Rachel Reeves has delivered the Budget, setting out the Government’s plans for taxation and spending.
In this article, we have set out an initial summary of the key changes for employees and employers.
Income Tax Thresholds
National Insurance (“NI”) and income tax thresholds are to remain frozen until 2031. Over time, this will mean more employees getting dragged into higher tax bands and paying higher rates of income tax and NI.
Salary Sacrifice
The increasingly popular option of making a salary sacrifice into the pension pot, which currently allows employers and employees to avoid paying NI contributions on the amount sacrificed, is to be tackled. From 2029, NI will need to be paid by both the employer and employee on pension contributions in excess of £2,000 a year.
For those employers with these salary sacrifice arrangements in place, this change will increase costs in the form of higher employer NI contributions. It is also likely that employees will want to withdraw from or amend their salary sacrifice arrangements, creating additional work for employers in unwinding these schemes.
National Living/Minimum Wage
The minimum wage for those aged 21 or more will rise by 4.1% in April 2026, to £12.71 per hour. At the same time, the minimum wage for those aged 18 to 20 will rise by 8.5%, to £10.85 per hour. The proportionally higher increase for younger age groups is part of the slow move towards implementing a single minimum wage rate for all adults.
This will increase salaries and spending power for low earners, particularly in that younger age group, while driving up wage costs for employers (especially in those sectors more likely to pay at National Living Wage, such as hospitality).
