The new chancellor has delivered her budget statement, which has a number of cost implications for businesses from April.

National Living Wage
The main adult rate of National Living Wage will rise in April from £11.44 to £12.21 per hour. The hourly rate for 18-20 year olds will rise from £8.60 to £10.00.

Employer National Insurance
From April 2025, employers will see the NIC rate rise from 13.8% to 15%, meaning an extra 1.2% on applicable earnings.
At the same time, the threshold at which the employer National Insurance rate kicks in will be lowered to when an employee earns £5,000 rather than the current £9,100. This means an additional £4,100 of earnings will now be subject to the new rate, costing business an extra £615 a year per employee whose earnings exceed the current threshold.
These significant increases will add £700 to the National Insurance costs of a full time employee on the National Living Wage, and over £800 to the cost of an employee on an average wage of £29,800.

Employment Allowance
Currently, businesses with an NIC bill of £100,000 or less in the previous tax year can benefit from the Employment Allowance, which allows them to take £5,000 off their employer NIC bill. This allowance will increase in April to £10,500 and the £100,000 limit will be removed meaning it will be available to all employers.
Whilst this increase in allowance will shield very small employers from the effects of the significant increases in employment costs (a small firm can employ four people on National Living Wage without paying any employer NICs at all) larger employers will feel the pinch, as the higher allowance may not significantly offset the extra cost to them.

Company Directors
Single directors of limited companies who don’t have any other employees will not benefit from the increase in the Employment Allowance. Therefore those paying themselves through payroll, above the new threshold of £5,000, will face a rise in their employer NICs.

The government will make the reporting and paying of Income Tax and Class 1A National Insurance Contributions (NICs) on benefits in kind via payroll software mandatory from April 2026, building on the progress already made on the government’s ambition to fully digitalise the reporting of benefits in kind. Mandation will simplify the tax affairs of 3 million people and reduce the need for them to contact HMRC.

This measure will reduce administrative burdens for thousands of employers and HMRC by simplifying and digitising the process of reporting and paying tax on all employment benefits. It will remove the need for 4 million end of year returns to be submitted to HMRC. HMRC will engage with stakeholders to discuss our proposals to inform design and delivery decisions and draft legislation will be published later in the year as part of the usual tax legislation process. HMRC will also work with industry experts to produce guidance, which will be made available in advance of 2026. Further information will be published via usual communication routes, such as through employer bulletins.

Payrolling the Income Tax due on benefits in kind is currently available to employers on a voluntary basis, with those who do not wish to payroll still able to file form P11D at the end of the year. Class 1A National Insurance contributions cannot currently be payrolled so a P11D(b) form still needs to be submitted at the end of the year. In light of the recent announcement HMRC encourages anyone who is able to begin payrolling voluntarily to do so in preparation. Agents will also be able to payroll benefits on behalf of employers from the end of April 2024.

How this will affect employers
If you provide BiKs to your employees, Income Tax and Class 1A National Insurance contributions will have to be reported and paid in real time through payroll software from 6 April 2026. The 2025-2026 tax year will be the last year that we will accept P11Ds and P11D(b)s for annual reporting of BiKs in most cases.
HMRC will help businesses to prepare for the transition by providing guidance in advance of 2026. If you wish to start payroll benefits for 2025-26, you will need to tell HMRC before April 2025 which benefits you want payrolled, or ask us for a form of ‘benefits to payroll’ and we can inform HMRC for you if we are your PAYE agent.