Budget 2025 will be memorable for many reasons, not least the amount of early media speculation as to what it might contain. With the contents of the Chancellor’s red box now revealed, the following is a roundup of some important measures affecting employers and employees.
We’ve covered announced changes to employment expenses in more detail elsewhere in Employer Focus. For further Budget coverage, the ATT’s Budget homepage covers some of the key messages.
Frozen Personal Allowance and tax/NIC thresholds
The tax-free personal allowance had previously been frozen until 5 April 2028. The Chancellor has announced it will now remain at £12,570 until 5 April 2031, by which time it will not have changed for 10 years.
The higher rate tax threshold will also be fixed until 2031, at £50,270 for taxpayers entitled to a full personal allowance (generally those with income below £100,000). The continued freeze means that as wages increase, more employees will pay tax, and more will become higher- and additional-rate taxpayers.
For taxpayers in Scotland, future Scottish Income Tax bands and rates are expected to be confirmed in the next Scottish Budget, which is expected in mid-January.
On National Insurance Contributions (NIC), the following thresholds will also be frozen until 2031:
- Primary Threshold (above which employees start paying NIC at 8%) - £12,570
- Upper Earnings Limit (above which employees pay a reduced rate of NIC, currently 2%) - £50,270
- Secondary Threshold (above which employers start paying NIC at 15%) - £5,000
This measure will increase NIC costs for employees and employers as wages rise over time. Employers with large numbers of part-time staff may be particularly affected by higher NIC costs as a result of the Secondary Threshold freeze.
Salary sacrifice pension contributions
Employee pension contributions made via salary sacrifice are a tax-efficient way for employees to add to their pension pots. Using salary sacrifice results in tax and NIC savings, with full relief given up-front rather than needing to be claimed later, as explained in our previous article explaining how tax relief on pension contributions works.
With the salary sacrifice method, employers save on their NIC liabilities too, and many choose to add some or all of that saving to the amount paid into the employee’s pension fund.
From April 2029, the amount of salary sacrifice pension contributions eligible for NIC relief will be restricted to £2,000 per employee per year. We’ll look at the implications in more detail in a future edition, but it’s important to note that the relief cap only applies to NIC – no tax will be payable on amounts over £2,000 paid into a pension fund via salary sacrifice.
Veterans NIC relief extended
Employers taking on former members of the armed forces may benefit from a zero rate of employers’ NIC on up to £50,270 of earnings paid to qualifying ex-service personnel during their first 12 months of civilian employment.
This relief was originally due to end in April 2024, but has been extended several times already, and will now be available until 5 April 2028. Further eligibility details can be found in our previous Employer Focus article on veterans NIC relief.
Benefit in kind treatment of plug-in hybrids
The benefit in kind (BIK) charge for employees provided with plug-in hybrid electric vehicles (PHEV) which are available for private use is based on a combination of the car’s CO2 emissions and its electric-only range.
From April 2026, new emissions standards would result in a higher CO2 figure than was previously the case. This could result in a higher BIK value, and therefore higher tax payments for employees and bigger NIC costs for employers.
An easement was announced at the Budget to enable employers to continue using the previous emissions standards’ CO2 figure when calculating BIK charges for employees provided with a PHEV before 5 April 2028. This easement will continue until the earlier of 5 April 2031, or a change in the employee’s company car arrangements.
In Northern Ireland, the easement is backdated to 1 January 2025, as new emissions standards have already come into effect there.
Longer transition for changes to Employee Car Ownership Schemes
We reported on proposed changes to Employee Car Ownership Schemes (ECOS) in August’s Employer Focus, explaining the Government’s plans to close a tax ‘loophole’ involving these schemes from 6 October 2026.
In brief, the Government aims to target ECOS schemes such that a BIK will arise where employees are provided with a car (or van) under such arrangements. Please see our previous article for more details of how ECOS currently work.
At the Budget, we learned that the necessary changes to bring vehicles provided under an ECOS into the scope of the BIK regime will now only apply to new arrangements from 6 April 2030. Schemes already in place at that date will continue to be treated under current ECOS rules until 5 April 2032, or until the arrangements are varied, if earlier. The longer transitional period is intended to allow affected employers and employees time to change their car arrangements before the new rules apply.
Future developments
Alongside the Budget’s major tax announcements, the Government has shared plans to consult on future changes.
These include a consultation planned for 2026 on requiring employers to settle PAYE liabilities by Direct Debit, with a view to reducing late payments and debt.
Secondly, owners of electric vehicles and PHEVs are likely to have heard of plans announced at the Budget to impose a pence-per-mile charge on such vehicles from April 2028. A consultation on the proposed Electric Vehicle Excise Duty has been published, which is open to responses until 18 March 2026.
This article reflects the position at the date of publication. If you are reading this at a later date you are advised to check that that position has not changed in the time since.
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