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How to plan your payroll for 2025: Key changes & considerations
When it comes to payroll, the proof is in the planning. This is especially true with the changes to payroll that have come into effect from April 2025.
From minimum wage increases to updates on National Insurance Contributions and Benefits in Kind, staying on top of payroll changes can help your business stay compliant and avoid unnecessary stress.
With this in mind, this guide provides a rundown of all the payroll changes for 2025, and outlines practical steps to help you adapt. If you need to know what’s changing and how you can prepare, look no further.
What has changed for payroll from April 2025?
Here are some of the headline changes for payroll beginning in April 2025:
Secondary Class 1 NIC Rate increases from 13.8% to 15%.
Secondary Threshold reduces from £9,100 to £5,000.
Employment Allowance increases to £10,500 with the eligibility threshold removed.
Over 21s National Living Wage increases to £12.21/hour.
Statutory Sick Pay (SSP) increases to £118.75 per week.
Statutory Maternity Pay and Family Leave Pay increases to £187.18 per week.
Lower Earnings Limit adjusts to £125 per week.
Small Employers Relief (SER) increases to 8.5% (108.5%), with the threshold remaining at £45,000.
To explore these in more detail, use the links below to read information on each individual change:
Minimum wage updates
From April 1, 2025, the UK has seen an increase in the National Minimum Wage and National Living Wage rates. This is hoped to benefit all age groups.
These rate changes include higher pay for 16-20-year-olds, with the largest rise being seen in the 18-20 age bracket. The National Living Wage for those 21 and over have also increased, along with the apprentice rate and accommodation offset.
Let’s run through each rate change:
Changes in Minimum Wage Rates for 2025:
18–20-year-olds: The minimum wage increases to £10.00 per hour (16.3% increase).
16–17-year-olds: The minimum wage rises to £7.55 per hour (18% increase).
21 and over (National Living Wage): The National Living Wage increases to £12.21 per hour (6.7% increase).
Apprentice rate: The minimum wage for apprentices rises to £7.55 per hour (18% increase).
Accommodation offset: The accommodation offset increases to £10.66 per day or £74.62 per week (6.7% increase).
National Insurance Contributions (NICs)
Like payroll, National Insurance Contributions (NICs) have experienced significant changes, with higher rates for employers and reduced thresholds for some categories. In short:
The Secondary Class 1 NIC rate rises from 13.8% to 15%.
The Secondary Threshold reduces from £9,100 to £5,000.
The Employment Allowance increases to £10,500, with no eligibility threshold.
To help you better understand these adjustments, the following table provides a detailed breakdown of the key NIC thresholds for employees and employers following the changes.
Threshold Type | Weekly | Monthly | Annual |
Lower Earnings Limit (LEL) | £125 | £542 | £6,500 |
Primary Threshold (Employee) | £242 | £1,048 | £12,570 |
Secondary Threshold (Employer) | £96 | £417 | £5,000 |
Upper Earnings Limit (UEL) | £967 | £4,189 | £50,270 |
Source: The official rates and thresholds for employers 2025/26
Statutory Payments
For the upcoming tax year, Statutory Sick Pay (SSP) has increased. The aim is to ensure employees receive a higher weekly amount if they are off work due to illness. To summarise:
The SSP rate rises to £118.75 per week, up from the previous amount.
The daily rates for Leave Coverage have also been updated. Depending on the number of days an employee is off sick, the daily SSP rate will vary.
As outlined above, the Lower Earnings Limit remains at £125 per week. This means employees must earn this amount or more to qualify for SSP.
Benefits in Kind (BiKs)
Starting in April 2026, the rules around the reporting of Benefits-in-Kind (BiKs) will change, requiring most BiKs to be reported through payroll software in real-time. This will make it easier for employers to handle tax reporting throughout the year.
Most BiKs will need to be reported through payroll software as they occur, rather than being handled through separate reporting processes.
Until the mandatory reporting requirement comes into effect, employers can voluntarily payroll certain benefits, such as employment-related loans and accommodation.
Employers must ensure that the taxable values of BiKs are reported accurately during the tax year. If any errors are found, corrections can be made either during the year or via an adjustment at the end of the year.
