How do the 25/26 tax changes affect you?
The new Labour Government budget was recently announced. You can read the full budget on the GOV website. In this blog post I wanted to provide a very high level summary of how it will affect you as Limited Company Directors.
These changes won’t take effect until tax year 25/26 which is the year beginning 06 April 2025, and ending 05 April 2026.
Employer National Insurance:
National Insurance taxes are paid on the salary you receive from your Limited Company, normally £12,570 a year.
The employer National Insurance rate has been increased by 1.20% from 13.80% to 15.00%. A tax increase.
In addition to this the Government has lowered the threshold at which you start paying employer National Insurance from £9,100 per year, to £5,000 per year.
These changes will lead to an extra £540 of tax to pay each year.
But there is a way you can legally avoid paying Employer’s National Insurance… Employment Allowance.
Employment Allowance:
HMRC provides an exemption to small businesses, allowing them to reduce their Employer National Insurance bill.
There is a catch though, if you are a 1-person, Limited Company, you are not eligible.
You need to have a second employee (or Director) earning at least £5,000 per year (the threshold for paying Employer National Insurance, mentioned above).
In almost all cases, if you do qualify for Employment Allowance you won’t pay a single penny in Employer National Insurance!
If you would like to know whether your company can claim the Employment Allowance, please get in touch.
Or just get in touch anyway and we can discuss other ways to become more tax efficient.
Stay tuned for future updates and insights in our upcoming newsletters. As ever, if you have any questions feel free to reach out.