From 1 April 2025, the National Minimum Wage will rise to £12.21 per hour (an increase of 6.7 per cent), meaning rising employment costs for businesses.

For graduates, higher earnings can trigger student loan repayments, a factor you should consider when managing your payroll.

Graduates start repaying their student loans when their income exceeds specific thresholds, depending on the loan type.

The repayment rate is nine per cent on any income above these thresholds:

• Plan 1 – £24,990 per year
• Plan 2 – £27,295 per year
• Plan 4 – £31,395 per year
• Plan 5 – £25,000 per year
• Postgraduate Loans – £21,000 per year (six per cent repayment rate)

Although the responsibility for repaying loans lies with employees, you have an obligation as the employer to accurately calculate the loan repayments.

Combined with Income Tax and National Insurance contributions, those who earn above the threshold can face an effective tax rate of up to 37 per cent.

Many graduates may not realise this, and overtime could trigger loan deductions and increase the amount of tax paid.

As such, you must be prepared to answer any questions that arise from your employees on this topic.

What employers can do to support employees

You can play a proactive role in reducing confusion and ensuring your payroll processes handle these changes effectively.

• Educate your workforce – Help employees understand how overtime impacts their earnings and may trigger student loan repayments.
• Provide reassurance – Clearly explain to employees how and why deductions were made, preventing any confusion or negative reactions.
• Review overtime policies – Assess how extra hours affect payroll and employee earnings.

If you are looking for advice on payroll management, tax planning, or handling student loan repayments, our team is here to help.

Contact us today to ensure your business stays ahead of these changes.

If you are looking to plan your exit from your business, whether for retirement or to start your next venture, we know you want to achieve this as tax-efficiently as possible.

Employee Ownership Trusts (EOTs) are an increasingly popular way for business owners to exit while securing the future of their company and employees – not least because they offer significant tax savings over other exit strategies.

Understanding EOTs

As an exit strategy, an EOT is created when you sell a controlling interest (51 per cent of shares or more) to a trust set up for the benefit of your employees.

This trust buys and holds shares on behalf of the employees, who do not buy them directly, often financing the sale through future profits made by the business.

Updates in the 2024 Autumn Budget have clarified some points in the legislation around EOTs – meaning you must comply with certain rules to be eligible for Capital Gains Tax (CGT) relief.

The trustees must have paid fair market value for the business and there is now a more stringent ‘trustee independence requirement’, requiring at least half of trustees to be independent of the seller.

In practice, this means that you, or people connected to you, cannot make up more than 50 per cent of the trustees.

In practice, this means there must be at least one other trustee who is not connected to you, or you may be required to pay CGT up to four years after the sale, known as the ‘clawback’ period.

Are they tax-efficient?

EOTs offer several tax efficiencies over other forms of exit, such as a sale to a group or an independent buyer, including:

• CGT exemption – When you sell a controlling interest to an EOT, your gains are exempt from CGT if you meet certain requirements, allowing you to keep the full value of your shares.
• Inheritance Tax – Assets transferred into an EOT are excluded from your estate for Inheritance Tax purposes, making EOTs particularly handy for retirement.
• Income Tax benefits – EOTs are tax-efficient for employees too, offering tax-free bonus allowances of up to £3,600 per year.

Providing you abide by the latest regulations, EOTs can be a tax-efficient way of exiting your business.

Need advice on setting up an EOT? Contact us today.

Claiming allowable expenses when calculating taxable profit as a self-employed business owner is an important step in preparing your tax return.

It will ensure you are not paying more tax than you need to and help mitigate some of the costs of running your business.

If you work from an office or use one in the course of your business activities, there may be more scope for claiming allowable expenses than you think.

Office-based expenses

For some items, you can claim allowable expenses straight away, including items you would normally use for less than two years, or bills that normally cover a period of less than two years, such as:

• Rent and utilities
• Business rates
• Property insurance
• Stationery
• Phone and internet bills
• Postage
• Printing

For other expenses, what you can claim depends on the type of accounting you use.

If you use cash basis accounting, you can claim items such as computers, long-term software or repairs to your business premises as allowable expenses.

However, if you use traditional accounting, you should claim capital allowances for these longer-term items. This is usually applicable to sole traders or partnerships earning over £150,000 per year.

Home offices

You may be able to claim for a portion of costs such as heating, electricity or rent if you use part of your home for your business – although you will need a reasonable method of working this out.

For example, if you have six rooms in your house and use one as an office five days per week, you may be able to claim for a portion of the electricity costs.

With an electricity bill of £600 per year, you can claim £100 as reasonable expenses (assuming all rooms in your home use equal amounts of electricity). You work there five days per week out of seven, so you can claim £71.45 as expenses.

This will help to reduce the cost to you and your family of using your home for business.

Make sure you claim all expenses applicable to your office to ensure that you optimise your tax position and draw as much financial benefit from your business as possible.

For advice on claiming allowable expenses for office costs, please contact our team.

Directors have the ability to draw income from a business in several ways, including through the extraction of profits from the business, which can create significant opportunities to manage tax liabilities.

