Budget 2025: key employment and payroll measures
The Chancellor’s 2025 Budget sets out a wide range of reforms affecting employment costs, payroll administration and HR compliance. The main measures likely to affect employers are summarised below.
Minimum wage increases
From 1 April 2026, the National Living Wage will rise to £12.71 for workers aged 21 and over. The National Minimum Wage will increase to £10.85 for 18–20-year-olds and £8.00 for 16–17-year-olds and apprentices. The Accommodation Offset will rise to £11.10 per day. These increases will be significant for employers in lower-paid sectors and may require adjustments to pay structures and budgets.
Income tax and NIC freezes
The income tax personal allowance and higher rate threshold will remain frozen until April 2031, as will the main employee and self-employed NIC thresholds. The employer NIC Secondary Threshold will be fixed at £5,000 from April 2028. As wages increase, these freezes will raise effective tax and NIC costs for both employers and employees.
Salary sacrifice and global mobility
From April 2029, the NIC benefits of pension salary sacrifice will be capped at the first £2,000 of contributions per employee. From April 2026, the Overseas Workday Relief PAYE exclusion will be capped at 30%. Employers may need to review reward structures and global mobility costings.
Other payroll and employment measures
The government will freeze the Plan 2 student loan repayment threshold for three years from April 2027 and withdraw tax relief on employees’ self-funded homeworking costs from April 2026. HMRC enforcement capacity will be expanded, mandatory e-invoicing for VAT will apply from April 2029, and image-rights payments linked to employment will be brought within PAYE and NICs from April 2027.
New enforcement structures
The new Fair Work Agency created under the Employment Rights Bill, will focus on serious employment rights breaches, supported by a dedicated hidden-economy enforcement team from April 2026. The government will also explore wider use of director disqualification powers in cases of repeated employment law abuse.
Other developments
Electric Vehicle Excise Duty will be introduced, with associated updates to company car rules, and the Electric Car Grant will be extended to 2029–30. A Youth Guarantee and Growth and Skills Levy package will fund additional employment and skills support, including six-month paid placements for eligible young people. A national Digital ID scheme will support the future move to mandatory digital right to work checks.
For more information or advice, please contact Ellie Searle in our Employment team.
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