As we gear up for the 2025/26 tax year, UK businesses must stay ahead of the curve by understanding the key payroll, tax, and employment law changes on the horizon. From higher National Insurance contributions to increased statutory payments and updated minimum wage rates, these changes will significantly impact business operations. Employers must prioritize compliance while efficiently managing employee benefits and tax administration. This blog breaks down the critical updates for employers to keep their payroll processes running smoothly and optimally.
Key Payroll Changes 2025
Understanding these updates will help businesses plan their budgets, review employee benefits, and update payroll systems accordingly.
Changes to National Insurance Rates
Starting from April 6, 2025, National Insurance contributions (NICs) will see a significant change that will affect UK businesses. The rate of NICs paid by employers on employee earnings above the secondary threshold will rise from 13.8% to 15%. In addition, the secondary threshold will drop from £9,100 to £5,000 per year.
This shift will likely increase payroll costs, making it crucial for employers to revisit their payroll systems and ensure they can accommodate the changes. Adjusting employee compensation packages, such as pension contributions or other benefits, may help offset these extra costs.
An increase in employment Allowances
Alongside the NIC changes, a good news would provide a sigh of relief for businesses. The Employment Allowance will increase from £5,000 to £10,500 from the 2025/26 tax year onwards. Additionally, the £100,000 NIC eligibility which earlier restricted the employers to claim the employment allowance is likely to be removed, allowing more employers to claim this allowance irrespective of their Class 1 NIC levels. With the removal of this limitation, more businesses will benefit from the Employment Allowance.
Changes to Statutory Sick Pay (SSP) and Statutory Parental Pay
Family and Parental Leave Payments
Starting in April 2025, statutory parental leave payments will see an increase of 1.7%. This includes Statutory Maternity Pay (SMP), Statutory Adoption Pay (SAP), Shared Parental Pay (ShPP), Statutory Paternity Pay (SPP), Statutory Parental Bereavement Pay (SPBP), and Statutory Neonatal Care Pay (SNCP). These adjustments ensure that individuals taking time off for family-related reasons receive financial support that aligns with the rising cost of living.
Sickness Benefits
Regarding Statutory Sick Pay (SSP), the weekly rate will increase from £116.75 to £118.75. However, the daily SSP rate will continue to depend on the number of “qualifying days” worked each week. These changes are designed to support employees during periods of illness by ensuring they continue to receive income when unable to work.
| Statutory payment type | Current rate (pw) | New rate (pw) |
|---|---|---|
| Statutory Sick Pay (SSP) | £116.75 | £118.75 |
| Statutory Parental Pay (SPP) | £184.03 | £187.18 |
| Lower Earnings Limit | £123 | £125 |
Change in National Living Wage and National Minimum Wage
Starting April 1, 2025, the National Living Wage (NLW) for workers aged 21 and over will rise by 6.7%, going from £11.44 to £12.21 per hour. Additionally, National Minimum Wage (NMW) rates will increase for younger workers and apprentices:
- 18 to 20-year-olds: From £8.60 to £10.00 per hour (a 16.3% increase)
- 16 to 17-year-olds and apprentices: From £6.40 to £7.55 per hour (an 18% increase)
This increase will benefit over 3 million workers, with full-time employees expected to earn an additional £1,400 a year.
| Wage Band | New Rate (Effective April 2025) | Current Rate | Increase (£) | Increase (%) |
|---|---|---|---|---|
| National Living Wage (21 and over) | £12.21 | £11.44 | £0.77 | 6.7% |
| National Minimum Wage (18-20) | £10.00 | £8.60 | £1.40 | 16.3% |
| National Minimum Wage (16-17) | £7.55 | £6.40 | £1.15 | 18.0% |
| Apprentice Rate | £7.55 | £6.40 | £6.40 | 18.0% |
How Payroll Changes in 2025 Will Affect Employees
For employees, the payroll changes in 2025 will bring both challenges and benefits, impacting on their take-home pay, statutory entitlements, and overall financial well-being. Employees on lower wages will see a noticeable boost in their hourly pay, providing much-needed financial relief amid rising living costs.
What Should Employers Do Next?
With payroll changes coming into effect in April 2025, employees should stay on top of these changes and ensure compliance, here are the key steps employers can take:
- Update Payroll Software to Ensure Compliance: Ensure the payroll system is ready for the new tax reporting and NIC calculations. Keeping software up-to-date will help avoid payroll errors and maintain compliance.
- Review and Adjust The Respective Budgets for Increased Employment Costs: With the changes to NIC rates and the expanded Employment Allowance, employers should review their budgets to account for these increased costs, ensuring financial stability moving forward.
- Let employees know about pay adjustments so there are no surprises: Transparency is key. Inform employees in advance about pay adjustments or tax changes. This will help prevent confusion and ensure they are prepared for any changes in their pay.
- Train HR and Payroll Teams on New Procedures: Ensure the support teams are up to date on the new rules, especially regarding payrolling benefits and reporting processes. Proper training will ensure a smooth transition and minimize errors.
- Consult with a Tax Advisor or Legal Expert: Payroll regulations can be complex, so consulting with a tax advisor or legal expert is wise. They can provide tailored advice and ensure your business complies with the new laws.
- Monitor HMRC Updates and Guidance: Keep an eye on any further updates or clarifications from HMRC. Staying informed about changes will help ensure business remains compliant and proactive.
Conclusion
As we approach the 2025/26 tax year, UK businesses must adapt to a range of changes, from National Insurance and Employment Allowance adjustments to increases in statutory pay and the National Minimum Wage. By updating payroll systems, adjusting budgets, communicating pay changes, and training teams, employers can ensure they are well-prepared for these shifts. Additionally, staying in touch with experts and monitoring HMRC guidance will help businesses smoothly navigate these changes and maintain compliance.