Autumn Budget 2025 | What Rachel Reeves’ Announcement Means for Employers and Payroll
Rachel Reeves’ Autumn Budget announcement outlined a stable, future-oriented agenda, causing minimal short-term payroll disruptions but leading to notable medium- and long-term effects for employers, HR, and payroll departments professionals. Insights shared by Ciphr experts Claire Warner and Phil Curtis highlight a period of relative short-term stability alongside important legislative and cost changes that organisations will need to plan for.
A Stable Payroll Picture – For Now
One of the key takeaways from the Budget is the absence of major immediate payroll changes. Despite ongoing political and legislative developments, there are no new payroll reforms scheduled for April 2026, providing welcome breathing space for payroll teams.
However, this stability sits against a backdrop of active legislation. The Employment Rights Bill is still progressing through Parliament, with its next reading scheduled for the 8th of December. Amendments have already seen the proposed right to disconnect removed, while significant changes to unfair dismissal rules remain under discussion. Employers are advised to stay alert, as further developments are expected before implementation.
Tax, National Insurance and Student Loans
The Budget confirmed a continued freeze on UK tax rates and bands until April 2031, with the Scottish Budget still to come. National Insurance thresholds are also extended, with the lower earnings limit increasing from £125 to £129 per week, affecting eligibility for statutory payments.
Other notable changes include:
- Veterans’ National Insurance relief extended for two years until April 2028, continuing to apply at the 15% employer rate for Class 1A and 1B contributions.
- Student Loan updates, including:
- Plan 2 threshold rising to £29,385 per year from April and frozen until 2029/30.
- Introduction of Student Loan Plan 5 from April, requiring payroll systems to recognise new plan types and notifications.
- A reminder that the Employment Allowance remains unchanged, and organisations that have not yet claimed, especially following the removal of the £100,000 cap can still do so.
These changes show how important it is to have payroll systems ready while keeping up to date with changing thresholds.
National Minimum Wage and Statutory Payments
The Budget delivered changes through pay and statutory rates:
- The National Living Wage rises to £12.71 per hour. The rate for those between 18-20 years old increases to £10.85, marking a substantial cumulative increase over two years.
- Real Living Wage rates and the accommodation offset have also increased, affecting pay calculations.
These increases are expected to have a notable impact on organisational cost bases. Employers are encouraged to reforecast budgets and reassess recruitment strategies, particularly as narrowing wage differentials may make hiring younger or less experienced workers less attractive.
Statutory payments also rise, with Statutory Sick Pay (SSP) increasing to £123.25. From April:
- SSP is decoupled from the lower earnings limit.
- SSP becomes payable from day one of absence, with waiting days removed.
- Payment will be 80% of average weekly earnings or £123.25, whichever is lower.
With no mechanism currently in place to reclaim SSP costs, employers will face higher absence-related costs and will need to review payroll processes, absence management, and employee communications.
Salary Sacrifice and Pensions
While existing salary sacrifice arrangements, such as cycle to work, childcare vouchers, pension advice, and electric vehicles remain unchanged for now, employers must ensure sacrifices do not reduce pay below the new minimum wage rates.
Looking ahead, a major reform is planned from April 2029:
- Only the first £2,000 of employee pension contributions via salary sacrifice will be exempt from National Insurance.
- This change is expected to affect around one-third of private sector employees and 10% in the public sector.
Both employees and employers, particularly higher earners and those in high-wage sectors, will see reduced NI savings. Payroll systems will need to adapt, and organisations are advised to factor these changes into long-term forecasts and engage early with pension providers.
Company Cars and Electric Vehicles
Changes to employee car ownership schemes have been delayed until April 2030, with transitional arrangements running to 2032. This gives employers time to adjust fleet strategies and contractual arrangements.
However, new measures are coming:
- From 2028, mileage charges will apply:
- 3p per mile for electric vehicles
- 1.5p per mile for plug-in hybrids
- The expensive car supplement threshold for EVs will rise to £50,000, potentially influencing vehicle choice and pricing.
Consultations are ongoing, particularly around mileage verification, so employers should keep these developments under review.
Mandatory Payrolling of Benefits
One of the most significant future changes is the move to mandatory payrolling of most benefits from April 2027. While employment-related loans and accommodation can still be processed voluntarily, other non-payrolled benefits will require a mini P11D submission.
Key implications include:
- Increased real-time data requirements, similar to P11D information but reported via RTI.
- Class 1A National Insurance moving from an annual to a monthly payment cycle, affecting cash flow and budgeting.
- Introduction of an end-of-year benefits process, with further details awaited.
Employers will need to review HR and payroll data processes well in advance to ensure accuracy and compliance.
Apprenticeship Levy and Home Working Allowance
Finally, the Budget announced changes to employer costs and employee reliefs:
- From August 2026, the government top-up for the apprenticeship levy will be removed.
- The levy spending window reduces from 24 to 12 months, and co-investment rises to 25%, requiring faster and more strategic use of funds.
- The home working tax deduction for non-reimbursed expenses is removed from April, although employers can still reimburse costs directly. Employees who previously claimed via their tax code may see higher personal costs.
Looking Ahead
Overall, Rachel Reeves’ Autumn Budget offers short-term stability but signals meaningful change ahead. Employers and payroll professionals should prepare during the current calm to update systems, revisit forecasts, and plan for reforms that will reshape pay, benefits, and compliance over the next five years.
The full 2025 Autumn Budget can be found here on the gov.uk website.
Written by
Pay Check
paycheck@paycheck.co.uk
+44 (0) 20 7866 4600