As part of the finance team, you will be required to keep up with the latest changes to tax legislation. As a firm, we at Mercer & Hole work with a wide range of businesses across a plethora of industry sectors, so we understand the pressures and the responsibilities involved.
The Autumn 2024 Budget brought the biggest shakeup in over ten years with many changes to taxation affecting all businesses. We have put together this succinct summary to document each update, and to ensure that you can prepare for the changes that are coming soon.
Employee remuneration, benefits, and incentives
Increases to employer National Insurance rates
As widely publicised, with effect from 6 April 2025, the rate of employer National Insurance (NI) contributions on wages and salaries will increase by 1.2 percentage points from 13.8% to 15.0%.
At the same time, the Secondary Threshold (the level above which employers become liable for employer NI contributions) is being lowered from £9,100 to £5,000.
These changes also coincide with an increase in the National Minimum Wage (see below).
Whilst the government is also increasing the Employment Allowance from £5,000 to £10,500 (and removing the restriction that only businesses with an annual NI liability of £100,000 or less can benefit) this is likely to do very little to negate the increased cost effect of the other changes for the majority of businesses.
This will not only have an impact on your payroll budget; you are also likely to see increased charges from your suppliers who will be experiencing increased costs themselves due to these changes.
The business will, therefore, need to factor in these increased costs when planning its forecasts and it should consider how much of the additional costs can be passed on to customers in the form of price increases.
Increases to National Minimum Wage and National Living Wage
The National Minimum Wage and National Living Wage[1] will increase from 1 April 2025 as follows:
There has been a greater percentage increase in the rates for those employees under the age of 21 as the government looks to move towards a single rate for all ages.
HM Revenue & Customs (HMRC) enforcement teams are regularly carrying out enquiries into employers and are looking for those who do not meet the requirements for the National Minimum Wage. A particular area of interest for these teams are salaried workers who must receive the minimum hourly rate for the total hours worked over the year, not just the period in which any additional hours are worked.
This can lead to some employers inadvertently failing the requirements. You should, therefore, take the opportunity to review your position to ensure that you are meeting the requirements.
Payrolling of benefits
The government has announced that from 6 April 2026, it will be mandatory to payroll the majority of employee benefits, via PAYE through Real Time Information. This will mean that income tax and Class 1A NI (an employer liability) will be paid on an ongoing basis rather than being dealt with via the P11d process post-tax year.
The only benefits for which it will not be immediately mandatory to adopt this approach are employment-related loans and accommodation. The mandatory payrolling of these benefits will be introduced in due course and, in the meantime, employers can elect to voluntarily deal with these through the payroll.
This will be a significant change for all stakeholders in terms of the reporting of benefits and the P11d process, which may become obsolete for some employers. There will be a need for those who process payrolls to become familiar – if not expert – in the operation of the benefits code. The calculation of sums to payroll with leavers, joiners, and in-year benefit changes will become a requirement. At Mercer & Hole, we are looking at how we support our client payroll and finance teams to manage this.
Find out more about plans to mandate the reporting of benefits in kind via payroll software from April 2026 here.
Employment-related loans
These are most common with directors and senior management, although some employers offer such loans for annual travel cards and parking permits.
Unless there is a written contractual agreement to pay interest at HMRC’s Official Rate of Interest, and this interest is actually paid to the company within the requisite timeframe, the employee-borrower will have a benefit in kind based on the loan balance and the Official Rate of Interest.
Historically, the Official Rate of Interest has been set once for the tax year. However, it has been announced that, with effect from 6 April 2026, the rate will be reviewed and potentially adjusted quarterly. This change is intended to better reflect the economic environment and ensure that the rate is more responsive to changes in market conditions.
Where loans are made to participators (typically shareholders with more than 5% shareholding) in a company and these are not repaid within nine months of the end of the tax accounting period in which they were made, then an amount equal to 33.75% of the outstanding balance at this date must be paid over to HMRC. This is often referred to as an ‘s455 charge’.
Whilst the company can make a claim for this to be repaid once nine months have passed from the end of the chargeable period in which the loan is repaid, there is obviously a cash flow implication.
Consequently, taxpayers have previously sought to circumvent incurring such a charge with funding the repayment of the debt by borrowing new funds from another group or associated company. The tax legislation was slightly defective in allowing these arrangements to work on a technical level.
The government has now moved to close this and similar practices down, with the immediate introduction of a new, targeted-anti avoidance rule.
