9 Mins
With the transition to the new payroll year now complete, it’s the perfect time to review the key legislative changes affecting payroll. While some areas remain unchanged, others have seen significant updates that could impact your business and employees.
In this edition of our newsletter, we’ve highlighted the most important changes, offering clear insights, direct links to HMRC’s official guidance, and additional resources available on our website for further reference.
Key Update: Employer National Insurance
One of the major changes this year is the reduction in the threshold and the increase in the contribution rate for Employer National Insurance. This not only places a greater financial burden on employers, but it may also affect company directors who take a lower salary. If this applies to you, it may be worth revisiting your remuneration strategy.
We’ve published an article exploring this in more detail – please take a look here. And of course, if you’d like tailored advice, we’d be happy to help.
If you have any questions or need clarification, our expert payroll team is here to support you. Contact us at payroll2@hlca.co.uk or call 01382 200055.
Let’s navigate the new tax year with clarity and confidence – together.
THE BIG NEWS
National Insurance Contributions
Employee Contributions – The standard Class 1 National Insurance Contribution (NIC) rate for employees remains at 8% on earnings between the Primary Threshold and the Upper Earnings Limit (UEL), with a reduced rate of 2% on earnings above the UEL.
Employer Contributions – Significant changes take effect from 6th April 2025. The Employer Class 1 National Insurance rate will rise from 13.8% to 15% on all earnings above the Secondary Threshold. Additionally, the Secondary Threshold is being lowered from £9,100 to £5,000, meaning employers will start paying NICs on a larger portion of earnings. This increased rate also applies to Class 1A and Class 1B National Insurance.
These changes will significantly increase employer NIC costs.
For a deeper dive into how this may impact your payroll costs, read our full article: Are You Prepared for Rising Employer Costs?.
National Insurance Rates
The National Insurance rates and earnings levels for 2025/26:
National Insurance Thresholds
Explanation of Terms
- LEL (Lower Earnings Limit)
Employees do not pay National Insurance when earning below this point.
- PT (Primary Threshold)
Employees start paying National Insurance once they reach this threshold.
- ST (Secondary Threshold)
Employers start paying National Insurance at this point.
- FUST (Freeport Upper Secondary Threshold)
Employers of freeport employees start paying National Insurance at this earnings point.
- ZUST (Investment Zone Upper Secondary Threshold)
Employers of investment zone employees start paying National Insurance at this earnings point.
- UST (Upper Secondary Threshold)
Employers of employees who are under 21 pay zero rate up to this point.
- AUST (Apprentice Upper Secondary Threshold)
Employers of certain apprentices who are under 25 pay zero rate up to this point.
- UEL (Upper Earnings Limit)
All employees pay a lower rate of National Insurance above this point.
- VUST (Veterans Upper Secondary Threshold)
Employers of employees who are veterans pay zero rate up to this point.
Employment Allowance
Some good news for employers! From April 2025, the Employment Allowance will increase from £5,000 to £10,500, providing greater savings on National Insurance contributions. Additionally, the current restriction preventing employers with secondary Class 1 NICs over £100,000 from claiming will be removed from 6 April 2025, expanding eligibility to more businesses. However, remember that only one company within a group (or with connected companies) can claim the allowance. Make sure your business is prepared to take full advantage of these changes!
Payrolled Benefits in Kind
Many employers have already chosen to voluntarily register for PAYE before the mandatory deadline of 6 April 2026, ensuring a smoother transition ahead of the new reporting requirements. This change will largely phase out P11Ds, simplifying the way benefits are reported and reducing administrative burdens.
If you haven’t yet explored what this means for your business, now is the time to get up to speed
If you missed our recent webinar on this topic, you can watch the recording here. Don’t miss out on key insights and practical guidance!
National Minimum Wage
- Employers must ensure they are meeting NMW requirements, which extend beyond just the hourly rate.
- Be cautious of salary sacrifice schemes, uniform deductions, and unpaid working time, which could inadvertently lead to NMW breaches.
- Learn more in our webinar here.
OTHER CHANGES
Income Tax
- Income tax allowances are set by the UK government for England, Wales Northern Ireland, and Scotland (non-devolved).
- Note those earning over £100,000 will see their tax allowance reduced by £1 for every £2 earned over £100,000
Income tax rates for Scotland 2024-25
The key changes here are the addition of a further advanced tax band of 45% and increasing the top rate of tax to 48%.
Income tax rates for England and Northern Ireland 2024-25
The threshold for additional rate of income tax is lowered.
Income tax rates for Wales 2024-25
Income tax rates and thresholds are currently reflecting those set for England and Northern Ireland.
