March 2025 Tax Tips & News

Tax changes expected as pressure grows on public finances

A Government surplus would normally be seen as good news. But despite reaching £15.4bn in January – a record high for the month – it’s actually caused further headaches for the Chancellor, adding pressure to break her pledges on tax. The Government had been expecting a much higher surplus of £20.5bn, as officially forecast.

It means Rachel Reeves is under increasing pressure to either make public spending cuts to various Government departments or raise taxes further. And if she does, it’s likely to come in the Spring Forecast – due to take place on March 26. The Chancellor has been keen to stress that there will only be one major fiscal event – ie the Budget – per year under her stewardship. But analysts continue to calculate that more tax changes may simply be unavoidable in order to balance the books.

The Financial Times reported that one of the Chancellors’ aides at the Treasury said she was taking ‘nothing off the table’ – leaving open the possibility of more tax tinkering.

Speculation surrounds income tax thresholds and allowances, with the possibility of the freeze being extended beyond 2028 – despite apparently being ruled out at the Budget in October.

But this proposal could win support, with the move potentially bringing up to £4bn a year, according to calculations by The Institute for Fiscal Studies.

Rising borrowing costs and the potential for interest rates to increase once more, have increased difficulties for the Treasury, leading to some commentators to speculate that the Spring statement will become another ‘mini Budget’.

The Government has faced particularly intense opposition to the Employers’ National Insurance rise planned for April and the changes to Inheritance Tax affecting agricultural property and farmers. Yet, the Government has insisted it is standing firm on these two policies.

One possible area where changes may occur affects cash ISAs. At the moment savers can pay in £20,000 per year tax-free. But according to reports in The Telegraph, this maximum could be drastically cut to just £4,000.

No doubt, we will see leaks in the press in the coming weeks about other ideas being considered by the Treasury.

Taxman collects more than £400m in interest charges

The amount the tax man collects from interest charges has grabbed some media attention in recent weeks, as new data was published.

Following a Freedom of Information request, it was revealed that HMRC received more than £400m purely from interest charges in the last calendar year (January to December 2024).

This figure includes money that has come from taxpayers, trusts and estates that missed payment deadlines.

Incredibly, the figure has risen to three times greater than it was in 2021 – when revenue stood at £131.9m. For 2022, the figure was £200m, followed by £328m in 2023.

The late payment interest rate rose significantly over the three year period that the figures covered, going from 2.6% in December 2021 to 7.75% (the peak) in August 2024. It’s supposed to fall again in the coming weeks to 7%.

Analysts said that, aside from the increasing interest rate, another reason for the amount collected rising was due to higher numbers of self-employed people paying self-assessment tax returns in 2024.

Businesses reminded over final payment submissions

HMRC is reminding business they need to be thinking about final preparations for their last Full Payment Submission (FPS) or Employer Payment Summary (EPS) of the year.

These need to be sent on or before an employees’ last payday of the tax year which ends on 5 April 2025 and must state that the business is making its final submission.

In an update for companies across the UK, HMRC officials stated: ‘This tells us you have sent us everything you expected to send, and we can finalise our records for you and your employees.

‘Some commercial payroll software will not let you put the indicator on an FPS. If that is the case, send your last FPS and then send an EPS with the indicator ticked. You can also send an EPS with the indicator ticked if you forgot to put the indicator on your last FPS submission for the tax year.’

Businesses have also been reminded about obligations for P60s. Employees must receive a P60 by 31 May 2025 if they’re still on your business’s books come 5 April 2025.

A million taxpayers miss filing deadlines

About 1.1 million taxpayers missed the deadline to file their self-assessment tax returns and pay tax that was owed, HMRC has estimated.

The failure to meet the 31 January cut-off leaves them facing fines. An initial £100 fixed penalty applies even if there is no tax to pay, or if the tax due is paid on time.

Many thousands of others nearly missed the deadline, according to official data, with 31,442 returns filed between 11pm and midnight. More than 11.5 million taxpayers did meet the deadline on time.

Fines for missing the deadline increase after three months, with additional daily penalties of £10 per day, up to a maximum of £900.

It rises even further after six months, with a further penalty of 5% of the tax due or £300, whichever is greater. Then after twelve months another 5% or £300 charge is issued.

Myrtle Lloyd, HMRC’s Director General for Customer Services, said: ‘I’m urging anyone who missed the deadline, to submit their return as soon as possible to avoid any further penalties.’

While the overwhelming majority of the returns were done online, significant numbers were still filing by traditional paper methods – some 304,000 – equating to 2.64% of total returns.

March Questions and Answers

Q:I run a relatively new business. Our employer National Insurance contributions are quite modest at this point, standing at £13,900 annually so far since we set up. I’m aware that various changes are set to come in soon but could you please summarise what we need to be preparing for?

A:You’re right to be thinking about this now, with only about six weeks to go (at the time of writing) before changes to NI take effect on 6 April 2025. Rachel Reeves, the Chancellor, announced various new measures at her first Budget in October, with a rise to employers’ National Insurance being among the headline changes. Despite the outcry from businesses, it doesn’t look likely that the Government will shift on this policy before April, even though we are set to hear from the Chancellor at the end of March for the Spring Statement.

