Is your payroll system prepared for changes in the upcoming tax year?

We are getting ever closer to the 2025/26 tax year, when changes to payroll regulations announced last year will come into effect.

Managing payroll can be a time-consuming and complex task at the best of times – now it is more important than ever that small and medium-sized enterprises (SMEs) stay informed and adjust their payroll systems accordingly to ensure compliance.

New National Minimum Wage and Employer National Insurance contribution rates

Effective from 1 April 2025, the National Minimum Wage (NMW) rates will increase as follows:

• National Living Wage (age 21 and over) – Rising from £11.44 to £12.21 per hour, marking a 6.7 per cent increase.

• Ages 18 to 20 – An increase from £8.60 to £10.00 per hour, representing a 16.3 per cent rise.

• Under 18 and apprentices – Rates will go up from £6.40 to £7.55 per hour, an 18 per cent increase.

These adjustments aim to reflect the cost of living and ensure fair compensation for workers across all age groups. However, businesses will have to budget for the additional costs that higher wages will incur.

From 6 April 2025, there will also be changes to the Employer’s National Insurance Contributions (NICs):

• Rate increase – The standard rate for employer NICs will rise to 15 per cent.

• Secondary threshold adjustment – the threshold at which employers start paying NICs will decrease from £9,100 to £5,000 per annum.

Small businesses should make sure that payroll software and processes are updated to accommodate the new rates and thresholds.

You should also account for the increased employment costs in financial planning and budgeting.

Changes to statutory pay rates

As of April 2025, the UK Government has confirmed updates to statutory pay rates.

Statutory Maternity Pay (SMP), Statutory Paternity Pay (SPP), Statutory Adoption Pay (SAP), Statutory Shared Parental Pay (ShPP), and Statutory Parental Bereavement Pay (SPBP) will all have their weekly rates increased from £184.03 to £187.18.

Statutory Sick Pay (SSP) will increase from £116.74 to £118.75.

Additionally, the earnings threshold for these statutory payments will rise from £123 to £125 per week.

You should make sure that you inform employees about the changes to statutory pay rates.

Changes to Employment Allowance

While increases to pay rates and NICs will present SMEs with financial challenges, there is some good news.

With the aim of supporting small businesses in particular, the Employment Allowance will undergo the following modifications from 6 April 2025:

• Allowance increase – The maximum annual Employment Allowance will double from £5,000 to £10,500.

• Eligibility expansion – The previous restriction, which disallowed employers with a secondary Class 1 NIC liability exceeding £100,000 from claiming the allowance, will be removed. This change opens up the Employment Allowance to all eligible businesses and charities, regardless of their NIC liabilities in the prior tax year.

If your business was not previously eligible for Employment Allowance, it is worth checking to see whether it will be eligible under the new rules.

If you have already been claiming Employment Allowance, you may be eligible for the increased amount – providing much needed funds to mitigate the effect of additional costs elsewhere.

Prepare your payroll with Butterworth Barlow

No one wants to find out that their pay slip is short, and every business owner should be confident that their payroll compliance is as tight as it can be.

That’s why we offer a comprehensive payroll service designed to take the stress out of paying your employees and ensure your business meets its obligations seamlessly.

At Butterworth Barlow, we are committed to staying ahead of the game by utilising the latest technological advances to support your business. We can recommend the best cloud accounting solutions for your business and help you connect your accounting software to your payroll systems, ensuring accuracy and efficiency when paying your team.

Outsourcing your payroll to us means you can save time, reduce stress, and focus on growing your business – with the peace of mind knowing that your payroll is accurate, compliant, and handled with care.

Take the stress out of payroll by contacting the experts today.