Electric Vehicles (EVs) and salary sacrifice
From 2025 onwards, the Benefits-in-Kind (BiK) rates for electric vehicles (EVs) in salary sacrifice schemes will gradually increase. This gradual rise aims to reflect the growing popularity of EVs while maintaining the incentive to use environmentally friendly transport. By year, the key changes include:
2025: BiK rate for EVs increases to 2%.
2028: BiK rate will rise incrementally to 7%.
2029: BiK rate will reach 9%.
What does this mean for businesses?
So what do the 2025 payroll changes mean for businesses across the UK?
For one, employers will need to adjust their payroll processes to accommodate the increased National Insurance contributions and higher statutory payments.
The higher Secondary Class 1 NIC rate and the reduced Secondary Threshold will also result in increased costs for employers, particularly those with a larger workforce. However the increased Employment Allowance will provide some relief in helping to offset these rising costs.
Additionally, businesses offering electric vehicles through salary sacrifice schemes will need to factor in the BiK rate increases over the next few years. The gradual rise from 2% in 2025 to 9% by 2029 will influence the tax liabilities for employees using EVs, meaning businesses may need to review their salary sacrifice offerings and advise employees on the evolving tax implications.
Employers will also need to be proactive in preparing for the mandatory reporting of BiKs through payroll software starting in April 2026. With real-time reporting becoming mandatory, businesses must ensure their payroll systems are equipped to handle these changes.
What do businesses need to do to adapt to these changes?
If the 2025 payroll changes are likely to affect your business, don’t worry. There are a number of steps you can take to prevent any impacts for your organisation. Just some of these include:
Keep your payroll systems updated: Businesses should first ensure their payroll systems are updated to reflect the new National Insurance rates, statutory pay increases, and the rising Benefits-in-Kind (BiK) rates for electric vehicles.
Monitor the impact of rising BiK rates: Assess how the gradual increase in BiK rates is going to affect you. It's important to communicate these changes to employees and consider adjusting salary sacrifice schemes or exploring alternative benefits to manage the rising costs effectively.
Update employee contracts: Update employee contracts if there are any changes in pay structures or benefits, particularly for those affected by higher statutory sick pay, maternity pay, or the new minimum wage rates.
Stay on top of new thresholds: Review new thresholds like the Secondary Threshold for National Insurance Contributions and ensure that the correct amounts are being deducted. With higher payroll expenses, including increased NIC rates and statutory pay, it’s important to adjust budgets accordingly.
How can I improve my payroll process?
From a more general perspective, there are some additional ways that businesses can improve their payroll process in order to prepare themselves for the 2025 payroll changes. These include:
Keep accurate records
Accurate record-keeping is crucial for ensuring that payroll runs smoothly. Regularly update employee details, pay rates, tax codes, and benefits to avoid errors when processing payroll.
Ensure clean and verified data
You need to ensure your data is not only accurate but verified by trusted sources. As part of this, double-check whether all of your data is correct and verify details such as hours worked, overtime, and deductions.
Understand your payroll costs
Have a clear understanding of your payroll expenses. These will likely include wages, taxes, benefits, and contributions. This will help you budget more effectively and mean you’re not caught out by any nasty surprises further down the line.
Complete annual reports
Ensure that you are submitting all necessary reports, such as P60s, P11Ds, and any other required forms, on time. Staying on top of annual reporting obligations will keep you compliant and reduce the risk of penalties.
Plan for the next tax year
Preparing ahead of the next tax year can help you avoid last-minute stress. Review any changes to rules and regulations and adjust your payroll systems accordingly.
For more guidance, check out this Year-End Payroll Processing Checklist to make sure you're on track for the year ahead.
Utilise a payroll system to streamline your process
Keeping up with payroll changes and compliance doesn’t have to be complicated. With HMRC-recognised QuickBooks Payroll, you can streamline your entire payroll process, from calculating pay and submitting reports to handling pensions and statutory payments, all in one place.
Are you a small business owner paying a handful of employees or a director managing your own salary? Whatever your situation, we’ve got a plan that fits. Our software integrates seamlessly with QuickBooks Online, giving you real-time insights into your business finances and saving you hours of admin.
Ready to take control of your payroll? Explore our plans & pricing and find the perfect fit for your business.
Disclaimer
This content is for information purposes only and should not be considered legal, accounting or tax advice, or a substitute for obtaining professional advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by region, state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Readers should verify statements before relying on them.
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