Ensuring you’re aware of upcoming employment tax changes will help to ensure that you're prepared for year-end tax reporting.
During the Autumn Budget held on 30 October 2024, the Chancellor didn’t announce any changes to Income Tax or employee’s National Insurance rates or thresholds.
The rate of Employer National Insurance is however to rise from 13.8% to 15% from 6 April 2025 and will apply to Class 1, Class 1A and Class 1B National Insurance Contributions (NIC). This will therefore impact the cost of salaries and taxable benefits and expenses whether reported on P11Ds, through the payroll or via a PAYE Settlement Agreement (PSA).
The point at which Employer Class 1 National Insurance will be payable (the secondary threshold) is to be reduced from £9,100 p.a. to £5,000.
The eligibility threshold for the Employment Allowance of £100,000 is to be removed from the same date, and therefore employers will be able to claim a reduction to their Employer’s Class 1 National Insurance liability of up to £10,500, (increasing from £5,000).
The changes to employer National Insurance will also be accompanied by increases to the National Minimum Wage (NMW) and National Living Wage rates, with the headline National Living Wage hourly rate rising from £11.44 to £12.21 from 1 April 2025.
Details of further announcements and their potential impact on employers can be found here:: Autumn Budget response.
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The requirement to report non-cash benefits via the payroll will become mandatory from 6 April 2026, removing the requirement for P11D reporting, with income tax as well as Class 1A NIC collected via the payroll every pay period.
Employers may wish to start payrolling benefits one year earlier and to do so will need to register with HMRC prior to end of the current 2024/25 tax year. P11D(b) reporting along with the payment of Class 1A NIC will remain due after the tax year until the 2026/27 tax year. In addition, the following cannot be payrolled until the 2026/27 tax year:
• employer provided living accommodation
• interest free and low interest (beneficial) loans.
For employers who haven't registered to payroll their benefits, all P11D and P11D(b) reporting must continue to be made online. Even where employers payroll benefits, a P11D(b) is still required to be filed and the Class 1A NIC paid after the tax year for both the 2024/25 and 2025/26 tax years.
The employment-related securities (ERS) annual filing requirements cover a broad range of events, and continue to catch employers out who may be unaware of their obligations in this regard.
Employers are obliged to return details to HMRC concerning, for example:
employee share and share option awards
the acquisition of other (non-share) employment related securities (eg, loan notes)
certain events relating to the award of ‘restricted securities’
share conversion events and exchanges (even where no tax charges arise)
For those unfamiliar with the requirements, HMRC won't issue a notification or reminder that a return is required. Employers are required to take specific action to first register on the PAYE online portal to make these filings.
HMRC continue to strictly enforce the national minimum wage rules which can be complex to comply with. The headline national living wage rate will rise from £11.44 to £12.21 per hour from 1 April 2025 for those aged 21 and over. National minimum wage compliance should be considered as a calculation rather than merely the payment of a rate, therefore employers should take particular care that sufficient measures are in place to ensure they don't inadvertently breach the relevant threshold. This includes making sure all working time, including overtime, is documented and paid correctly as well as any salary sacrifice arrangements. Employers should ensure that they have a robust system within their payroll, which is followed and regularly reviewed.
Whether employers are incentivising their employees back into the workplace for a greater amount of time than previously, or offering a work from anywhere remote hybrid-working policy, the employment tax reporting and costs considerations should be worked through in advance to avoid any surprises. Recommended actions may include implementing return-to-work policies and reviewing previous policies (including for travel and home-working expenses) in light of the changing workplace rules and rising costs of living. There may also be corporate risks, such as permanent establishment and corporate residency.
With year-end reporting on the agenda, they should ensure correct reporting from a payroll as well as P11D and PAYE Settlement Agreement (PSA) perspective.
Tax risk can be a particular headache for employers. This is heightened when undergoing periods of change, such as mergers, acquisitions, investments or funding. Large businesses should be aware of the requirements placed upon them by the senior accounting officer (SAO) and Business Risk Review+ (BRR+) regimes, although ensuring that adequate controls are in place to minimise risk should be a priority for all employers. The corporate criminal offences (CCO) legislation places responsibility upon all businesses to implement procedures to prevent any associated persons from criminally facilitating tax evasion. With potentially unlimited fines for any business found guilty of the offence, it's crucial for employers to implement and regularly review their policies.
