6 Key Payroll Changes for 2025/26: What UK Employers Need to Know

As we've entered the new financial year, staying on top of payroll updates is more important than ever. The 2025/26 tax year has introduced several key payroll changes that are now affecting how UK businesses manage salaries, statutory payments, and HMRC contributions.

With some updates having come into effect as early as 1 April 2025, and others following from 6 April 2025, employers need to ensure they're compliant to avoid costly errors when running payroll and paying HMRC.

Let’s take a closer look at the most important payroll changes for the current tax year 2025/26. For every business owner, HR manager, or payroll professional, these are the updates you need to know.

1. Employers' National Insurance Increase

One of the most significant payroll changes for 2025/26 is the rise in Employer National Insurance contributions (NICs). From 6 April 2025, the standard rate has increased from 13.8% to 15%.

This change applies to earnings above the secondary threshold, which has also been reduced from £9,100 to £5,000 per year. In other words, employers now start paying NICs at a lower earnings level and at a higher rate.

These adjustments are increasing employment costs for many businesses, particularly small and medium-sized enterprises (SMEs). If you're operating on tight margins, this shift could affect your cash flow and future hiring plans.

2. Changes to Employment Allowance

There's some welcome news for smaller employers, the Employment Allowance has increased significantly in the new tax year. From April 2025, eligible businesses can claim £10,500 off their Class 1 National Insurance bill, up from the previous £5,000.

In addition, the £100,000 cap on eligibility has been removed. This means that more employers, especially those with slightly higher NI liabilities, now qualify for the allowance.

It's estimated that a large number of small businesses may end up paying no employer NICs at all as a result of this change, offering a useful buffer against rising employment costs.

How to claim?

You can apply for the Employment Allowance through your payroll software or directly via HMRC's online systems. It's a relatively simple process and well worth doing if you're eligible.

3. National Minimum and Living Wage Increase

From 1 April 2025, employers had to factor in the latest updates to the National Minimum Wage (NMW) and National Living Wage (NLW). These increases are part of ongoing efforts to ensure fair pay across all age groups and employment levels.

Here are the updated rates in effect:

• £12.21 per hour for employees aged 21 and over (National Living Wage)

• £10.00 per hour for employees aged 18 to 20

• £7.55 per hour for those under 18 and apprentices

These revised wage levels imply that businesses had to review employee pay rates and make necessary adjustments. It's also a legal requirement, so failing to update pay accordingly could result in penalties or reputational damage.

4. Statutory Pay and Employer Relief Adjustments

There are several changes to statutory pay rates that employers must be aware of for the 2025/26 tax year. These adjustments are now impacting a range of employee entitlements.

From 6 April 2025, the weekly rates for statutory parental and related leave have increased to:

£187.18 per week for:

• Statutory Maternity Pay (SMP)

• Statutory Paternity Pay (SPP)

• Statutory Adoption Pay (SAP)

• Shared Parental Pay (ShPP)

• Statutory Parental Bereavement Pay (SPBP)

• Statutory Neonatal Care Pay (SNCP)

In addition, Statutory Sick Pay (SSP) has increased to £118.75 per week.

There's also good news for small businesses—Small Employer's Relief has been raised from 103% to 108.5%, helping to further support employers covering statutory payments.

To avoid manual errors and ensure your business stays compliant, configure your payroll systems to automate these calculations if you haven't done so already.

5. New Scottish Tax Band and Thresholds

Employers with a presence in Scotland need to take note of updates to Scottish income tax bands in the 2025/26 tax year. These changes introduce additional complexity for UK-wide businesses and may impact both recruitment and retention strategies north of the border.

While the exact thresholds vary by year, the broad effect is a widening tax gap between Scotland and the rest of the UK, particularly affecting higher earners. This may require Scottish employers to reconsider salary offers to attract and retain senior staff.

It's essential that businesses update their payroll systems to reflect regional tax configurations, ensuring that the correct tax code is applied depending on where the employee lives, not where the business is based.

6. Apprenticeship Levy Becomes Growth and Skills Levy

In a move aimed at modernising workforce training and development, the Apprenticeship Levy has been replaced by the new Growth and Skills Levy, backed by a £40 million investment.

This new initiative is designed to offer more flexibility and relevance to employers of all sizes. Key features include:

• The ability to use funds for a wider range of training programmes, including shorter, skill-specific courses

• Simplified access for small and medium-sized enterprises (SMEs)

• A regional approach that aligns training support with local skills gaps and high-demand industries

This change not only benefits businesses looking to upskill their teams but also supports the government's broader goal of building a more adaptable and future-ready workforce.

If you're a growing business looking to invest in your team, this is a great opportunity to reassess how you fund and implement training.

What We suggest?

As we've now entered the new tax year, it's vital that UK employers are well-prepared for the key payroll changes that have come into effect in 2025/26. From the increase in Employers' National Insurance and adjustments to minimum wage, to the overhaul of the Apprenticeship Levy and rising statutory pay rates, each update has the potential to impact how businesses operate, budget, and support their employees.

Quick adaptation is the best way to stay compliant and avoid surprises. Hence, make sure your payroll software is fully up to date, revisit your wage structures, and seek professional advice where needed. 

These steps are crucial for ensuring accuracy when running payroll and paying HMRC, especially as more changes, such as the shift towards mandatory payrolling of benefits, that are expected to shape future payroll practices.

Ensure Payroll Peace of Mind in 2025/26

Keeping with payroll updates can lead you to divert from the core business operations and it can be hectic. At Barnstone Accountancy, we offer expert payroll and pension services to help your business stay compliant and confident as the new tax year begins.

From configuring your payroll system to accommodate updated NIC thresholds and minimum wage rates, to handling statutory pay updates and ensuring accurate HMRC reporting, we're here to make it simple.

Our team of experienced business accountants can help you develop and implement a financial plan that aligns with your unique goals and challenges, whether you're a growing start-up or an established enterprise.

Let Barnstone Accountancy take the hassle out of payroll, so you can focus on what you do best. Call us today on 01572 811497 to discuss how we can support your payroll strategy for the 2025/26 tax year.