Navigating UK payroll legislation changes

National Insurance Contributions (NIC) changes 

One of the most significant changes involves National Insurance Contributions:

• Employee Contributions: The primary threshold remains at £12,570 annually, while the upper earnings limit is set at £50,270.
• Employer Contributions: The secondary threshold will decrease from £9,100 to £5,000 per year until April 2028. Additionally, the rate for secondary Class 1 NICs will increase from 13.8% to 15%.

Employment allowance 

The Employment Allowance, which helps small businesses reduce their National Insurance costs, will see a significant increase:

• The allowance will rise from £5,000 to £10,500 per annum.
• The rule preventing employers with NIC liabilities over £100,000 from claiming this allowance will be removed.

National Living Wage (NLW) and National Minimum Wage (NMW) updates

 The government has announced increases in the NLW and NMW:

• National Living Wage: The NLW will increase from £11.44 to £12.21 per hour, an increase of 6.7%.
• National Minimum Wage: For 18 to 20-year-olds, the NMW will rise from £8.60 to £10.00 per hour, an increase of 16.3%.
• National Minimum Wage: For 16 to 17-year-olds and the Apprentice Rate, the NMW will rise from £6.40 to £7.55 per hour, an increase of 18%.

Statutory payments 

Changes to statutory payments will also take effect:

• Statutory Sick Pay (SSP): SSP will increase to £118.75 per week.
• Statutory Maternity Pay (SMP): SMP will be 90% of the employee's average weekly earnings for the first six weeks, followed by £187.18 or 90% of the employee's average weekly earnings (whichever is lower) for the remaining 33 weeks.

Neonatal care leave and pay 

Starting from April 6, 2025, the UK will introduce new statutory entitlements for neonatal care leave and pay:

• Employees will have the right to time off when a baby they are responsible for is in hospital receiving neonatal care.
• Eligible parents can take up to 12 weeks of neonatal care leave. This leave is in addition to other statutory leave entitlements, such as maternity and paternity leave.
• Statutory Neonatal Care Pay (SNCP): £187.18 per week or 90% of the employee's average weekly earnings, whichever is lower.

Preparing for the payroll changes 

These changes bring significant challenges to businesses as they navigate the financial impact and ensure compliance. Companies will need to consider the cost implications and ensure business processes, policies, and internal HR and payroll teams are updated to meet the new legal obligations. Preparing will be vital, and many businesses are now seeking external advisors for support. Below are some key considerations as we step into the 25/26 tax year

Review and update payroll systems

Ensure your payroll software is updated to reflect the new National Insurance Contributions (NIC) rates and thresholds. This will help maintain accuracy in your payroll processing and compliance with the latest regulations.

Adjust budgets

With the increase in NIC rates and the introduction of new statutory payments, it's essential to adjust your budgets accordingly. Consider the impact of these on your business.

Update employee payment records 

Review and update employee records to ensure compliance with the new National Living Wage (NLW) and National Minimum Wage (NMW) rates. Accurate records are vital for meeting legal requirements and ensuring fair compensation for your employees.

Implement neonatal care leave and pay

Prepare for the new neonatal care leave and pay entitlements by ensuring appropriate policies and procedures are in place. This will support employees who need to take leave for neonatal care and ensure your business complies with the new legislation.

Communicate changes to employees

Transparency is key. Inform your employees about the upcoming changes to payroll, NIC rates, and statutory payments. Clear communication will help manage expectations and reduce any potential confusion or concerns.

Professional advice 

Consult with payroll professionals and advisors to ensure all changes are correctly implemented and that your business remains compliant with the latest legislation. Professional guidance can help navigate the complexities of payroll changes and avoid any legal pitfalls.

By taking these steps, you can ensure a seamless start to the tax year and maintain compliance with the new payroll legislation. Proactive preparation will help your business adapt to the changes smoothly and continue to operate efficiently.

Support

The changes in the 2025/26 tax year will significantly impact many businesses. Our dedicated team is here to provide the advice and support you need to ensure compliance and explore the best options for tax efficiency in this challenging climate. If you wish to discuss these changes in detail or need any assistance, please reach out to your contact at Forvis Mazars UK or click the button below. 

Contact our award-winning team