Key takeaways
Tax thresholds frozen until 2031
Fiscal drag continues, impacting payroll planning and employee net pay.
NIC relief on pensions capped
Salary sacrifice benefits will reduce from 2029, affecting reward strategies.
Homeworking costs shift to employers
Tax relief changes likely to increase reimbursement requests.
The Chancellor, Rachel Reeves, delivered the government’s 2025 budget on 26 November 2025. Key highlights of the Budget 2025 for employers include:
Further fiscal drag: income tax thresholds will be frozen until April 2031. Employer national insurance contributions (NICs) Secondary Threshold (the point at which employers begin paying NICs) will also be frozen at £5,000 until April 2031.
Salary sacrifice pension contributions: employers and employees national insurance contributions (NICs) relief will be limited to £2,000 per annum from 2029. Above that level, both employers and employees NICs will be payable on salary sacrificed pension contributions.
National minimum wage increases: national minimum wage rates will increase in April 2026, as they do each year, with the most significant increases for younger workers.
Homeworking tax relief changes: workers required to work remotely can currently claim £312pa / £6 per week of tax relief to cover the extra cost of heating, broadband etc. They usually do this themselves via HMRC. In practical terms, this equates to tax relief worth £62 for basic rate taxpayers and £124 for higher rate taxpayers. From April 2026, employees will not be able to claim this tax relief themselves. However, employers can still reimburse employees for these costs where the worker is eligible without deducting PAYE, so employers are likely to face requests from home workers to reimburse these additional expenses directly via their payroll.
Tax exemptions for eye tests, home office equipment, and flu vaccinations: the exemptions from income tax and NIC available for eye tests, home office equipment, and flu vaccinations currently only apply when an employer organises and pays for the benefit directly. From April 2026, this exemption will now be extended to cover situations where the employee arranges and pays for the test, vaccination or equipment and the employer then reimburses these costs. This means employers can choose whether to arrange these benefits directly or to reimburse instead.
Employee car ownership schemes: legislation to bring employee car ownership schemes within the benefit in kind rules will be delayed and will now take effect from April 2030.
Dividend tax: increases to the ordinary and upper rates of tax on dividend income of 2 percentage points from April 2026.
