09/04/2025
Understanding the New UK Tax Year: Changes for Self-Employed Individuals in 2025/26 Compared to 2024/25
The UK tax landscape is evolving, and the 2025/26 tax year brings a mix of reliefs and new obligations for self-employed individuals and limited companies. Whether you're a freelancer managing your own books or a director of a limited company, staying ahead of these changes is crucial. In this blog post, we’ll break down the key updates for the 2025/26 tax year and compare them to the previous year (2024/25), so you can plan effectively for what’s ahead.
Changes for Self-Employed Individuals
Self-employed individuals in the UK will see both immediate benefits and future challenges in the 2025/26 tax year. Let’s explore the details.
Income Tax Rates and Thresholds
2025/26: The personal allowance remains frozen at £12,570.
The tax bands are unchanged:
- 20% (basic rate) on income from £12,571 to £50,270
- 40% (higher rate) from £50,271 to £125,140
- 45% (additional rate) above £125,140
Comparison to 2024/25: No change here—these rates and thresholds were the same in 2024/25. The freeze continues to pull more people into higher tax brackets as wages rise with inflation.
National Insurance Contributions (NICs)
- Class 2 NICs: Abolished for self-employed individuals with profits above £6,725. You can still make voluntary contributions at £3.50 per week to maintain eligibility for benefits like the State Pension.
- Class 4 NICs: Reduced to 6% on profits between £12,570 and £50,270 (down from 8%), and 2% on profits above £50,270 (unchanged).
Comparison to 2024/25:
In 2024/25, Class 2 NICs were mandatory for profits above £6,725, costing £3.45 per week. The abolition is a welcome relief.
Class 4 NICs were higher at 8% on the same profit band, so the drop to 6% reduces the tax burden for many self-employed workers.
Making Tax Digital (MTD)
- 2025/26: Starting April 2026 (technically the start of the 2026/27 tax year, but relevant for 2025/26 planning), self-employed individuals with income over £50,000 must comply with MTD for Income Tax. This means keeping digital records and submitting quarterly updates to HMRC.
- Comparison to 2024/25: MTD wasn’t yet mandatory in 2024/25, giving self-employed individuals a grace period. The 2025/26 year is your time to prepare—think digital tools and possibly professional support.
Impact for the Self-Employed
The NICs reduction is a clear win, especially for those with moderate profits. For example, someone earning £40,000 in profits will save on both Class 2 (£179.40 annually) and Class 4 (2% less on £27,700, saving £554). However, MTD looms large, potentially increasing administrative time and costs if you’re not already digitized.
