By Karina Dirina - Payroll Manager
As we approach the new tax year, businesses across the UK must prepare for significant changes to payroll regulations introduced by HMRC for 2025/26. Understanding these updates is crucial for compliance and ensuring that your workforce is paid accurately and on time. At Everest and Co., we are committed to keeping our clients informed about legislative changes that impact payroll. Here's a detailed look at what's changing and how it affects your business.
Key Changes for 2025/26
1. Adjustments to Tax Codes:
For the tax year 2025/26, HMRC has adjusted the personal allowance threshold, which is vital for calculating PAYE. The personal allowance will now be set at £12,750.00, impacting the tax codes for many employees. Businesses should ensure that their payroll systems reflect these updates. For more information, visit HMRC Tax Codes. https://www.gov.uk/tax-codes
2.Changes to National Insurance Contributions (NIC) Starting April 2025
New NIC Rates and Thresholds
From April 2025, significant changes to National Insurance Contributions (NIC) will be implemented for employers:
Rate Increase: Employers will pay NIC at a rate of 15% on employee earnings above the new threshold.
Secondary Threshold (ST): The threshold will be reduced to £5,000 per year (£96 per week), down from £9,100 per year (£175 per week).
This change is expected to significantly increase employers' NIC liabilities and generate an additional £25 billion in revenue for the government annually. As a result, portions of this increase might be reflected in reduced wage increments for employees over time.
Special Thresholds
Upper Secondary Thresholds (UST): These remain unchanged: - £25,000 for special tax sites such as investment zones and freeports. - £50,270 for employees under 21, veterans (extended until 2026), and apprentices under 25.
Increase in Employment Allowance
To support smaller employers, the employment allowance will be increased from £5,000 to £10,500 annually from 6 April 2025. This allows eligible employers to offset the allowance against their NIC liability, potentially reducing it to nil. The previous £100,000 eligibility threshold will be removed, allowing more employers to benefit regardless of their prior year NIC liability.
Changes to Classes 1A and 1B NIC
The rates for Classes 1A and 1B NIC, paid by employers, will increase from 13.8% to 15%:
Class 1A NIC applies to certain employee benefits and lump sum payments.
Class 1B NIC is charged under pay-as-you-earn settlement agreements (PSA).
Mandatory Payrolling of Benefits-in-Kind
From April 2026, it will become mandatory to report benefits in kind through payroll software, except for employment-related loans and accommodation due to difficulties in valuation. This change could be affected by potential quarterly fluctuations in the official rate of interest starting April 2025, moving away from the former practice of maintaining a constant rate. While employers can voluntarily payroll certain benefits, P11D and P11D(b) forms will remain available temporarily until all benefits are fully integrated into the mandatory payrolling system.
3. Adjustments to the Apprenticeship Levy:
The Apprenticeship Levy, applicable to employers with an annual pay bill exceeding £3 million, is also undergoing updates. While the levy rate remains at 0.5%, new options for spending it have been introduced, allowing businesses to utilise their levy contributions for more training programmes. Further details can be found on the Apprenticeship Levy. https://www.gov.uk/guidance/pay-apprenticeship-levy
4. Enhancements to Real-Time Information (RTI) Reporting:
The requirements for Real-Time Information (RTI) reporting have become more stringent. Employers must ensure that all payments and deductions are reported accurately and on time to avoid penalties. HMRC has improved its tools for reporting, which can be accessed through RTI: Reporting Pay and Deductions to HMRC.https://www.gov.uk/government/publications/real-time-information-improving-the-operation-of-pay-as-you-earn
5. Changes to Reporting Benefits and Expenses:
There are updated reporting requirements for specific benefits, such as company cars and certain expenses. New guidelines stipulate that any benefits must now be reported at the time they are provided rather than at the end of the tax year. Businesses should review these changes to align their reporting practices. Detailed guidelines are available at Benefits and Expenses: Reporting to HMRC. https://www.gov.uk/employer-reporting-expenses-benefits
Steps to Ensure Compliance with HMRC Changes
Stay Informed:
It's vital to regularly visit HMRC's official website for the latest updates, guidance notes, and toolkits that explain the changes in detail. Bookmark the HMRC Newsroom and consider subscribing to their newsletters for ongoing updates. https://www.gov.uk/search/news-and-communications
Upgrade/Improve Your Payroll Systems:
It's essential to ensure that your payroll system is equipped to accommodate the new regulations. If you handle payroll in-house, take the time to revisit your software and assess its capabilities. For businesses that use a third-party payroll provider, verify that your system will integrate seamlessly with the new processes. Additionally, maintain regular contact with your payroll provider to stay informed about updates and ensure compliance with the latest guidelines.
Communicate with Employees:
Proactively inform employees about how these changes will affect their pay. This not only prepares them for any adjustments but also promotes transparency and trust within your organisation.
Engage with Payroll Professionals:
If your payroll processes feel overwhelming or complex, consider consulting with a professional. Everest and Co. offers comprehensive payroll services and consultancy to help you navigate these changes effectively. Don't hesitate to reach out to us at 01902219680 or via email at info@everestandco.co.uk for personalised assistance.
Conduct Regular Payroll Audits:
Implementing routine checks of your payroll processes is essential to ensure everything complies with the latest HMRC regulations. Regular audits can help identify potential discrepancies early and alleviate stress during payroll runs.
Conclusion
As the tax year 2025/26 approaches, staying informed and compliant with HMRC's changes is vital for all businesses. With the right preparation, your payroll can run smoothly, ensuring employee satisfaction and adherence to statutory obligations.
Why Choose Everest and Co as Your Payroll Partner
At Everest and Co., we understand that payroll management can be complex and time-consuming. That's why we are dedicated to providing tailored payroll solutions to meet the unique needs of your business. Our team of experienced professionals stays updated on the latest HMRC regulations and compliance requirements, ensuring that your payroll is processed accurately and efficiently. By choosing us as your payroll partner, you gain access to cutting-edge technology that integrates seamlessly with your existing systems, as well as ongoing support and guidance whenever you need it. We pride ourselves on our customer-centric approach, fostering strong partnerships with our clients to help them navigate the ever-changing landscape of payroll management. With Everest and Co., you can focus on what you do best—growing your business—while we handle the intricate details of payroll for you.
For further assistance, queries, or tailored support regarding these changes, feel free to contact Everest and Co. at 01902219680 or via email at info@everestandco.co.uk. Together, we can ensure you are fully prepared for the upcoming changes and set for success in the new tax year.