The new rules are complex but where companies and their shareholders are attempting to avoid an s455 charge, the charge will be payable whether or not there has been an apparent repayment.
Consequently, any planning other than to simply repay the debt out of cleared funds is likely to be caught by these new rules and the s455 charge will be payable. This therefore needs to be taken into account when considering the cash flow impact of loans to shareholders.
Company cars, vans, and fuel benefits in kind
Following previous announcements of the appropriate percentages for company car benefits in kind up to 5 April 2028, at the Autumn 2024 Budget, the government announced proposed increases for the subsequent two years to 5 April 2030:
- For vehicles with CO2 emissions of between 1 g to 50 g per kilometre, the appropriate percentages will increase to 18% and 19% for the 2028/29 and 2029/30 tax years, respectively.
- The appropriate percentages for all other cars will increase by 1 percentage point per year, resulting in a maximum percentage of 38% for 2028/29 and 39% for 2029/30.
The intention is to maintain a significant difference between the appropriate percentages for electric vehicles to that for vehicles powered by internal combustion engines and hybrid vehicles.
There will also be an increase to the car fuel benefit charge multiplier with effect from 6 April 2025, with this increasing to £28,200 from £27,800.
Finally, the van and fuel benefits for company vans will also increase from 6 April 2025:
- The van benefit charge will increase to £4,020 (an increase of £60).
- The van fuel benefit charge will increase to £769 (an increase of £12).
However, by far the biggest news in relation to company cars and vans is a change to the tax treatment of double cab pickups (see below).
Double cab pickups
Whilst not widely publicised at the time of the Budget, double cab pickups acquired after 6 April 2025 will be immediately treated as a car for both benefit in kind and capital allowance purposes.
There are transitional arrangements for pickups purchased, leased, or ordered before 6 April 2025[2] in that the current tax treatment of these vehicles as a van will continue until the earlier of their disposal, lease expiry, or 5 April 2029. The consequence of this is that the taxable benefit runs at a significantly lower rate than that which applies to cars.
Car ownership schemes
It was announced in the Budget that new legislation will be introduced with effect from 6 April 2026 that is designed to close loopholes in employee car ownership schemes and to prevent them from being used to circumvent the company car benefit in kind tax charge.
Pension contributions
Despite widespread speculation before the Budget that there would be changes to the tax treatment of pension contributions, this remains unchanged, with the Chancellor instead making changes to the Inheritance Tax (IHT) treatment of taxpayers’ pension funds.
Consequently, employer pension contributions remain an effective component to the remuneration package of employees, particularly if combined with a salary sacrifice arrangement. The key point here being that contributions can be designed in such a way that they are free of the employer’s NI charge and the impact of the forthcoming increase in rate.
Enterprise Management Investment (EMI) options
Given the increases to employer NI contributions, together with the freezing of income tax bands for employees, remunerating and incentivising senior management in a tax and cost-effective manner is becoming increasingly difficult.
However, the granting of EMI options that are exercisable on exit remains a cost-effective way to incentivise key employees where a future sale of the business within a 10-year timescale is likely. The granting of options can be both a tax and NI-free way to provide a potential benefit to employees.
If this is something you would like to consider further, then please contact your usual Mercer & Hole contact in the first instance.
Changes to HMRC interest rates on unpaid and overpaid tax
It was announced in the Budget that that from 6 April 2025, there will be an increase in the rate of interest charged on unpaid tax, although the rate of interest in respect of corporation tax quarterly instalment payments will remain unchanged.
Late payment interest on tax and NI will increase by 1.5 percentage points to base rate plus 4.0 percentage points, compared to the current late payment interest on tax which is base rate plus 2.5 percentage points.
The interest rate on quarterly instalment payments will remain at their current levels, being base rate plus 1 percentage point on underpayments and base rate minus 0.25 percentage points on overpayments.
Meanwhile, the rate of interest paid by HMRC on overpaid tax remains lower, at base rate minus 1 percentage point (subject to a minimum rate of 0.5%).
These rates mean it is important to resolve any disputes with HMRC quickly and consider making payments on account towards any potential liability in order to minimise interest charges.
Contact us
If you have any questions or concerns on any of the above points, please do not hesitate to contact your usual Mercer & Hole contact in the first instance.
[1] Government minimum to be paid to those who are 21 and over.
[2] Specific conditions need to be met.
