Payroll is changing considerably this year, with updates to National Insurance (NI), minimum wage rates, benefits in kind, and vehicle tax in the pipeline.
These adjustments will impact businesses of all sizes, from small employers to large corporations, and it’s fair to say that many of your clients will be worried about them.
Below, we break down the key changes in payroll for 2025 and beyond, with a clear timeline to help you plan (and look after your clients) effectively.
Skip to the end if you’re looking for advice on handling these changes within your own firm.
6 April 2025 – D-day for payroll experts
On the 6 April, the following changes will take effect:
- Employer’s NI will increase from 13.8 per cent to 15 per cent. This means higher costs for businesses.
- The secondary threshold for Employer’s NI (the point at which businesses start paying NI on employee salaries) will drop from £9,100 per year to £5,000, bringing more salaries into the chargeable range.
- The Employment Allowance will increase from £5,000 to £10,500, and the £100,000 cap will be removed, allowing more businesses to benefit.
- The ongoing freeze to Income Tax and NI thresholds will continue until 2028/29, adding fiscal pressure for businesses and employees.
- The National Living Wage (NLW) for workers aged 21 and over will rise by 6.7 per cent, from £11.44 to £12.21 per hour.
- The National Minimum Wage for 18 to 20-year-olds will increase by 16.3 per cent, from £8.60 to £10.00 per hour.
- The Overseas Workday Relief (OWR) period will extend to four years, with claims capped at the lower of £300,000 or 30 per cent of net employment income. Offshore income requirements will also be removed.
This is a truly herculean number of processes and systems for your payroll professionals to implement.
Future changes
Payroll changes are extending into 2026 and 2027 so it’s worth being aware of these, even if they are a bit further in the future.
- 6 April 2026: Mandatory payrolling of benefits in kind will begin. Employers must process benefits like company cars and private medical insurance via payroll software. *
Additionally, in April 2028, company car tax rates will increase:
- Zero-emission vehicles will rise by two percentage points per year, reaching 9 per cent by 2029/30.
- Cars emitting 1 to 50g CO2 per kilometre will increase to 18 per cent in 2028/29 and 19 per cent in 2029/30.
- All other bands will rise by one percentage point per year.
*It’s worth noting that employment-related loans and accommodation will continue to be processed via P11D and P11D(b) forms.
How accounting firms can handle these changes
With such substantial updates to payroll compliance, it’s important that you are proactive – this is the best way to keep your clients compliant and operations running smoothly.
Here are some of our suggestions:
- Stay informed and update your systems: Ensure your payroll software is updated to handle the new rates and requirements, particularly for benefits in kind and NI thresholds. Partner with software providers early to implement any necessary changes.
- Educate your clients: Many clients may be unaware of how the new NI increases or wage rises will impact their payroll costs. Provide regular updates, host workshops, or send out detailed guidance to prepare them for these changes.
- Prepare for payrolling benefits: While payrolling benefits in kind becomes mandatory in 2026, firms should start transitioning clients now to avoid a last-minute scramble. Make sure your systems can handle this and you have great data-management integrations installed within your firm.
While we aren’t payroll experts, we can give you some good suggestions on the sort of technology you should be using to manage these updates.
Fundamentally, you should have a proactive and easy-to-use system for gathering information from your clients and processing that data.
It’s also useful to have automated reminders and checklists so your clients can easily see where additional information is needed and how to send it to you.
In other words, if you don’t have a solid way for clients to communicate information with your payroll team, you could be setting them up for failure when these updates take effect.
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