Payroll changes from April 2025
The budget announced a number of changes that employers should know, and may need to take action on.
Employer National Insurance will increase from 13.8% to 15% from April 2025. The threshold at which employers become liable to pay NICs on employees’ earnings, will reduce from £9,100 to £5,000 a year.
The Employment Allowance currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. The government will increase the Employment Allowance from £5,000 to £10,500, and remove the £100,000 threshold for eligibility, expanding this to all eligible employers with employer NICs bills from April 2025.
The main adult National Living Wage will rise by 6.7% from April 2025 taking the hourly rate from £11.44 to £12.21. The hourly rate for 120 year olds will rise from £8.60 to £10 per hour
Voluntary Payrolling Benefits
Payroll benefits is due to become mandatory from April 2026, so why not sign up sooner and register for payroll your company benefits sooner? A company can register for payroll benefits through it’s HMRC online account. The registration deadline is 5th April, so you wouldn’t be able to payroll benefits for 2024/25, but could still register in time for the 2025-26 tax year.
Payment of Class 1A National Insurance and P11Ds
Class 1A National Insurance contributions cover most benefits and kind and if you have previously submitted P11Ds to HMRC, you will have received an end of year form P11D(b) requesting that you submit your return for 2023-24. You must submit forms P11D and P11D(b) for 2023-24 by 6th July 2024. Payment of Class 1A NICs must be paid by 19th July (by post) or 22nd July 2024 by electronic means to avoid penalties.
National Insurance contributions (NICs)
The government has announced a cut to the main rate of Class 1 employee NICs from 10% to 8% from 6 April 2024, and a further cut of 2 pence to the main rate of Class 4 self-employed NICs from 6 April 2024, taking this to 6%.
Holiday Pay and entitlement consultation responses
In March 2024, the Department for Business and Trade published it’s responses to the two consultations ran earlier this year. The headline responses are:
* the government won’t proceed with proposals of a 52-week holiday entitlement reference period, and instead entitlement will be calculated as 12.07% of hours worked in a pay period for irregular/part-time workers only
* the 2 existing rates of holiday will be maintained and there won’t be a single annual leave entitlement created. This means workers will continue to receive 4 weeks at normal pay rate and 1.6 weeks at basic rate of pay
rolled-up holiday pay will be allowed, but for irregular/part-time workers only
This is great news for all administrators involved in calculating the holiday pay. We just need to wait for further guidance and documentation from the government about how this will work in practice.
Getting your new starter’s National Insurance number just got quicker
If your new starters are unsure where to find their National Insurance number, the quickest way to do so is by using the HMRC app or pay online.
Within minutes they can access their number, and get their National Insurance number confirmation letter if this is needed.
For future access, they can also add their National Insurance number to their Apple or Google wallet.
Statutory paternity pay and leave changes
Changes to statutory paternity pay and leave are due to take effect from 6th April 2024.
The amendments will introduce greater flexibility for fathers to create a more equal system of parental leave and pay, to promote gender equality. Notice requirements will be changed so they are more proportionate to the amount of time taken off. An employed father will be able to take paternity leave in two non-consecutive periods of one week or a two-week block within 52 weeks of the birth of the child. HMRC is estimating that updated guidance will be available in line with the changes to legislation by 8th March 2024.
New holiday pay calculations
Workers have the right to 5.6 weeks paid holiday whether they are full time, part time or under a zero hours contract. The amount of days a worker is entitled to will depend on multiple factors including hours worked and extra entitlement agreed, but they start accruing holiday from the day they start, including during their probation period, during sickness leave, maternity and paternity leave. The 5.6 weeks’ legal requirement comprises 20 days (pro-rata’d for part time workers) and 8 days (or pro-rata’d equivalent) to represent public or bank holidays. There is no requirement for workers to be guaranteed these specific public holidays off work, but the days do form part of statutory annual leave entitlement. The calculation will depend on an employee’s working pattern.
For Fixed Hours: A worker’s pay for a week.
For shift work with fixed hours: The average number of weekly fixed hours a worker has worked in the previous 52 weeks, at their average hourly rate
No fixed workers: A worker’s average pay from the previous 52 weeks (only counting weeks in which they were paid). If no pay was paid in any week, you must count back another week, back to a maximum of 104 weeks. If a worker has less than 52 weeks of pay, use the average pay rate for the full weeks they have worked.