As the dust settles on the Chancellor’s Autumn Budget, there are a number of measures and proposed changes that will have an impact on employers and employees. At a time of increasing payroll costs and compliance complexity, we have summarised the key changes employers should be aware of and the key actions employers may consider taking below.
Key announcements impacting employers and employees
Compensation, payroll, and benefits
- The freezing of income tax and National Insurance (NIC) rates and thresholds to 2030/31 – these further freezes over the coming years will mean normal pay inflation and career progression will push more people into tax/NIC and/or higher tax bands without any formal rate increases. The freezes may impact employee expectations around compensation, as salary increases may not always result in expected net take-home pay growth, which could add pressure to salary reviews.
- The much-rumoured capping of the NIC efficiency of pension salary sacrifice. From April 2029, only the first £2,000 a year of sacrificed pension contributions will be exempt from NICs. Above that, both employee and employer NICs will apply. It is also expected that this will lead to additional Apprenticeship Levy (AL) costs for employers and increased deductions for employees making student loan repayments. This is a fundamental change to what has been one of the most tax-efficient benefits in the UK system for nearly two decades. Employers that lean heavily on pension contributions as a reward lever will see a material increase in total employment costs. The good news is that there are still NIC and AL benefits of operating pension salary sacrifice, and, assuming the measure does come into force, there is plenty of time to plan for it and model impacts. We offer further commentary in our article on pension salary sacrifice.
- We saw some further details on the mandatory payrolling of benefits currently expected to take effect from April 2027. Our article on mandatory payrolling of benefits provides a high-level overview of the proposed change. As a result, benefits will be subject to income tax and NIC in real-time, visible to employees and integrated into PAYE processes, time limits and penalty regime. For tax, HR, benefits, rewards, finance and payroll teams, this has the potential to be a very significant operational change. While we await further details on a number of aspects, employers (including those already payrolling benefits) should take steps to understand the impact of this change and how to prepare for it.
- In good news, legislation will be introduced to enable expenses for homeworking equipment, flu vaccines and eye tests to be reimbursed free of income tax and/or NIC from 6 April 2026 (currently, the relevant exemptions do not extend to cash reimbursements made to employees). Conversely, individuals will no longer be able to claim an income tax deduction for non-employer reimbursed homeworking expenses from 6 April 2026. Given the high bar HMRC has set for this deduction to be available (such that HMRC would consider many of the claims made do not qualify for the deduction), whilst some will lose out, for many, this will remove the risk of HMRC challenging the validity of a deduction claimed. It is worth noting that employers may still reimburse eligible homeworking expenses free of income tax and NIC.
- National Living/Minimum Wage (NMW) rates will increase from April 2026, with the rate for those aged 21 and over increasing by 50p to £12.71 per hour. Businesses will need to take the changes into account when considering pay rates/bandings and potential pay increases to both ensure that workers are paid at least the NMW and consider whether this gives appropriate head room to cover, for example, additional hours worked unpaid by salaried workers, items that need to be deducted for NMW purposes, the impact on employees participating in salary sacrifice arrangements, etc.
Labour supply
- As announced in the 2024 Autumn Budget, the government will introduce legislation in the Finance Bill 2025-26 to make agencies/end users jointly and severally liable for PAYE on payments made to workers that are supplied using umbrella companies from April 2026. We have covered a high-level overview of this change in our recent webinar on the off-payroll working rules.
- April 2026 will also see the launch of the new Fair Work Agency (FWA) to oversee the regulation of employment business, including agencies and umbrella companies, and centralise and strengthen the enforcement of certain employment rights, which are currently spread across multiple agencies, including HMRC. This includes responsibility for enforcing NMW and holiday pay rights. Employers should review their processes ahead of April to ensure they understand their labour supply chains and take steps to strengthen pay governance by ensuring accurate payroll processes, maintaining detailed records, and actively complying with holiday pay and NMW obligations, given NMW increases and plans for stricter enforcement, including naming rounds and new powers targeting leadership roles.
Company cars and EVs
Cars, cars, cars! It seems cars and the automobile industry have been a constant in 2025 news cycles for one reason or another. The challenges at Jaguar Land Rover and the proposed (now delayed) changes to Employee Car Ownership Schemes (ECOS) have taken up many, many column inches.
