budget (1)

Today’s Budget – what does it mean for payroll?

November 26, 2025
Today’s Budget – what does it mean for payroll?

Today’s Budget – what does it mean for payroll?

At HR Connect, we are committed to continually monitoring legislative changes and industry developments that may impact our customers. 
 
With today’s Budget Announcement setting out several measures relevant to employers and people operations, we’ve distilled the key announcements to provide you with a clear, concise overview of what matters most.
 

Income Tax and National Insurance:

  • Personal allowance - £12,570 (no tax charged on income up to this amount). 
    -    Basic Rate (20%): £12,571 - £50,270
    -    Higher rate (40%): £50,271 - £125,140
    -    Additional rate (45%): Over £125,140.
    All will remain frozen until 2030-31. This is a year longer than previously published.

  • What does this mean? Ultimately more employees will end up paying more tax as they will move to the higher tax bands over time.

  • National insurance thresholds are also frozen.

 

Salary Sacrifice & Benefits:

  • There will be a cap on NIC relief for pension salary sacrifice schemes. Any contributions above £2,000 per year will attract NICs, reducing tax efficiency for high earners.

  • LGPS and TPS pensions will not be affected as these are defined benefit schemes governed by legislation and not optional arrangement like salary sacrifice.

  • They may well also clampdown on other salary sacrifice schemes e.g. EV salary sacrifice, but for the moment these remain unchanged.

  • A new mileage-based charge on battery electric and plug in hybrid cars will be introduced from 2028.

 

National Minimum Wage:

  • Over 21’s to increase 4.1% in April from £12.21 to £12.71 per hour.

  • Rate for 18 to 20 year olds to increase by 8.5% from £10 to £10.85 per hour.

  • HR Connect will take care of these increases for you.

 

Student Loans:

  • Plan 2 student loan repayment threshold frozen from 2027-28 until 2029-30

 

Tax Relief:

  • Tax relief abolished on homeworking expenses unless reimbursed by the employer

 

Have a question?

If you have a question following today's Budget Announcement and would like our expert support, please reply or email info@hrconnect.org.uk and a member of the team will be happy to help.