IR35 also remains a key governance issue for all employers, with HMRC actively investigating compliance with the rules. They have been focusing on off-payroll policies and processes. Employment tax health checks, which evaluate all of these risk areas, should be undertaken on a regular basis, and when there are changes in the business. This will allow employers to have confidence that their procedures are sufficiently robust, and that they're meeting their employment tax compliance responsibilities.
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With HMRC announcing the intention to recruit a further 5,000 compliance offices during 2025, the need for accurate and timely filing continues for 2024/25 onwards.
An agreement with HMRC for an employer to settle income tax and NIC liabilities will be due on behalf of their employees on minor or irregular taxable benefits, or where it's impractical to operate PAYE, eg, staff entertainment and gifts. A PSA must be agreed with HMRC by 5 July, which is also the deadline for adding new items to a PSA for the 2024/25 tax year. For 2025, it is noted that this date falls on a weekend.
For employers providing incentive awards to employees of a third party, a TAS is an equivalent voluntary agreement to settle the income tax and NIC due which needs to be agreed and filed by 6 July 2025. For 2025, it is noted that this date falls on a weekend.
These are voluntary agreements with HMRC to relax the otherwise strict PAYE withholding requirements on payments to certain business visitors to the UK. Complex conditions must be met, but there are significant advantages in terms of risk and administration reduction. The 2024/25 STBV Report(s) must be filed by 31 May 2025.
Further details on how Grant Thornton can support with tracking and reporting of internationally mobile employees through our tailor-made Pinpoint technology can be found here: Short-term business visitors (STBV)
These are used to report taxable expenses and benefits provided to employees and report the Class 1A NIC payable by the business. Even where businesses payroll their P11D benefits, the P11D(b) must still be filed by 6 July with payment of the Class 1A NIC by 22 July. If a business wishes to formally payroll their benefits the deadline for notifying HMRC is 5 April prior to the start of the relevant tax year. Employers must also notify their employees of the change.
Payrolling will become mandatory from 6 April 2026 and there are a number of changes to be aware of and to prepare for prior to that date, even where businesses already payroll their benefits.
Employers are required to report to HMRC details of all employee/director share and share option transactions that have taken place during the tax year, whether via an employee share plan or any other arrangement. The return must be submitted annually by 6 July using the online ERS portal.
Where a ‘scheme’ has been registered with HMRC, a return must be filed with HMRC in order to avoid late filing penalties.
When the employment of an employee or director is terminated, but they continue to be provided with a taxable benefit in kind, the reporting of the benefit differs to standard form P11D reporting. Employers are required to make a report to HMRC for termination packages exceeding £30,000, which are inclusive of non-cash items. Reports must be made by 6 July following the end of the tax year.
Final payroll reports must be submitted to HMRC by 19 April 2025. Form P60s must be provided to employees (and any off payroll workers on the payroll as deemed employees under the IR35 legislation) by no later than 31 May 2025.
Employers who payroll their benefits in kind must ensure their employees have been provided with details of what has been payrolled by 1 June 2025 at the latest. The Class 1A NIC due on payrolled benefits must be included on the form P11D(b), which is due by 6 July 2025.
There are a number of other specialist employer compliance returns and reports that sit outside of the normal employer compliance timeline. They may not apply to all businesses, but where they do apply, failure to comply may bring significant penalties.
Businesses that are mainstream or deemed contractors for the purpose of CIS must submit monthly returns of payments made to subcontractors. CIS returns are due by the 19th of every month following the last tax month.
Businesses engaging with off-payroll workers on a self-employed basis, such as contractors via intermediaries as well as directly with freelancers, need to ensure they address the significant tax risks.
It's important to be able to demonstrate the taking of 'reasonable care' with onboarding contractors and have embedded systems to determine employment status in order to manage IR35 and wider risks.
The threshold at which end users need to apply the IR35 rules to engagements with intermediaries is also due to change from April 2025, the so called “Small Company exemption” with the Government increasing two of the company size thresholds as follows
This may therefore have an impact on the responsibilities of smaller businesses in relation to the assessment of off-payroll workers.
For more insight and guidance get in touch with our employer solutions team.
Construction industry scheme (CIS)
Off-Payroll working & IR35