The Autumn Budget 2025 brought a significant announcement from Chancellor Rachel Reeves: both Income Tax (IT) and National Insurance Contributions (NIC) thresholds will remain frozen until April 2031. This marks a reversal of last year’s plan, which would have allowed thresholds to rise with inflation from 2028. Here’s what you need to know about how this affects individuals and businesses across the UK.
Income Tax Thresholds: No Change Until 2031
For taxpayers in England, Wales, and Northern Ireland, the main Income Tax bands and rates are staying put for the foreseeable future. Here’s a quick summary:
| Band | Tax Rate | Thresholds (2025–26) | Thresholds (2026–31) |
|---|---|---|---|
| Personal allowance | 0% | Up to £12,570 | Up to £12,570 |
| Basic rate | 20% | £12,571 – £50,270 | £12,571 – £50,270 |
| Higher rate | 40% | £50,271 – £125,140 | £50,271 – £125,140 |
| Additional rate | 45% | Over £125,140 | Over £125,140 |
Note: For incomes above £100,000, the personal allowance reduces by £1 for every £2 earned, tapering to zero.
National Insurance: Thresholds Frozen
The NIC thresholds are also locked in:
- Employee NIC threshold: £12,570
- Self-employed lower profits limit: £12,570
- Upper earnings/profits limit: £50,270
- Employer NIC threshold: £5,000
What Does This Mean for You?
Fiscal Drag
As wages rise over time, more people will find themselves moving into higher tax bands, even though the rates themselves haven’t changed. This phenomenon, known as “fiscal drag,” means that effective tax bills will increase gradually as incomes grow.
Higher Business Costs
Employers should also be aware that as payrolls increase, so will their NIC liabilities. The freeze is designed to raise revenue without increasing headline tax rates. The Office for Budget Responsibility estimates this measure will generate £7–8 billion annually by the end of the decade.
The Bottom Line
With tax thresholds locked until 2031, expect to see gradually higher tax bills as your income rises—even though the tax rates themselves remain unchanged.
No New NICs for LLPs
Despite earlier speculation, the recent UK Budget confirmed there will not be a new charge on National Insurance contributions for partnerships. There had been rumours that a “partnership NIC” regime would be introduced, meaning partners’ profit shares would attract an additional employer-equivalent NIC on top of their existing self-employed contributions. This would have significantly increased the tax burden for partners.
However, the Budget decision leaves the current structure untouched. Partnerships and LLPs in the UK remain “transparent” for tax purposes: each partner pays income tax on their share of profits and self-employed NICs (Class 2 and Class 4), but the partnership itself does not pay employer NICs as a company would for salaried employees. Partners continue to pay only the usual self-employed NICs on their share of profits, with no extra “employer-style” NICs on top.
In summary: The government’s decision to freeze IT and NIC thresholds until 2031 will have a gradual but significant impact on both individuals and businesses, primarily through fiscal drag and increased NIC liabilities. However, partnerships and LLPs can breathe a sigh of relief, as no new NIC regime will be imposed on their profit shares.
The information provided in this guide is intended as a general overview to help readers understand the key measures introduced in the UK Budget 2025. It does not claim to be exhaustive and should not be relied upon as a substitute for tailored professional advice. If you have any questions or require specific guidance, please
speak to one of our experts.