Key tax rates and allowances for 2025/26

Here is what directors in England, Wales, and Northern Ireland need to keep in mind for the new tax year starting 6 April 2025:

• Personal Allowance: Stays frozen at £12,570 until April 2028.
• Dividend Allowance: Remains at £500, so anything above this will be taxed.
• Basic Rate Threshold: Frozen at £50,270.
• Additional Rate Threshold: Frozen at £125,140.

These frozen thresholds require you to plan strategically to make the most of your allowances and minimise tax liabilities.

Why you should consider combining salary and dividends

A combination of a small salary and dividends can be one of the most tax-efficient ways for directors to draw income, reducing tax and National Insurance liabilities.

A salary lowers your company’s taxable profits, while dividends are not liable for National Insurance Contributions (NICs), making them cost-effective.

Paying a salary above the NIC threshold also ensures your contributions count towards the state pension, helping with long-term financial planning.

However, one important thing to remember is that dividends can only be paid if your company is profitable. If the company has a poor year, you may be limited to drawing just a salary, which could impact your financial stability.

How to structure your income for 2025/26

The two most common approaches for directors, depending on whether you qualify for the National Insurance Employment Allowance (NIEA), are as follows:

Option 1

If you are the only employee in your company, you likely will not qualify for the NIEA, which covers employer NICs for eligible businesses. In this case, keeping your salary low can be more tax-efficient.

• Salary: £5,000 per year
• Dividends: Up to £45,270 without exceeding the basic tax rate band.

The first £7,570 of dividends (after your £5,000 salary) is covered by your personal allowance and an additional £500 of dividends falls under the dividend allowance.

The remaining £37,200 is taxed at 8.75 per cent, resulting in a total tax bill of £3,255.

Option 2:

If your business has additional employees, such as a family member helping out, you may qualify for the NIEA, which increases to £10,500 from April 2025.

This allows you to pay yourself a higher salary while still being tax-efficient.

• Salary: £12,570 per year
• Dividends: Up to £37,700, staying within the basic rate band.

This can be a favourable option as the tax on dividends remains the same as in option 1, and because by paying a higher salary, you will reduce your company’s Corporation Tax liability.

At a 25 per cent Corporation Tax rate, the additional salary could result in tax savings of around £1,800 or more.

Choosing the best option

The best approach depends on your company’s setup and your financial goals, as there is no one-size-fits-all solution.

A lower salary typically suits sole directors who want to keep things simple, while a higher salary benefits those eligible for the NIEA by offering additional corporation tax savings.

Speak with our expert accountants to review your circumstances and tailor a strategy that works best for you.

If you are a sole trader or small business owner using a double cab pickup (DCPU) for your work, now is the time to consider your options.

The Budget revealed a tax change for DCPUs that could have significant financial implications for both you and your business.

Whether you are looking to expand your fleet or replace an ageing vehicle, acting now could save you money.

What is a DCPU?

A DCPU is a type of vehicle that features a front passenger cab with a second row of seats for up to four passengers, four independently opening doors, a payload capacity of one tonne or more, and an uncovered pickup area behind the cab.

These vehicles are typically popular among landscapers, builders, and other tradespeople due to their versatility and practicality.

What is changing?

Today, DCPUs benefit from the favourable tax treatment typically applied to commercial vehicles.

This includes lower Benefit-in-Kind (BIK) charges for personal use, making them a cost-effective option for employees.

Additionally, businesses can take advantage of generous capital allowances, which allow them to claim up to 100 per cent of the vehicle’s purchase cost in the first year.

However, from 1 April 2025 for Corporation Tax and 6 April 2025 for Income Tax, all DCPUs will be treated as cars for tax purposes, including capital allowances, BIK, and certain deductions from business profits.

This change will have significant financial impacts, including:

• Employees using a DCPU for personal mileage will receive higher company car tax bills. A pickup that currently costs a higher-rate taxpayer around £1,800 per year in BIK could jump to over £10,000, depending on the vehicle’s CO2 emissions and list price.
• Businesses will no longer be able to write off the full cost of a DCPU in the year of purchase. Instead, these vehicles will be subject to capital allowance rates as low as six per cent per year, drastically reducing upfront tax relief.

If you purchase or lease a DCPU before April 2025, you will still be able to lock in and benefit from the current tax rules until at least 2029.

Planning your next move

So, the answer to our original question is yes. If you do not want to face the increased financial liabilities, purchasing or leasing your DCPU before April 2025 is the smart move.

Here is what you should consider:

Firstly, you should review whether any of your current vehicles need replacing or if expanding your fleet could make financial sense under the current tax regime.

Think carefully about whether it will be more financially beneficial to purchase the vehicle outright or lease one.

If you do decide to lease, try to avoid contracts extending beyond April 2029, as the new rules will eventually apply.

To minimise BIK charges, ensure any DCPU is strictly limited to work use.

For cars, the definition of private use is stricter, requiring robust controls like vehicle storage and insurance exclusions, which may not be practical for many businesses.

Want to know how buying or leasing a DCPU could affect your tax bill? Get in touch today!