Spring Statement 2025: Tax Update for Businesses

The Spring Statement in March 2025 announced no further tax changes to be considered, however, it is worth having a reminder of the upcoming changes to employer requirements. Here is a tax update for businesses as a recap of the key additional employment costs and administrative requirements which will be effective from April 2025.

Tax Update: 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 Contributions (NICs) on wages and salaries will increase by 1.2% 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 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.

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.

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% 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.

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.

Changes to HMRC interest rates on unpaid and overpaid tax

It was announced in the Budget 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% to base rate plus 4.0%, compared to the current late payment interest on tax which is base rate plus 2.5%.

The interest rate on quarterly instalment payments will remain at their current levels, being base rate plus 1% on underpayments and base rate minus 0.25% on overpayments.

Meanwhile, the rate of interest paid by HMRC on overpaid tax remains lower, at base rate minus 1% (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.

[1] Government minimum to be paid to those who are 21 and over.
[2] Specific conditions need to be met.

Jacqui Gudgion is a partner at Mercer & Hole www.mercerhole.co.uk

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