Autumn Budget 2025: key takeaways for HR and payroll

The Autumn Budget 2025 started chaotically with the Office for Budget Responsibility (OBR) publishing part of the forecast early.

Henry Zeffman, Chief Political Correspondent at the BBC, commented: “The Budget is already out there thanks to the Office for Budget Responsibility’s error. This is truly extraordinary. An hour ago, it would have been unimaginable. It’s hard to find the right adjectives to do it justice.”

Nevertheless, Chancellor Rachel Reeves went on to deliver the highly anticipated Budget, showcasing a series of measures that are set to significantly impact businesses across the UK. 

Reeves started her speech, saying: “These Budget measures are the right choices for a fairer, a stronger and a more secure Britain.”

Below, we’ve summarised some of the key points from the 2025 Autumn Budget, detailing the potential implications for HR and payroll.

Minimum wage rates from April 2026

The Chancellor confirmed that the Government has accepted the Low Pay Commission’s recommendations on minimum wage rates:

• From April 2026, the National Living Wage (NLW) for over-21-year-olds will increase to £12.71 an hour
• As for the National Minimum Wage (NMW), for those aged 18 to 20, it will increase to £10.85 an hour
• For those aged 16 to 17, their NMW will increase to £8 an hour

Our Director of HR Consulting, Dan Grace, commented: “A further rise to the NLW and NMW sees costs for businesses in the UK continue to grow. This may lead to further economic impacts and possible changes to the cost of living due to prices increasing to account for higher wages.”

Freezing tax thresholds

The Budget confirmed a freeze on income tax and National Insurance thresholds for another three years from 2028, continuing a freeze implemented by the previous Government.

Reeves stated that she’s ‘asking everyone to make a contribution’ as the thresholds will remain frozen at their current level until 2031.

Dearbail Jordan, Senior Business and Economics Reporter at the BBC, commented: “The freeze on tax thresholds that Reeves has just announced is not a surprise. What is a shock is that it will remain in place for three years instead of the forecast two years. That’ll mean that by the time we get to 2031, tax thresholds will have been frozen for nearly a decade.”

State pension rise

The chancellor confirmed that the state pension in April 2026 will rise in line with average wages.

This means:

• The new flat-rate state pension for those who have reached state pension age after April 2016 will rise from £230.25 to £241.30
• The old basic state pension for those who have reached state pension age before April 2016 will rise from £176.45 to £184.90

Grace commented:“Some worry that the triple lock system is detrimental to the budget and will bankrupt the UK if kept – a concerning view.”

Pension contributions to be taxed above £2,000

The Budget announced that salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from National Insurance – this will come into force from April 2029.

Grace shared his view: “This will have a substantial impact on providers of pensions which may see reduced pension contributions, employees who face a large overall tax burden and employers who will now have further struggles helping their employees invest for the future and retirement.”

Electric vehicle tax

A new mileage tax on electric vehicles (EVs) is confirmed.

This includes a new mileage-based charge on electric and plug-in hybrid cars from April 2028 at around half the fuel duty rate paid by drivers of petrol cars.

Reeves explained: “This will be payable each year alongside vehicle excise duty at 3p per mile for electric cars and 1.5p for plug-in hybrids.”

Fuel duty frozen

Fuel duty will be frozen at its current rate until September 2026, which Grace highlighted as ‘good news for the fuel-based industry and, importantly, commuters’.

Apprenticeship funding

Reeves announced funding to make training for under-25 apprenticeships completely free for small and medium-sized enterprises (SMEs).

NIC uprating from 2026 to 2027

Some NIC limits and voluntary NIC rates for the self-employed will rise in line with CPI at 3.8%.

This affects:

• Employers with self-employed contractors who make voluntary contributions
• Anyone using payroll or bookkeeping services to track mixed employment income
• Employees with income around the lower earnings limits, as some will move into the contributory bands

Student loans threshold freeze

The Budget announced a freeze to the repayments and interest rate thresholds for Plan 2 student loan repayments for three years, starting from 2027-28.

Changes to dividend and savings tax

Dividend tax rates and savings income tax rates will each rise by two percentage points across the next few years.

Payroll relevance:

• Directors with combined salary and dividends will see reduced net income
• Organisations supporting directors’ payroll will need to prepare clear communication

Employment Rights Bill (ERB)

No updates to the Employment Rights Bill were announced as it’s already entered a ‘ping pong’ phase. 

For the latest information on the Employment Rights Bill, check out these recent blogs:

• Employment Rights Bill (ERB): the ping pong phase
• Understanding the Employment Rights Bill roadmap
• What does the new Employment Rights Bill mean for businesses?

Reinforcing what we’ve long anticipated 

Stephanie Coward, Managing Director, HCM at IRIS, commented on the Budget, saying:  “This latest Budget reinforces what we’ve long anticipated: legislative changes are accelerating with a direct impact on HR and payroll operations across the country.  

“The most significant change announced by the Chancellor is the extension of the income tax and National Insurance (NI) threshold freeze until April 2031.  

“This will see more employees moved into higher tax bands as wages rise, increasing both employee deductions and employer NI costs over time, even without rate changes.  

“HR professionals are experienced at navigating legislative changes; however, significant updates to the tax and legal landscape lead to added costs and complexity for employers.  

“With many organisations still adapting to last year’s employer National Insurance changes, yesterday’s announcements add further considerations for workforce planning and investment decisions.  

“For HR and payroll teams, the priority now is to understand the changes, review internal policies and procedures, communicate relevant updates to their employees and find opportunities to drive efficiency while ensuring compliance.  

“Technology is essential in this environment.  

“Modern HRIS and payroll systems help teams automate payroll and HR compliance, identify where organisational practices haven’t kept pace with legislation and provide insight into where they can redesign benefits or processes more creatively.  

“Accurate workforce cost modelling becomes critical when threshold freezes compound over multiple years, affecting everyone from entry-level employees benefiting from minimum wage increases to earners facing changes to salary sacrifice schemes.  

“Automation and better-quality data also enable HR professionals to focus on value-add initiatives that drive employee engagement, which is vital for retention in a competitive labour market.  

“Managing regulatory change through spreadsheets or static intranet documents is no longer viable.  

“By using technology to ensure legal compliance, automate key payroll tasks, personalise benefits, shape career development programmes and streamline communications, HR teams can help their organisations move onto a stronger footing following another influential Budget.”  

Closing thoughts

Ahead of the Budget, Prime Minister Keir Starmer stated: “I can tell the House now that we will build a stronger economy, we will cut NHS waiting lists and deliver a better future for our country.”

Right now, preparing for the changes outlined in the 2025 Autumn Budget is essential.

With significant updates to workplace legislation on the horizon, businesses must act quickly to ensure compliance and avoid potential penalties.

You don’t have to navigate these changes alone.

Trusted providers, like IRIS, are here to support businesses every step of the way. 

If you’re to take anything away from this blog, let it be this: start preparing today to ensure your business is ready for what lies ahead.