The recent Budget announcement (26 November 2025) brings several important updates for employers, especially those managing payroll, HR, and finance. Here’s a breakdown of the most significant changes and what they mean for your business.
Minimum Wage and Living Wage Increases
From April 2026, both the National Minimum Wage (NMW) and National Living Wage (NLW) will rise, resulting in higher staff costs for employers. The new rates are as follows:
| Category | New Rate (£ per hour) |
|---|---|
| National Living Wage | 12.71 |
| NMW (18–20 year olds) | 10.85 |
| NMW (16–17 year olds) | 8.00 |
| Apprentices | 8.00 |
Employers should prepare for these increased wage costs and review their payroll budgets accordingly.
Freeze on Tax and National Insurance Thresholds
The Budget confirms that key thresholds for personal tax allowance and National Insurance (NI) will remain frozen until at least 2030/31. This increases the risk that rising salaries could push employees into higher tax or NI bands. Even small pay increases for lower earners or minimum-wage workers may trigger new liabilities. The Plan 2 student loan repayment threshold will also remain unchanged from 2027–28 until 2029–30.
Salary Sacrifice Pension Contributions
Starting April 2029, the NI exemption for employee pension contributions made via salary sacrifice will be capped at £2,000 per year. Contributions above this threshold will be subject to employer and employee NI, though income-tax relief remains unchanged. Employers will need to update payroll systems and may need to reconsider overall remuneration structures.
Overseas Workday Relief (OWR) 30% Limit
For new resident employees eligible for Overseas Workday Relief, any income excluded from PAYE must not exceed 30%. If the exclusion surpasses this threshold, in-year relief is capped at 30% of the employee’s income.
Key Changes at a Glance
| Change | Effective From | Impact |
|---|---|---|
| Minimum and Living Wage increase | April 2026 | Higher payroll costs |
| Frozen tax & NI thresholds | Until at least 2030/31 | More employees may move into higher tax/NI bands |
| Salary sacrifice NI exemption cap | April 2029 | NI payable above £2,000 contributions |
| OWR PAYE exclusion limit | Immediate | In-year relief capped at 30% of income |
Key Takeaways for Employers
- Review payroll budgets for higher minimum and living wages.
- Be aware of frozen tax & NI thresholds and their impact on staff.
- Update payroll systems for salary sacrifice pension NI cap.
- Ensure compliance with OWR 30% PAYE cap.
Staying informed and proactive will help your business navigate these changes smoothly and maintain compliance with regulations.
The information provided in this guide is intended as a general overview to help readers understand the key measures introduced in the UK Budget 2025. It does not claim to be exhaustive and should not be relied upon as a substitute for tailored professional advice. If you have any questions or require specific guidance, please
speak to one of our experts.
