Key Tax changes for businesses in 2025

Key Tax changes for businesses in 2025

As we move ahead into 2025, we seem to be greeted by a rapidly shifting tax landscape.

Businesses are needing to get to grips with significant changes on the horizon, from adjustments to business asset disposal relief (BADR), the phased implementation of Making Tax Digital (MTD) and increases to employer National Insurance contributions (NICs).

So what are the changes…

Business asset disposal relief (BADR)

Formerly know as Entrepreneurs Relief is a pressing concern for business owners this year with the increase in the tax rate for BADR. Currently, business owners pay 10% on the first £1m of qualifying gains.

However, from April 6, 2025, this rate will rise to 14%, translating to a potential increase of £40,000 in tax liability for those disposing of a business worth £1m or more after this date.

To compound this, anti-forestalling rules introduced by the government will limit potential planning in this area.

For instance, when a business is sold, you might receive different types of consideration: cash, shares and/or deferred consideration, such as a loan note.

Usually, a loan note is taxed only when the money is received. However, it is often advisable – especially in the context of BADR – to elect to treat the tax as arising when the loan note is first received.

To benefit from this treatment, the election must be made before the 12-month anniversary of the self-assessment deadline for the year in which the loan note is received.

However, the new anti-forestalling rules will apply the BADR rate in application at the time the election is made, not when the loan note was received.

This is a big change and means advisors need to encourage clients to finalise any elections before the tax year’s end to secure the 10% rate. Missing this deadline could mean clients face the higher 14% rate. 

If you are considering selling a business talk to your accountant in order to plan and keep you tax efficient.

Employment tax changes

From April 2025, employers will encounter NIC rate increases, and threshold reductions.

The effect on companies, particularly small to medium sized enterprises (SMEs), is going to be large, meaning that reduced hiring and investment is inevitable.

Businesses should start calculating the potential impact of these changes on their financials so that they can adjust budgets and forecast any cost cutting measures that may be necessary.

Making Tax Digital (MTD) for income tax

The rollout of Making Tax Digital (MTD) continues with a number of significant milestones approaching.

By 2026, landlords and sole traders with turnover above £50,000 will need to comply. By 2027, this threshold will drop to £30,000. This shift will require real-time information-sharing to HMRC.

In summary, the year ahead will be ever changing for businesses, and its important that businesses work with their accountants to mitigate financial risks, seize tax-saving opportunities and ensure compliance in the years to come.