Payroll is one of the fastest-changing areas of UK compliance. With updates to National Insurance Contributions (NIC), pension tax rules, employment thresholds, PAYE obligations, and digital filing systems, employers must prepare for several important changes taking effect in 2025–26.
These reforms affect cost structures, employee take-home pay, payroll software, and HR compliance processes. This blog provides a clear, practical breakdown for employers, accountants, and outsourced payroll teams.
While NIC rates haven’t drastically increased, the freezing of NIC thresholds means effective payroll costs will rise.
1.1 Employee NIC Threshold Frozen
Wage increases will push more employees into NIC liabilities.
1.2 Employer NIC Threshold Also Frozen
Employer NICs increase whenever:
Even without a change in rates, effective NIC burden increases, especially for:
1.3 Directors’ NIC Calculations (Annual Earnings Period) Remain Complex
Accountants should run director NIC planning before year-end to avoid overpayments.
The National Living Wage increased substantially in 2024 and remains on an upward trajectory.
Sectors most affected:
Some employers will need to revise:
The government is tightening salary-sacrifice rules to reduce tax arbitrage while maintaining pension fairness.
Key changes:
Impact on Employers:
Salary sacrifice remains tax-efficient but must be implemented correctly.
HMRC is enforcing stricter rules on:
Penalties include:
Outsourced payroll teams must ensure zero-error RTI submissions.
A major trend for 2025–26 is digitalisation of P11D information.
Key points:
Employers should consider switching to Payrolling Benefits to reduce year-end workload.
HMRC is actively reviewing:
Companies must:
Incorrect IR35 handling is now a major HMRC risk area for medium and large businesses.
Threshold adjustments affect:
Employers must be aware of:
Correct coding is essential to avoid under/overpayments.
Recent employment law updates require:
This is especially important for:
Key trends for 2025–26:
Payroll teams that modernise early will reduce errors and audit risk.
Payroll in 2025–26 is more complex than ever — not because of drastic rate changes, but because of increased reporting expectations, frozen thresholds, digital reforms, and employment law updates.
Businesses and accountants who take early action will minimise penalties, reduce payroll errors, and remain fully compliant. With strong systems and proactive planning, employers can manage costs effectively while maintaining fair pay practices.
