UK Budget 2025: What Employers Need to Know About Taxes, Pensions and Pay
by activpayroll
On 26 November 2025, Chancellor Rachel Reeves delivered the UK’s Autumn Budget, a package with important implications for income tax, pensions, payroll and pay rates. Many of the changes will affect employers, HR teams, payroll providers, and global mobility programmes.
Income Tax Threshold Freeze
The Budget extends the freeze on personal income tax thresholds, including the personal allowance and higher-rate bands, until April 2031. This means employees may face higher effective tax rates as wages rise, even though nominal tax rates remain the same.
- Personal allowance remains at £12,570; higher-rate thresholds also frozen.
- More employees could be pulled into higher tax bands as salaries increase.
- Payroll teams should model the “real net pay” impact of future pay rises.
- Compensation planning, especially for global mobility assignments, may need review to maintain net pay competitiveness.
Pension Contributions & Salary Sacrifice Changes
Salary sacrifice pension schemes will see a cap on tax/National Insurance advantages for contributions above £2,000 per year from April 2029. Contributions above the cap will attract standard employee and employer NI.
- High earners or staff making large pension contributions may see reduced benefits from salary sacrifice schemes.
- Payroll systems must be updated to handle NI on contributions above the cap.
- Global mobility programmes may need reassessment to ensure net pension value remains competitive.
Minimum Wage & Living Wage
To support low-paid workers, the national living wage and minimum wage will rise from April 2026. Adults aged 21+ will see a rate of £12.71 per hour, with lower rates for younger workers and apprentices.
- Employers with younger or lower-paid staff should budget for higher wage costs.
- Payroll systems need updates to reflect new minimum wage rates from April 2026.
- Compensation strategies may need review, particularly where salary-sacrifice benefits are used.
Payroll, Compensation & Global Mobility Considerations
Combined, frozen tax thresholds, pension caps and minimum wage increases create pressures on payroll, compensation and global mobility programmes.
- Net pay may fall even with gross salary increases due to higher tax/NIC burdens.
- Salary-sacrifice pensions may become less attractive; benefit strategies should be reassessed.
- Payroll systems must be updated for NI changes and new wage rates.
- Global mobility packages may need recalibration to ensure net compensation remains competitive.
Key Considerations and Summary for Employers
The Budget introduces several changes that will affect employees’ take-home pay and benefit attractiveness. Employers should take a proactive approach to planning, communication and compensation strategy.
- Prepare early for the NI cap on salary-sacrifice pensions.
- Monitor the long-term impact of frozen thresholds on staff retention and reward.
- Adjust global mobility frameworks to maintain competitive and compliant packages.
- Communicate clearly with employees to ensure understanding and minimise confusion.
- Re-evaluate total reward strategies, focusing on both financial and non-financial benefits.
How activpayroll can help
At activpayroll, we support organisations in navigating changes to UK payroll, pensions, tax thresholds and global mobility programmes. Following the Autumn Budget 2025 announcement, our team can help you assess the impact of frozen tax thresholds, salary‑sacrifice pension caps and minimum wage increases on your workforce and total reward strategies.
Please complete our Contact Us form, or reach out to Steph Smith, our Head of Global Mobility, to discuss how we can support your organisation in responding to the UK Budget 2025 changes.