After weeks of speculation the new Chancellor Rachel Reeves did make some changes in her budget that will affect payroll for employers. The main highlights are:
Employers National Insurance Increases from 6th April 2025
The rate of Employer NICs will increase by 1.2 percentage points to 15%. The Earnings Threshold at which employers start to pay was also reduced from the current £9,100 per annum to £5,000 per annum.
Under the new rules, the amount an employer pays on an employee earning £30,000 will increase from approximately £32,884 to £33,750 – an increase of £866.
The Employment Allowance will increase from £5,000 per annum to £10,500 per annum. This is currently only available to businesses whose Employers’ Class 1 NI liability was less than £100,000 in the previous tax year. This threshold has now been removed from April 2025 (however all other eligibility criteria will still need to be met).
This will mean around 865,000 businesses will not pay any NI at all next year with another 1 million paying the same or less than they did previously.
Tax Thresholds
Despite rumours, the Chancellor confirmed that the current freeze on income tax thresholds will not remain beyond 2028.
National Living and National Minimum Wage
The recommendations of the Low Pay Commission were accepted in full so there will be high increases from 1st April 2025. The National Living Wage paid to all over 21 will increase by 6.7%. The rate for 18-20 year olds will rise by 16.3% in an attempt to bring about a ‘single adult rate’ over time.
The new rates will be:
NLW (21 and over) From £11.44 to £12.21 (6.7% Rise)
18-20 Year Old Rate From £8.60 to £10.00 (16.3% Rise)
16-17 Year Old Rate From £6.40 to £7.55 (18% Rise)
Apprentice Rate From £6.40 to £7.55 (18% Rise)
Accommodation Offset From £9.99 to £10.66 (6.7% Rise)
Payrolling of Benefits
The budget confirmed that HMRC will proceed to mandate payrolling of most benefits from April 2026. The only exceptions will be Employment Related Loans and Accommodation, these can continue to be reported on P11D but can be voluntarily payrolled from April 2026.
This change will stop 4 million people from having their Income Tax collected in arrears as they will be paying the correct tax at the right time.
We will be issuing more details on this shortly.
Other Announcements
The following announcements were made that could impact on employers/employees and HMRC. We will follow up on these as we get more details.
- Modernise HMRC. Although already ongoing there were further steps announced for new technology and steps to crack down on unpaid taxes with more compliance and debt management staff.
- PAYE obligations to move to recruitment businesses when workers are supplied via an umbrella company.
- Veterans’ relief – will be extended for a further year to 5th April 2026
- A Covid Corruption Commissioner will be appointed to oversee work on fraudulent claims of covid funding made by businesses.
- The interest rate on unpaid tax will rise by 1.5 percentage points, equalling the Bank Rate plus 4 percentage points
- Ownership Trusts and Employee Benefit Trusts – a package of reforms to prevent abuse will be introduced from today
- Electric Vehicle Tax and P11D benefit rates to stay the same until April 2028
- Abolition of the Non-Dom tax regime. Possible residence based scheme from April 2025
- No increase in fuel duty
- Capital Gains Tax increases, lower rate from 10% to 18%. Higher rate from 20% to 24%
