UK Tax: Navigating 2025's Changes

The tax landscape has been shifting dramatically, and 2025 promises no respite. While not a full-blown fiscal event, the upcoming Spring Statement on 26 March could unveil new consultations and outcomes from previous ones. Tax professionals are already navigating a slew of changes this year – we've summarised the key ones in a handy table below. All this amidst the government's broader push for growth, heightened UK competitiveness (in an increasingly competitive global landscape), and tax simplification.

Business taxes

Pillar Two rules, mandating a minimum 15% tax rate, are already in effect in the UK. These rules bring significant additional tax compliance requirements. In-scope groups are currently preparing for their first information return filings due in June 2026. Looking ahead, in-scope multinational groups with a UK presence, as well as UK domestic groups, must register with HMRC within six months from the end of their first accounting period subject to the rules. For December year-end groups, this deadline falls on 30 June 2025.

The transition to the modernised R&D regime continues in 2025, with companies operating on a December year-end entering the new merged regime from 1 January. As part of HMRC's ongoing efforts to curb error and fraud in R&D claims, a new R&D-specific disclosure facility comes into effect on 1 January 2025. This facility allows companies that have previously over-claimed R&D tax relief to rectify their position. Additionally, creative industries, identified as a key growth-driving sector, will benefit from enhanced relief for visual effects. This enhancement increases the after-tax effective tax rate of relief from 20.4% to 29.25% on costs incurred from 1 January 2025.

Retail, hospitality, and leisure businesses will retain their business rates relief during 2025 (until April 2026), although at a reduced discount rate of 40% from April 2025.

Indirect taxes

As previously announced, education services and vocational training provided by a private school or a "connected person" for consideration, as well as boarding services "closely related" to such supplies, are now subject to 20% VAT. In England, from April 2025, private schools will no longer qualify for the business rates charitable rate relief.

Personal and employment taxes

Several tax-raising measures are coming into force this year for employers and individual taxpayers.

The increase in the employers' National Insurance Contributions ("NICs") rate and decrease in the earnings threshold from which it applies from 6 April 2025 have been criticised by many businesses and representative bodies, warning of lower pay increases, job losses, and potentially higher prices for customers. Businesses in low-wage sectors are also faced with increases in the National Minimum and Living Wage levels and may struggle to absorb the higher costs. The increased amount and expanded eligibility of the Employment Allowance are likely to feel like a drop in the ocean in terms of mitigating the increased costs for at least some of the businesses eligible to claim it.

Another high-profile change is the abolition, from 6 April 2025, of the existing remittance basis system of taxing non-UK domiciled individuals on foreign income and gains (also known as the 'non-dom regime'). The replacement Foreign Income and Gains ('FIG') regime is contained in the Finance Bill 2024-25, which is likely to become law during March 2025. Rachel Reeves previously said at the World Economic Forum in Davos that changes would be made to increase the generosity of the temporary repatriation facility, which allows individuals who have paid tax on the remittance basis to pay tax at a flat 12% or 15% rate on remitted amounts for a limited time period. This facility is in the Finance Bill that's currently passing through Parliament, and Report Stage amendments have been laid by the government, but it would be difficult to describe these as increasing the generosity of the regime. It will be interesting to see if Rachel Reeves includes any changes during the Spring Statement.

There are more tax rises on the horizon. Entrepreneurs and investors looking to sell assets will pay higher rates of Capital Gains Tax (CGT) from April 2025 if they are claiming Business Asset Disposal Relief or Investors' Relief, subject to the enactment of the Finance Bill.

There are also major changes ahead for carried interest, with an increase in the CGT rate to 32% from 6 April 2025 and wider reforms to the tax treatment of carried interest from April 2026. Draft legislation will be published later in 2025, following a recent consultation.

Tax administration

The government will continue its work to close the tax gap and modernise the tax system. The ambitious plans include recruiting an additional 5,000 compliance staff, focusing additional resources on areas of greatest complexity and return, investing in modernising IT and data systems, and improving HMRC customer service, although the timing of these actions has not been specified. The interest charged by HMRC on late tax payments will increase, from 6 April 2025, by 1.5% to the Bank of England base rate plus 4%. This, as the government stated at the Autumn Budget 2024, is to encourage prompt payment by taxpayers and ensure fairness for those who pay their tax on time.

The above is just the tip of the iceberg of all the changes happening in 2025 – visit our UK Tax Policy Map to see many more.

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Changes coming into force in 2025