budget announcements, particularly the increase in employers’ NICs and the ‘capping’ of APR.

‘The second is that Making Tax Digital (MTD) will be deferred again from its current start date of 2026.’

Rising employment costs

The increase in employers’ NICs is not the only employment cost set to rise at the start of the new tax year on 6 April. The National Living Wage (NLW) will rise from £11.44 an hour to £12.21 while the National Minimum Wage (NMW) will go up to £10 for those aged 18-20 and £7.55 for those aged under 18 and apprentices.

These costs will be balanced by an increase in the Employment Allowance, which allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill.

From 6 April 2025 the government will increase the Employment Allowance from £5,000 to £10,500 and remove the £100,000 threshold for eligibility, expanding this to all eligible employers.

Watchful eye

Helen Knight, Mercia’s Tax Senior Manager, says: ‘Employment costs for many businesses will rise in 2025 with the increase to employers' NICs, the NMW and the NLW albeit some costs may potentially be offset by the increasing employment allowance.

‘We'll be keeping a watchful eye on the impacts, particularly on small businesses and it will be interesting to see whether any further support is provided to this sector.’

VAT changes ahead

VAT is on area of taxation that is constantly in a state of flux. Last year the threshold for VAT registration rose to £90,000 while we also saw the removal of VAT exemption for private school fees.

Private school fees for education and vocational training no longer benefit from VAT exemption and are subject to VAT at the standard rate of 20%. The change applies to terms beginning on or after 1 January 2025, although certain prepayments made after 29 July 2024 will also be included.

Jaffa Cake decision

James Hurst, Technical Lecturer and Consultant at Mercia, says: ‘In March 2024 who would have predicted an increase to the VAT registration threshold? Especially as the then-Chancellor had said only four months earlier it would remain unchanged until April 2026.

‘But VAT has a reputation for frequent changes, especially from new Tribunal decisions. One area where I feel confident of something new is the perennial topic of VAT food cases. Ever since the legendary Jaffa Cake decision (a cake or chocolate covered biscuit?) we have enjoyed new decisions on food products every year.’

How Mercia can help

The constantly changing tax landscape underlines the importance of keeping your knowledge and skills up to date.

Stay informed with our Finance Act and Tax Update courses throughout 2025, available face-to-face at a venue near you.

We can also help you make your clients aware of the issues and enable them to identify areas where planning might be relevant to them with our Year End Tax Planning Guide.