In the recent budget announcement, significant updates to payroll costs were introduced, and will impact businesses from April 2025. Here’s what you need to consider as you plan ahead:

Key Updates to Tax and National Insurance (NI):

• Employer’s NI: Increasing by 1.2%, bringing the rate to 15%.
• Secondary Threshold: Decreasing from £9,100 to £5,000.
• Employment Allowance (EA): Increasing to £10,500, with the removal of the £100,000 eligibility cap. Other criteria must still be met.
• Threshold Freeze: Income tax and NI threshold freeze will not extend beyond the 2028/29 fiscal year.
• Veterans NI Relief: Extended for one more fiscal year.
• Lower Earning Limit (LEL) and Small Profits Thresholds: To rise by September’s CPI rate of 1.7% from 2025/26.
• Allowances: Married Couples and Blind Person’s Allowances will increase by 1.7% from 6 April 2025.

Considerations: With these changes, employment costs will rise for many businesses, primarily due to the employers’ NI rate increase and reduced Secondary Threshold. However, smaller employers may find some relief through the expanded EA and the removal of the eligibility cap. The employer NI increase further accentuates the benefits of salary sacrifice schemes, particularly for pension contributions.

National Minimum Wage (NMW): The Government has accepted the Low Pay Commission’s (LPC) recommendations in full. Starting from April 2025, the rates will increase as follows:

• National Living Wage 21 and over: £12.21 (up by 6.7%)
• National Living Wage 18–20 Year Old Rate: £10.00 (up by 16.3%)
  
• National Living Wage 16–17 Year Old Rate and Apprentice Rate: £7.55 (both up by 18%)
• Accommodation Offset: £10.66 (up by 6.7%)

Payrolling Benefits: Starting in April 2026, payrolling benefits will become compulsory, with the exception of employment-related loans and accommodation (voluntary for now). This shift will phase out the use of Forms P11D and P11D(b) for reporting most benefits in kind and paying Class 1A NICs.

Planning Ahead:

• Register by 5 April 2025 for the 2025 tax year if you wish to adopt payrolling benefits early.
• Compulsory registration for the 2026 tax year must be completed by 5 April 2026.

Employers can register and use the payrolling benefits and expenses online service here.

At Wilson Partners, we understand how challenging it can be to adapt to new regulations. Our expert payroll team is ready to support you in navigating these changes, ensuring compliance while optimising your approach to payroll management. We can help you plan for a seamless transition and keep your business payroll commitments on track as you grow.