HOT TOPIC
have made salary sacrifice a completely different proposition.
LPC is making early steps to bring the two bands closer together for the eventual abolishment of the latter age band. For employers with large workforces of younger workers, such as retail and hospitality, it is prudent to expect further large increases in the coming years. Combined with the NI changes discussed earlier, this represents a major shift in employment costs that employers should be factoring into budgets, if they haven’t already.
A key change for those who operate (or engage with) umbrella companies is the change in who is responsible for operating pay as you earn (PAYE). From April 2026, HMRC intends to make the agency providing workers to an end client responsible for making PAYE deductions and liable for any shortfall. Such agencies will still be able to able to outsource the payroll function to a third party but will likely need to complete due diligence checks to ensure compliance is achieved. Further information on the roll out and draft regulations will be published in the coming months. HMRC states it will support the relevant stakeholder to comply with the new rules. Other budget items Other noteworthy announcements in the budget include: l company car tax rates for 2028/29 and 2029/30 have been confirmed l van benefit charge and car and van fuel benefit charge are to be uprated by CPI l non-domiciled tax status will be abolished and replaced with a residence- based regime l S690 requests can now be sent and proceed without waiting on HMRC to confirm l the state pension triple lock will be maintained l double cab pick-up vehicles will be treated as cars from April 2025, with transitional arrangements made for vehicle purchased or hired before the start dates. We will now wait to hear more about policy structures through consultations, draft regulations, employer guidance and factsheets from government. As always, the detail really matters and can make all the difference when it comes to administrative burden and employee and employer engagement. n
Tax and NI thresholds For several years, the income tax and NI thresholds have been held in place, searing the tax code 1257L into our collective consciousness. This policy results in many workers paying more tax each year as wage growth and uplifts in national minimum wage (NMW) rates increase income – a stealth tax to many. As Reeves began to speak about the threshold freeze, it almost seemed as though she would be bringing it to an end sooner than expected. However, the fiscal plans didn’t allow this, but it’s now been confirmed that these thresholds won’t be frozen beyond 2028/29. This means that from April 2028, these thresholds will rise in line with Consumer Price Index (CPI) inflation as they have done historically. Low Pay Commission (LPC) recommendations The LPC, equipped with a new remit, makes recommendations to government on what it believes the NMW rates for the following year from 1 April should be. Its new remit from the government asked it to include the cost of living in the national living wage (NLW) calculation and to make steps to remove the ‘discriminatory’ age-related rates which apply to the 18 to 20-year-old age band. The Labour government has made the decision to accept its recommendations in full from April 2025 as below. A 6.7% increase to all aged 21 and over is a significant rise that beats the current rates of inflation but will obviously be welcomed by low earners across the country. The more significant increase is that for 18 to 20-year-old workers, who receive a 16.3% increase on last year. The
HM Revenue and Customs (HMRC)
HMRC got some good news with regards to funding in this budget – it’s going to gain 5,000 extra compliance staff by 2029 and 1,800 additional debt management staff. Work is already underway to recruit the compliance staff, with some being onboarded in November. In other HMRC news, it will be increasing the interest rate at which unpaid or overdue tax is subject to. Currently it stands at the Bank Rate plus 2.5 percentage points; this will increase to Bank Rate plus four percentage points. The repayment interest rates (the rates paid when HMRC owes you money), which sit at Bank Rate minus one percentage point, will not change, so make of that what you will. The government also confirmed that the mandating of payrolling benefits will go ahead in April 2026. However, the big news in this area is that this will go ahead without any change for beneficial loans and accommodation. These benefits may still be processed via a P11D and P11D(b) if required. Such a change in plans will reduce the number of P11Ds processed by HMRC by a significant amount and it states it intends to roll out changes that will allow a more administratively palatable way of payrolling these benefits in future.
NMW rate
Increase (£)
Increase (%)
National living wage (NLW) – 21 and over
£12.21
£0.77
6.7%
18 to 20-year-old rate
£10.00
£1.40
16.3%
16 to 17-year-old rate
£7.55
£1.15
18%
Apprentice rate
£7.55
£1.15
18%
Accommodation offset
£10.66
£0.67
6.7%
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| Professional in Payroll, Pensions and Reward |
Issue 106 | December 2024 - January 2025
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