The Autumn Budget 2025 introduces a fresh wave of fiscal measures that are set to reshape the landscape for UK businesses. But with most of the changes not coming into effect until April 2029, employers have an unexpected window of opportunity to maximise their savings, support their employees, and ease the forthcoming transition.
Below, we unpack the impact of the headline changes, and explore the strategic moves businesses can make:
1. Salary sacrifice cap adds to employer costs
From April 2029, salary-sacrificed pension contributions above an annual £2,000 threshold will no longer be exempt from National Insurance (NI) contributions. Above the cap, usual NI rates will apply – at 15% for employers, 8% for employees on salaries below £50,270, and 2% on income greater than that.
In the short term, employers could see their NI bill reduce, as employees look to sacrifice more of their salary into their pension. Once introduced, however, the changes could significantly impact the size of employees’ pension pots, with higher earners disproportionately affected. According to analysis by The Times (opens a new window), a 35-year-old earning £100,000 today could be nearly £50,000 worse off by age 65. The cap substantially increases employers’ NI liability, and the overall cost of employment.
2. Income tax thresholds frozen until April 2031
Another notable Budget announcement is the decision to extend the freeze on income tax thresholds until April 2031. Previously, the freeze had been due to expire in 2028.
Although the freeze is not technically a tax increase, it does ensure that more employees will pay the higher rate of income tax as their wages increase.
3. Cash ISA allowance cut to £12,000
In addition, the annual cash Individual Savings Allowance (ISA) allowance has been cut to £12,000. The full £20,000 ISA allowance has been retained, but £8,000 of this is now reserved for investment purposes. Over 65s will retain the full £20,000 cash allowance. The changes will apply from April 2027.
Investing can be a reliable way for employees to improve their financial position, but it is not without risk. The change strengthens the need for employers to promote financial education among their employees. Financial coaching, financial planning services, and tailored wellbeing workshops can help to mitigate bad financial outcomes.
4. Above-inflation minimum wage increase
Ahead of the Budget, the Government also announced a 4.1% increase to the minimum wage, above the rate of inflation. The increase for workers aged 18-20 was even larger, at 8.5%.
For employers, especially those in the hospitality and retail sectors, the increase represents yet another additional expense during a time when businesses are already under immense pressure to manage costs.
How can employers respond?
With over three years before some of the changes come into force, employers have longer than expected to take stock and ease the eventual transition.
In the meantime, many will already have begun preparing for the annual benefits renewal window, which for most businesses falls in April 2026 (or shortly after). Those who act quickly are likely to reap the rewards, by maximising savings for themselves and their employees.
Key actions for employers include:
Maximise salary sacrifice use – The delayed introduction of the cap represents a three-year window of opportunity for businesses. Employers should focus on increasing salary sacrifice use and educating staff around the potential savings to be made. Consider implementing available mechanisms that might not be in use, such as a bonus waiver.
Prepare your benefits checklist – In the longer term, it will be important to assess your existing benefits offering. If you have one, how do the forthcoming changes impact your flexible benefits scheme? Determine what proportion of your employee base is likely to sit above the salary sacrifice threshold once the changes come into effect.
Evaluate investment returns – With their NI liabilities set to increase from April 2029, employers will face greater pressure to manage costs. Forward planning and scrutinising your return on investment will be key. While changes must be implemented with caution, consider updating or scaling back benefits which do not make financial sense.
Communicate with employees – Ensure any changes are communicated to your employees clearly and with sufficient notice. Providing dedicated support can help employees to understand their options and make informed decisions. Particularly for SMEs, third-party advice can help you to understand the key changes in the Budget, and the potential impact on your workforce.
It is important not act on impulse when it comes to benefits. Before making any changes, employers must weigh up the advantages against potential administrative costs, and any knock-on consequences on their ability to attract and retain talent.
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