Autumn Budget 2025 – key tax implications for employers

Following the 2024 Budget, employers may have been hoping for fewer announcements that would directly affect the overall cost of paying their UK employees. Unfortunately, that was not to be the case.

National Minimum Wage and National Living Wage

On the day prior to the 2025 Autumn Budget, HM Treasury confirmed a further rise in the National Minimum Wage and National Living Wage hourly wages in April 2026 to help with “cost of living” issues for employees. For employees who are at least 21 years old, the National Minimum Wage is to increase to £12.71 per hour.

The changes amount to increases of between 4.1% and 8.5%, depending on the age category of the employee.  These are smaller percentage increases than last year and, mercifully, are not also accompanied by a further general increase in the employer’s rate of National Insurance contributions (NICs).

NICs on pension contributions made through salary sacrifice

However, as expected in commentary before the Budget, changes are being made to NICs on pension contributions made through salary sacrifice. From April 2029, any salary-sacrificed pension contributions above an annual £2,000 threshold will be subject to both employee and employer NICs. Employer pension contributions made in the ordinary course, outside of a salary sacrifice arrangement, will continue to be exempt from NICs. Pension contributions will also continue to be exempt from income tax.

This change is expected to impact both the amount employees decide to contribute to their pensions, as well as increasing the tax burden on employers. Given this change is not due to take effect until April 2029, employers will have time to consider their approach to this change and make any structural changes they consider advisable. Technical payroll developments will also be needed to ensure the feasibility of this change. HMRC has said that employers will need to report the total amount sacrificed through their existing payroll software, and they will engage with stakeholders on this with a view to publishing further guidance.

A survey of HR directors carried out by the Reward and Employee Benefits Association (REBA), reported in the Financial Times earlier this month, suggested that almost a third of UK businesses would cut staff pension payments if this change came into effect. It remains to be seen whether overall pension contributions will reduce because of this change, but industry bodies (such as Pensions UK and the Federation of Small Businesses) warned that this would be the case before the change was confirmed in the Budget. Given the UK suffers from chronic underinvestment, it seems like an odd decision to increase taxes on saving and investment.

Freeze on income tax thresholds

The Chancellor also confirmed that income tax thresholds will remain frozen until the 2030/31 tax year. Whilst this enables the Chancellor to say that income tax rates have not changed for working people (contrary to some of the pre-Budget speculation of a 2% income tax increase), the ongoing fiscal drag means that more employees will pay income tax at the higher rates as their pay increases. The bands at which the basic, higher and additional rates of income tax are levied have not changed since the 2022/23 tax year.

Enterprise Management Incentive (EMI) limitations relaxed

On a more employer-friendly note, various limits that currently restrict a company’s ability to grant Enterprise Management Incentive (EMI) options to its employees are to be relaxed. From April 2026, the maximum employee limit will increase from 250 to 500, the maximum gross assets test will increase from £30 million to £120 million, and the maximum value of EMI options that the company can grant will increase from £3 million to £6 million. EMI options are a useful incentivisation tool for companies that also provide significant tax advantages, making these increases all very welcome as more companies will be able to benefit from granting EMI options.

A further change announced in the Budget is that the current requirement to notify HMRC of the grant of EMI options will be removed from April 2027. This requirement had previously been relaxed (changing from a requirement to notify HMRC within 92 days of grant to following the end of the tax year), but it could still catch out companies and so its abolition will be beneficial to employers.

SAYE and Share Incentive Plans summary of responses

As for the all-employee, non-discretionary tax-advantaged share schemes, SAYE and Share Incentive Plans, HM Treasury has released a summary of responses from its 2023 call for evidence. While a further step in this process is a positive, there is no definitive date for the next step or any indication of what the outcome may be. 

Reduction of CGT relief on qualifying disposals to EOTs

Finally, though affecting only a small group of companies that might be considering transitioning to employee ownership, the current CGT relief available on qualifying disposals by business owners to EOTs will be reduced from 100% to 50% of the gain. There is a corresponding increase to the base cost which the EOT trustee is treated as having in the shares acquired, which should ameliorate the effects of a future disqualifying event (e.g. a sale). This change might impact the attractiveness of a transition to an EOT, but the amount of the relief otherwise remains uncapped. Given the EOT will typically pay the purchase price over a number of years, thought will need to be given to ensuring a proper streaming of the resulting CGT (for example, by applying for the payment of CGT in instalments under section 280 TCGA 1992).