April 2025 Tax Changes Every SME Needs to Know

As we move into the new tax year, small business owners across the UK face a fresh set of financial changes that could significantly impact how they operate. Many of these updates, announced during the UK Government’s Autumn 2024 Budget, officially came into effect on 6th April 2025. From wage increases to shifting National Insurance thresholds, now is the time for SMEs to assess the impact and adapt accordingly.

National Minimum and Living Wage Increases

One of the biggest changes this year is the rise in wage requirements:

• National Living Wage (for workers aged 21 and over) has increased by 6.7%, from £11.44 to £12.21 per hour.

• 18–20-year-olds will now receive £10.00 per hour (up from £8.60), marking a 16.3% rise.

• Apprentices and 16–17-year-olds will now earn £7.55 per hour (previously £6.40), an 18% increase.

These increases aim to support workers with the cost of living, but they also mean higher payroll costs for employers. It’s vital that SMEs ensure compliance, as failure to meet wage standards can result in fines of up to 200% of unpaid wages, capped at £20,000 per worker.

Employer National Insurance Contributions (NICs)

Another major change is the rise in Employer NICs:

• The contribution rate has increased from 13.8% to 15% on earnings above £5,000 (previously £9,100).

• This lower threshold means a larger proportion of employee earnings are now subject to NICs.

To support smaller businesses, the Employment Allowance has been increased from £5,000 to £10,500, which will exempt many from additional NIC costs. However, for labour-intensive SMEs, this adjustment still represents a significant cost increase.

Self-Employed NIC Reform

From April 2025, Class 2 National Insurance Contributions for the self-employed have been abolished. While this simplifies the system, sole traders with profits over £12,570 should be aware that their access to benefits such as the State Pension remains unchanged. It’s advisable to check that your NI contributions history remains accurate under the new system.

Lower Dividend Allowance

For company directors or those drawing income through dividends, the tax-free dividend allowance has now halved to £500 (down from £1,000). This means more of your dividend income may now be taxable, so it’s worth reviewing your income strategy with a financial advisor or accountant.

VAT Threshold Frozen

The VAT registration threshold remains at £85,000, unchanged again this year. While this might seem like business as usual, growing SMEs should note that inflation and turnover growth could see them pushed into VAT registration sooner than expected. Preparing your pricing, invoicing and accounting processes in advance can help manage this transition smoothly.

Looking Ahead: Making Tax Digital

The Government’s Making Tax Digital (MTD) scheme is set to apply to sole traders and landlords with income over £50,000 from April 2026. Although the rollout is still a year away, adopting digital accounting tools now can ease the learning curve. Platforms like Xero, QuickBooks, and FreeAgent help maintain real-time records and improve overall compliance.

What Can SMEs Do to Adapt?

While these changes bring financial pressure, they also create opportunities for strategic planning. Review your pricing model, explore outsourcing or freelance options, and consider salary sacrifice schemes where possible. Most importantly, factor these changes into your financial forecasts to avoid unexpected costs.

At SME Centre of Excellence, we support small businesses to not just survive, but thrive – even during challenging transitions. If you need tailored guidance or support adapting to these changes, our team is here to help.