The main details you need to know about contribution rate increases are as follows:
– Employer Secondary Class 1 National Insurance contributions rate will rise to 15%. In 2024/25 it was slightly lower, at 13.8%.
– Associated Class 1A and 1B National Insurance contributions rates on expenses and benefits given to employees are also increasing to 15%.

You also should be aware of the fact that the secondary threshold for employers’ NI liability is set to go down. This threshold – the point at which employers start to pay employers’ NI on an employee’s salary – is decreasing from £9,100 to £5,000 per year.

So that means that employers must start to pay employer NI where staff earn £5,000 a year or more. Plus, you need to report these payments to HMRC.

For any businesses about to start paying employers’ NI for the first time, they will have to register with HMRC to use payroll software through PAYE.

Very importantly, and more positively for businesses like yours, changes are also afoot for The Employment Allowance, which cuts down the amount you must pay in employers’ NI. As of April 6, the EA will increase from £5,000 to £10,500.

Although not relevant for you at the moment, it’s worth noting that the Government has also decided to remove the existing £100,000 threshold. So, businesses with employers’ NI bills above that level will be able to claim now for the first time.<br
If you’d like any further help or guidance on NI, Employment Allowance or payroll, please give our team a call.

Q:I’m thinking about introducing a scheme encouraging employees to bring forward ideas to improve my business, offering a significant reward for the best suggestion. I’m looking at all options including cash award prizes. What do I need to know from a tax liability perspective?

A: Introducing some kind of reward scheme for your staff could be a helpful and morale-boosting move to make. But you are right to be thinking about what the tax implications are. There are specific rules governing this, which we can summarise for you here.

Essentially, you do get a tax break – to some extent – for schemes that match certain criteria. You won’t have to pay tax, NI or report anything to HMRC for awards you pay staff of up to £5,000. That is, of course, if they are being rewarded for ‘suggestions that will save or make your business money,’ as stated by HMRC.

There’s also something called an encouragement award ‘for good suggestions, or to reward your employees for special effort’. These are only exempt from tax and NI, however, for awards up to £25.

Unsurprisingly, there are also several conditions. These include:

– all staff must be able to take part in the suggestion scheme
– suggestions must be about your business
– the proposal wouldn’t have been put forward as part of a member of staff’s standard everyday work
– the suggestion is not made at a ‘meeting for proposing new ideas’

If you decided you wanted to go above these limits, you need to be aware that any amount over and above will count as earnings, thereby attracting tax and NI in the usual manner, with the associated reporting obligations also coming into effect.

Q:I’ve got a couple of staff at my company who are approaching long service milestones and I want to award them with something to show appreciation and recognition. One has been here for 30 years, the other 15. How much tax would I need to pay if I want to give them a financial reward?

A: It’s a lovely idea to show appreciation and recognition for your veteran staff in this way. But you’re right to check about the tax implications before cementing your plans. Long-service awards do carry some reporting obligations regarding NI and tax but it all depends on what type of award you opt for. Will it be cash? Or it could be shares? These are one of the items categorised by HMRC as a ‘readily convertible asset’. Or it could be something else. The total value of the award and the length of the employee’s service are also key factors. You must also check whether they’ve had a similar award in the past at a previous milestone.

Let’s take your team member who has been with you for 30 years as an example to start with. You may want to change your approach and think of a different award, rather than cash.

That’s because you could give them a very significant non-cash award without having to pay any tax or report on it. You could reward them with something that has a value up to £1,500 and still be exempt. You’re allowed to offer an award worth less than £50 per year of service and the fact that they have been with you more than 20 years means they qualify.

One caveat though; they would not be exempt if you have already given them another long service award in the last ten years. So, you might need to check that they didn’t get one for, say, their 25^th anniversary as well.

With your staff member who has been with you for 15 years, they are 5 years short of qualifying for exemption, unfortunately.

And, circling back to your thoughts on financial rewards, we should emphasise that cash awards are not exempt. All cash awards count as part of their earnings. So, if you went down a cash awards route, you would need to do the usual deductions of NI and PAYE tax through payroll.

Those are the essential points of the rules but, of course, there are even more granular details that we could dive into. For example, if you decided to offer shares as the award instead, there are some other considerations. If you’d like to discuss the finer details of your proposed long-service award scheme, please give us a call.

March Key Dates

19^th

– For employers operating PAYE, this is the deadline to send an Employer Payment Summary (EPS) to claim any reduction on what you’ll owe HMRC.

22^nd

– Deadline for employers operating PAYE to pay HMRC. This is also the quarterly deadline for businesses that pay per quarter.

26^th

– Chancellor to deliver Spring Forecast to Parliament; tax changes may be announced.

31^st

– for many companies, it’s the financial year-end, aligning with the financial year for Corporation Tax purposes, which runs from 1 April to 31 March.