Autumn Budget 2025: What it means for payroll

It has been a long time since a Budget was as eagerly anticipated and feared by payroll teams and accounting professionals. Speculation went on for weeks, and a 2% tax increase on the basic rate was only finally dismissed the week before the announcement. 

As it happened, the largest surprise on the day was the accidental early release of the Office for Budget Responsibility’s economic and fiscal outlook, revealing key details of the Budget before Rachel Reeve’s speech. That, at least, wasn’t anticipated.  

Looking at the Budget itself, though, what were the real headlines from a payroll perspective?  

We already knew the new national minimum wage (NMW) rates, as these were confirmed overnight (this time officially). The headline NMW increase was smaller than some in recent years, but it still represents an above-inflation increase in costs for employers grappling with significant recent increases in employment costs. The 18-20 year old rate, as with last year, rose faster than others, narrowing the gap with the main rate.  

From 1 April 2026, an employee working 40 hours a week on NMW will now be entitled to an equivalent salary of £26,437, an increase of £1,040 compared with April 2025.  

This will increase the risk of inadvertent non-compliance with the NMW rules, with more roles being paid at, or close to, NMW. Employer processes to track all working time are increasingly becoming vital to remain compliant. 

Aside from the minimum wage rise, the other big changes at the Budget were also widely trailed, but not so certain.  

The additional three-year freeze on the income tax bands and thresholds was no surprise, despite this going back on assurances announced in last year’s Budget. The plan 2 student loan repayment threshold has also been frozen for three years from April 2027. 

The pay per mile charge on both hybrid and full electric vehicles, which will come in from April 2028, could also impact payroll and is more interesting.  

It remains to be seen how the government will track this and how they intend to collect it. Perhaps the payment will end up being part of someone’s tax code. It might be collected from net via payroll. It’s also uncertain how this will work for company cars and who will be liable for payment and recording mileage: The company or the employee?  

The mileage reporting for company cars could even be done on a pay period by pay period basis via the full payment submission (FPS) as part of the company car payrolling benefit, paying on a real time basis instead of annually. This could be a simple and effective solution, and done in the same way mileage expenses are currently captured.  

In any case, there are plenty of questions still to be answered and details to emerge.  

It’s the reform to salary sacrifice pensions, however, that’s the biggest change for payroll in the Autumn Budget (and for some time). It’s also the change payroll professionals were dreading most.  

While contributions above the £2,000 cap will continue to attract income tax relief, from the start of the 2029/30 tax year, both employees and employers will pay national insurance contributions (NIC) on salary sacrifice contributions above this limit. 

The change may not affect the average employee, certainly not when looking at the average UK salary, but it will affect higher earners who use pension salary sacrifice to keep their total taxable pay for the year below the £100,000 threshold.  

An employee earning £40,000 a year on the standard 8% total pension contributions will not pay any additional NIC, as their 5% pension contributions for the year will be £2,000.  

An employee earning £105,000 a year sacrificing £10,000 into their pension, however, will result in an NI charge for both the employee and employer on £8,000: An additional £160 NIC for the employee and an additional £1,200 for the employer.  

Despite the change, demand for salary sacrifice, even among higher earners, is likely to persist. Workers sacrificing into their pension to ensure they stay below the £100,000 threshold for free childcare for working parents, for example, are likely to continue doing so. The additional NIC will still be significantly lower than the cost of the childcare they would lose. 

These changes remain more than three years away, but employers should consider starting to prepare now by ensuring they understand the potential additional employer NIC costs. The potential impacts on total reward packages for existing employees, and how to structure pension contributions for new joiners between now and April 2029, also need to be considered.