Impact of the Autumn Budget on Employment Tax

In this post-Budget employment tax-focused update our experts explore the practical impact of the recent changes, and what employers should do next.

Employer National Insurance Contribution increase of 1.2%

The measure

From April 2025 the rate of Employer National Insurance Contributions (NIC) (Class 1, Class 1A, and Class 1B) will increase by 1.2%, to 15%. The Secondary Class 1 NIC threshold, above which Class 1 NIC is charged, will be reduced from £9,100 to £5,000.

The impact

The cost of employing someone on an annual salary of £35,000 will increase by over £900 per year. The cost of providing benefits in kind (such as private medical insurance, company cars or taxable staff entertainment events, on which Class 1A or 1B NIC is due) will increase for employers, too.

What should I do?

Employers should review the projected cost of this increase and consider whether they can take steps to mitigate the impact. For example:

Employer pension contributions – are you operating a salary sacrifice scheme for employer pension contributions, and have employees reviewed their contributions recently?

Benefits in kind (BIKs) – are you confident you are offering the most cost-effective BIKs package to your employees, and ensuring you have applied all available tax and NIC exemptions?

National Minimum Wage increases

The measure

The main rate of National Minimum Wage (NMW) will increase by 6.7% to £12.21 per hour from April 2025. There were also increases in the rates for those aged 18-20, and to the apprentice rate.

The impact

Employers must ensure they pay the correct rate of NMW. HMRC regularly investigate businesses who do not comply, and employers who are found to be paying below the correct rates will be required to pay any shortfalls, are likely to incur penalties, and will appear online on HMRC’s ‘named and shamed’ list.
Employers must be careful that any salary sacrifice arrangements in place do not bring employees below the new NMW.

What should I do?

Employers should review their employee population to ensure that all categories of worker are receiving at least NMW. Any salary sacrifice arrangements in place should be reviewed to confirm the increase in rate of pay will not cause the employee to fall below the NMW threshold.

Umbrella companies: PAYE responsibilities

The measure

The Government will address PAYE non-compliance among some umbrella companies by moving PAYE obligations to the recruitment agencies involved, or to the end user if there is no agency in the contractual chain. The new rules are expected to come into effect from April 2026.

The impact

The risk of unpaid tax, penalties and interest will now ultimately sit with the agency engaging the umbrella company (or with the end user if they have engaged directly with the umbrella company). Agencies and end users may still outsource payroll functions to umbrella companies, but the agency or end user will now be legally responsible for operating PAYE correctly.

What should I do?

Businesses who engage umbrella companies should review their labour supply chains for any potential issues and be alert to any unusual arrangements going forward. HMRC will invite feedback on draft legislation in due course.

Employment Allowance increases

The measure

The Employment Allowance (EA) allows eligible employers to reduce their annual Employer NIC bill by up to £5,000 per year if the Employer’s NIC threshold was less than £100,000 in the previous year. From April 2025 the Employment Allowance will increase from £5,000 to £10,500, and the £100,000 will be abolished.

The impact

Smaller employers will see the benefit of an increased EA, but it may also lead to increased non-compliance among umbrella companies in the form of ‘mini umbrella’ fraud.
Mini umbrella fraud seeks to take advantage of the EA by creating multiple mini umbrella companies, each of which employs a small number of temporary workers. This leads to underpayment of PAYE and NIC.

What should I do?

Employers should review their own Employer NIC bill to establish whether the EA will apply from April 2026. Employers who engage umbrella companies must ensure they carry out proportionate due diligence checks and be alert to potential fraudulent behaviour.

Mandatory payrolling of BIKs

The measure

The Autumn Budget confirmed that the Government will mandate the payrolling of most BIKs from April 2026, and tax and Class 1A NIC will be collected in real time. Payrolling will replace forms P11D and P11D(b).

The impact

Employers must be ready to payroll most BIKs from April 2026, other than employment-related loans and accommodation, which remain reportable via forms P11D until such time HMRC mandates otherwise.

Where employers move from the P11D process to payrolling, employees may face cash flow issues if a tax code adjustment for 2025/26 overlaps with mandatory payrolling for 2026/27. HMRC have published advice that indicates there will be no double tax charge, but it is unclear how this can be the case.

HMRC have confirmed that there will be an end-of-year process to allow for amendments to the taxable values of benefits in kind that cannot be determined in the tax year and intend to provide details on what corrections will be in and out of scope in due course.

What should I do?

Employers should review their BIK offerings and consider the impact of moving to payrolling. For example:

Data flow – is your data flow good enough to ensure the correct values are payrolled each month

Software requirements – HMRC will aim to provide technical specifications in mid to late 2025; all employers providing BIKs (even those who already payroll) will be required to update their software to meet additional requirements (such as the collection of Class 1A NIC via payroll). Do you have adequate time and resource to test new software?

Employee impact – are you ready to explain the impact of a potential cashflow issue to your employees?

Would you like to know more?

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact or Matt Crawford using the form below.