Autumn Budget 2025: What Payroll Teams and Employers Need to Know

The Autumn Budget 2025 introduces a number of changes that directly affect payroll, employment costs, and pensions. With public finances under pressure, the Government has combined targeted support for small businesses with measures that increase costs for larger employers.

Employers need to understand these changes to manage payroll efficiently and stay compliant.

Key Business Changes Affecting Payroll

Employer National Insurance Contributions (NICs)

• The secondary threshold for employer NICs remains frozen at £5,000 until April 2031.
• Employers continue to pay 15% NICs on earnings above this threshold.
• For smaller businesses benefiting from the Employment Allowance (£10,500 from April 2025), payroll costs will remain manageable.
• Employers outside this relief will face higher payroll costs compared with pre-2025 levels.

Implication: Employers should factor this into medium-term budgeting, especially as wage growth pushes more salaries above the threshold.

Small Business Reliefs

• Employment Allowance continues to reduce NIC liability for eligible small businesses.
• Small Business Rates Relief will extend the grace period for businesses expanding into a second property by two years from April 2026.

Digital Reporting and Administrative Changes

• HMRC continues to modernise digital services and compliance processes.
• These improvements aim to reduce administrative burdens and improve efficiency for payroll and accounting teams.
• Early adoption and preparation will help businesses take advantage of these efficiencies.

Other Employment-Related Updates

• Businesses providing electric vehicles to employees should be aware of the planned mileage-based tax from 2028, which may impact benefit-in-kind calculations.
• Ongoing monitoring of HMRC updates is important to ensure payroll processes remain accurate and compliant.

Other Payroll Impacts for Employers

• Businesses providing electric vehicles to employees should note the planned mileage-based tax from 2028, affecting benefit-in-kind calculations.
• Ongoing monitoring of HMRC updates is important to ensure payroll processes remain accurate and compliant.
• HMRC is modernising digital reporting, which may reduce administrative burdens for payroll teams in the future.

Key Personal Changes Affecting Payroll

National Minimum and Living Wage

From April 2026:

• The national living wage for those aged 21+ rises from £12.21 to £12.71 per hour.
• Workers aged 18–20 will receive £10.85 per hour, up from £10.
• 16–17-year-olds and apprentices will see an increase to £8.00 per hour.

Implication: Payroll teams must update systems and calculate new wages, including overtime, holiday pay, and pension contributions, to reflect these increases.

Pension Salary-Sacrifice Arrangements

• From April 2029, only the first £2,000 per person of salary-sacrificed pension contributions will remain exempt from NICs.
• Contributions above this threshold will attract standard employee and employer NICs.
• Lower- and many middle-income earners who make modest sacrifices are unlikely to be affected.
• High earners and business owners using salary sacrifice to maximise pensions will see reduced tax efficiency.

Implication: Employers should review existing salary-sacrifice arrangements and consider restructuring benefits packages or remuneration strategies well before April 2029.

Planning and Compliance Considerations

• Update payroll systems for minimum wage, NIC thresholds, and salary-sacrifice changes.
• Review employee contracts and benefits packages to ensure compliance.
• Forward planning is essential to manage rising payroll costs over the medium term.
• Monitor HMRC guidance for digital reporting changes and upcoming EV taxes.

Action Steps for Employers

1. Review payroll systems and update for April 2026 minimum wage changes.
2. Reassess pension salary-sacrifice arrangements ahead of April 2029.
3. Check eligibility and claim the Employment Allowance and Small Business Rates Relief.
4. Budget for frozen NIC thresholds and potential increases in payroll costs.
5. Monitor HMRC guidance on digital reporting changes and upcoming EV tax rules.

Summary

The Autumn Budget 2025 balances support for small businesses with measures that increase costs for larger employers. Payroll teams must plan for rising minimum wages, frozen NIC thresholds, and reduced pension NI relief for higher earners. Early preparation ensures compliance, smooth payroll processing, and helps manage costs effectively over the next decade.