Changes ahead for employers

As we approach the start of the 2025/26 tax year, it's vital for employers to be prepared for significant upcoming changes in payroll, tax and employment law. This blog summarises the key changes and actions employers need to consider.

National Living Wage and National Minimum Wage

From 1 April 2025, the National Living Wage (NLW) and National Minimum Wage (NMW) rates will be increased These changes reflect a notable increase, particularly for younger workers with a 16.3% increase for 18–20-year-olds and 18.0% for 16–17-year-olds and apprentices. This is all part of the government’s aim to extend the NLW to 18-year-olds in the future, with a consultation on the timescale planned for later in 2025.

The increases come at a time of HMRC scrutiny on employers, who need to be mindful of the risks when paying at or near the NLW or NMW. These include scenarios where there are salary sacrifice schemes or where salaried employees work extra hours without additional pay.

In relation to wages and salaries it is worth noting that planned new requirements to provide HMRC with information about the number of hours worked by employees which were due to take effect from April 2025 have been delayed until April 2026 at the earliest. This gives welcome breathing space for employers and software providers.

National Insurance Contributions

One of the most significant changes announced at the Autumn Budget 2024 is the increase to employers’ National Insurance Contributions (NICs) from 6 April 2025. The threshold for employer Class 1 NICs drops from £9,100 to £5,000 annually (and is frozen at that level until April 2028). The secondary Class 1 NICs rate increases from 13.8% to 15% (also impacting Class 1A and Class 1B contributions).

These changes are likely to significantly increase costs for businesses (see our previous blog for commentary) which may only be partially offset by the increase in the Employment Allowance from £5,000 to £10,500. Planning remuneration packages and making use of certain benefits like pension contributions may also help to mitigate these additional costs.

Employment rights

Introducing day one employment rights was a key part of the Labour manifesto in the summer and the Employment Rights Bill has been labelled the ‘biggest upgrade in employment rights for a generation’. The Bill contains a package of measures including the right to bereavement, paternity and unpaid parental leave from day one, setting flexible working as the default and reforms to Statutory Sick Pay. With consultations ongoing, many provisions are unlikely to take effect before 2026, but employers will need to start planning for these changes.

Benefits

Issue 125 of Agent Update in December 2024 confirmed that mandatory reporting of most benefits in kind through the payroll (as opposed to annual P11Ds) would be introduced from April 2026. However mandatory payrolling would not be required for loans or accommodation; here employers would have the choice whether to payroll or to use modified P11D and P11D(b) forms to report. No timetable has been provided as to when mandatory payrolling would be introduced for these exceptions.

Any employer wishing to voluntarily payroll benefits for the 2025/26 tax year should register with HMRC in advance of 6 April 2025.

One further point included in the Agent Update is that from 6 April 2025, the commitment introduced in January 2000 to maintain a constant Official Rate of Interest (ORI) throughout a tax year will no longer apply. The ORI is used to calculate certain benefits including loans and accommodation. Employers will therefore need to be mindful of any changes during a tax year and the impact this may have on benefit calculations.