The Autumn Budget 2025

The Budget introduces a range of measures that will affect payroll, tax, and employment costs in the years ahead. With several policy updates taking effect, employers will need to stay informed and prepared for the changes ahead.

This overview brings the key points together in one place, helping you understand what’s changing, when it takes effect, and how it may impact your organisation.

Changes to electric vehicles 

The government will introduce a mileage-based charge on electric vehicles from April 2028, in addition to existing VED. Battery electric cars will pay £0.03 per mile and plug-in hybrids £0.015 per mile, with rates rising annually in line with CPI.

For example, a driver covering 8,500 miles in 2028 – 29 would pay around £255, roughly half the fuel duty cost per mile for petrol or diesel vehicles.

PHEV benefits in kind easement

The government will introduce a temporary benefit in kind tax easement for plug-in hybrid electric vehicles (PHEVs) in the benefit in kind system to prevent their tax charge increasing significantly due to new emissions standards. This easement will be in place from 1 January 2026 – 5 April 2028.

Pension salary sacrifice 

Salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from NICs from April 2029. Ordinary employer pension contributions will remain exempt.

This change raises practical questions that HMRC has not yet clarified, including how the cap will interact with relief-at-source schemes, statutory leave rules and existing salary sacrifice legislation. Employers should expect increased employee queries once more detail is published.

Tax and fiscal drag

The following thresholds remain frozen until 2030 – 31:

• Personal allowance: £12,570
• Higher-rate threshold: £50,270
• Additional-rate threshold: £125,140

This means more employees will gradually move into higher tax bands as wages rise – a key driver of fiscal drag.

Primary, secondary and upper NIC thresholds are also frozen until 2030 – 31.
This includes the already-reduced secondary threshold of £5,000.

The government will also uprate the Married Couple’s Allowance and the Blind Person’s Allowance by the September 2025 CPI rate of 3.8%. This will be legislated for through a Treasury Order and take effect from 6 April 2026.

Student loans

The Plan 2 repayment threshold will increase in April 2026 and then be frozen at £29,385 for three years from April 2027.

National Insurance updates

From 2026 – 27, the following figures will be increased in line with the September 2025 CPI rate (3.8%):

• Lower Earnings Limit (LEL): £129 per week
• Small Profits Threshold: £7,105 per year

Class 2 and Class 3 voluntary NIC rates will also rise in line with CPI.

National Minimum Wage

From April 2026, the National Living Wage (NLW) is to increase by 4.1% to £12.71 per hour from April 2026.

The National Minimum Wage (NMW) for 18 to 20-year-olds will rise from £10.00 to £10.85 – an increase of 8.5%.

The Low Pay Commission has also set out a path for the NLW – currently applicable for people aged 21 and over – to be extended to 20 year olds in 2027, and to 18 and 19 year olds in 2028 or 2029, subject to economic conditions and government policy at the time.

16 – 17 years olds will get £8, and Apprenticeships £8. Accommodation offset increases to £11.10.

Homeworking tax relief removed

From April 2026, employees will no longer be able to claim the homeworking tax relief via their tax code. HMRC is withdrawing the allowance due to widespread non-compliance.

New exemption for reimbursed costs

Employer reimbursements for:

• homeworking equipment
• eye tests
• flu jabs

will become tax and NIC exempt when processed through payroll. This ensures consistency with situations where employers provide equipment directly.

Investment zones and freeports

New zones have been approved in Flintshire, Wrexham, Anglesey and Forth Green, with further developments in Northern Ireland. NIC relief will apply once legislation is finalised.

Fair Work Agency enforcement

Launching in April 2026, the new agency will:

• follow up every worker complaint
• work closely with unions and business groups
• run more frequent “naming” rounds
• target individuals behind repeated employment rights breaches

This represents a significant expansion of enforcement.

Finance Bill 

• Employee car ownership schemes (ECOS): changes treating ECOS as a benefit-in-kind have been postponed until 2031.
• Construction Industry Scheme (CIS): HMRC will begin work on tackling CIS fraud and consulting on simplification.

You can read the official Budget here.