Student Loan
Student loan repayment thresholds 2025/26
The thresholds and repayment rates for each plan in 2025/26 are as follows:
Statutory Payments
Statutory Maternity, Paternity, Adoption, Shared Parental, Parental Bereavement
Apprenticeship Levy
The Apprenticeship Levy is a charge that applies to all UK employers who have a pay bill exceeding £3 million. A pay bill is based on the total amount of earnings which an employer is liable to pay Class 1 secondary NICs on.
The Apprenticeship Levy is charged at a rate of 0.5% on an employer’s annual pay bill. Employers are given an annual Apprenticeship Allowance of £15,000. This means that only those employers with an annual pay bill of over £3 million will have to pay and report the levy because 0.5% of an employer’s £3 million pay bill is £15,000, which is fully removed by the Apprenticeship Levy.
FURTHER INSIGHTS
New Statutory Neonatal Care Leave & Pay – What you need to know
From April 2025, employees will be entitled to Statutory Neonatal Care Leave (NCL) if their child requires neonatal care within 28 days of birth for at least seven continuous days. Eligible employees can take up to 12 weeks of leave in weekly blocks, in addition to other statutory family leave, provided it is taken within 68 weeks of birth. This is a day-one right, and employees are protected from dismissal or detriment for taking NCL.
Employees who meet the qualifying criteria will also be entitled to Statutory Neonatal Care Pay (SNCP), paid at the same rate as Statutory Paternity Pay or Shared Parental Pay. To qualify, employees must have 26 weeks’ continuous service and meet the lower earnings limit. SNCP can be paid for up to 12 weeks within the first 68 weeks after birth.
Employers should ensure compliance with notice requirements and be aware that employees returning from NCL have priority for suitable alternative roles in redundancy situations.
National Minimum Wage
Following on from the National Minimum Wage update and our recent webinar on this topic, we thought this would be a good opportunity to remind and provide clarity on HMRC’s expectations of employers.
The NMW webinar can be watched here.
We draw particular attention to Salaried Hours workers, the most common type of worker. These workers are employed for a set number of hours in a year, and their annual salary is divided into 12 (or 52) equal instalments. We all know that a year is not exactly 52 weeks, so it is vital for employers to ensure that the employee has been paid at least the NMW rate (applicable to their age) for all hours worked in the year.
This calculation should incorporate all hours worked, including early starts, late finishes, and all unpaid worked time.
Employers must have a system for monitoring and checking this, towards the end of the calculation year, with any underpayment being paid to the employee in the following pay period.
If we look after your payroll, and have been provided with accurate working patterns and hours worked information, we can do the following to help:
- We will ensure the pay rates in use are at least the current National Minimum Wage rates, and we will apply these rates to the contracted hours.
- We will calculate the annual salary for NMW cases based on 52.14 weeks. We use 52.14 weeks as suggested in HMRC’s guidance to help you ensure that you are achieving NMW for the hours worked in a year. See more information here.
- We will ensure that where salary sacrifice schemes are in place, the sacrifice does not lower the employee’s pay to below the National Minimum Wage rate.
What we can’t do:
- We can’t ensure that all hours worked outside of contracted hours have been paid, unless these hours have been reported to us.
There are other things that can potentially cause a National Minimum Wage breach, such as deductions from pay. If you are unsure of your responsibilities in this matter, please rewatch the webinar and read the guidance here and here.
If you require assistance on this topic, please do get in touch.
Holiday Pay
The contract of employment stipulates employees’ annual leave entitlement, but as a minimum, the entitlement is:
- 4 weeks of annual leave
- 1.6 weeks of public/bank holiday leave
This gives a total of 5.6 weeks, regardless of whether the employee is full-time or part-time.
- For a full-time Monday to Friday worker, this translates to:
- 20 days annual leave and 8 days of public/bank holiday leave, totalling 28 days per annum.
- If the worker is part-time and works (say) three days per week, then this entitlement will reduce pro rata to:
- 12 days annual leave and 4.8 days of public/bank holiday leave, totalling 16.8 days per annum.
In the wake of recent legal rulings and ongoing legislative reforms, understanding holiday pay and entitlement has become more challenging than ever. Staying compliant is crucial, but it’s not always straightforward. Watch our webinar on the topic here.
Salary Sacrifice
A salary sacrifice scheme can create significant National Insurance savings for employers.
A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit.
As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.
A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap salary sacrifice deductions and ensure NMW rates are maintained.
Schemes that do not have to report to HMRC for a salary sacrifice arrangement are:
- payments into pension schemes
- employer-provided pensions advice
- workplace nurseries
- childcare vouchers and directly contracted employer-provided childcare that started on or before 4 October 2018
- bicycles and cycling safety equipment (including cycle to work)
Where an employee gives up a portion of their salary in exchange for one of these benefits, the employee and employer will make savings, because they do not pay tax or national insurance on the sacrificed amount.
HMRC
Here is a link to HMRC’s full guidance.
Rates and thresholds for employers 2025 to 2026 – GOV.UK