- ECOS arrangements have been in discussion for a while since the government signalled their effective end from October 2026. The Autumn Budget confirmed the new rules will now be delayed and take effect from April 2030, with transitional protection in some cases until 2032.
- The government will introduce a temporary benefit in kind tax easement for plug-in hybrid electric vehicles (PHEVs) to prevent their tax charge from increasing significantly due to new emissions standards. This easement will be in place from 1 January 2025 to 5 April 2028.
- The Autumn Budget saw the introduction of a pay-per-mile tax on EVs and PHEVs from April 2028 (eVED) – 3p/mile for battery electric vehicles and 1.5p/mile for PHEVs (note this is all mileage, including that undertaken overseas). The Treasury has published a Consultation and we await further details on this measure in response to this Consultation. What is certain is that this will increase the cost of running EVs and PHEVs, and employers should consider the impact of this measure on current processes and cost models.
Share related incentives
- Enterprise Management Incentives (EMI), a tax-efficient way of delivering equity to owners and employees, will be substantially expanded from April 2026, doubling the option pool to £6 million, raising company thresholds and extending the option holding period to 15 years. This is a win for scale-ups, mid-market companies and specialist firms competing for scarce talent. Further commentary can be found in our article on the expansion of the EMI offer scheme.
- In contrast, however, Employee Ownership Trusts (EOTs) lose part of their highly sought-after tax effectiveness. From 26 November 2025, capital gains tax relief drops from 100% to 50% for disposals. Sell to an EOT and pay no CGT options are no longer effective – a key change in specific parts of our economy. EOT deals will still make sense culturally and commercially for certain owners and businesses. Further commentary on the above can be found in our article on the restriction of CGT relief for employee ownership trusts.
Global mobility
- From April 2026, individuals living overseas (we await further details as to how this will be defined) will not be able to pay voluntary Class 2 NIC and must have at least ten qualifying NIC years to pay voluntary Class 3 NIC. This removes a very cost-effective option for expatriates and remote workers to preserve UK State Pension entitlement. Often, these costs and compliance became part of the global mobility support provided by employers, where mandatory contributions to NIC fell away. Individuals not already making voluntary contributions may want to consider doing so for 2025/26, particularly as we do not yet know if any transitional rules will be introduced. Employers will need to look at whether to absorb Class 3 NIC costs or adopt alternative arrangements. Communication will be key.
- From April 2026, the portion of earnings that can be excluded from PAYE (via a GME PAYE notifications, a.k.a. a s.690) for those eligible for overseas workday relief will be capped at 30%, in line with the income tax treatment. Employers should review their GME PAYE notification processes to ensure compliance.
- In recent weeks, we have seen more and more signalling by the government that attracting and incentivising the right kind of worker to the UK using the immigration system is encouraged. Global talent will play a role in our future growth. Policy papers suggest that immigration and indefinite leave to remain rules will focus on attracting and retaining certain global talent profiles. It was interesting to note a government announcement in the Autumn Budget that pointed to the possibility of new tax reliefs for new high-talent arrivals. It signals to more than what is currently available under the Foreign Income and Gains regime, but time will tell – we are watching eagerly.
Construction Industry Scheme (CIS)
Finally, CIS compliance continues to be in HMRC's focus. More punitive rules were announced, which will apply from April 2026. The intent is to ensure that fraud in the supply chain is prevented. Employers will be wise to revisit their CIS process to ensure they do not lose their much-valued gross payment status and face wider sanctions for the business and the directors.
Next steps – key employer actions
In light of the above announcements, as well as the specific steps suggested, there are several overarching suggested actions for employers, including:
- Consider how these changes will impact payroll costs, reward strategies and how compensation and reward are structured, including allowances, the tax effectiveness of the reward offering and pension design. Notwithstanding the proposed changes to pension salary sacrifice (mentioned above), there will still be NIC savings for both employers and employees, so those not already operating pension salary sacrifice should consider doing so.
- Review the labour supply chain and pay governance processes ahead of the introduction of the FWA.
- Consider the impact of the changes in the sphere of cars and EVs on their car scheme offering to employees.
- Consider the impact of changes in NIC and the wider immigration rules on their ability to move and retain talent to the right locations at the right cost.
For further information on anything discussed in this article, or how we can help you, please contact your usual Crowe contact.
