The Chancellor’s Autumn Budget 2025 has landed and with it comes a range of changes, that will directly affect payroll, HR and finance teams across the UK. Here at Pixie Payroll, we’ve broken down the key announcements and explained what they mean for your business and employees.
Key Payroll-Related Announcements
The minimum wage, real living wage and apprenticeship wage are increasing. National insurance and income tax thresholds are frozen, the state pension rate is increasing and Cash ISA limit is reduced.
- Minimum Wage Increases (April 2026)
- Over 21s: rising to £12.71 per hour (up 50p)
- Ages 18–20: increasing to £10.85 per hour (up 85p)
- Under 18s and apprentices: moving to £8 per hour (up 45p)
- Real Living Wage Increase (May 2026)
- Employers paying the Real Living Wage will need to increase pay to £13.45 per hour for employees outside London (an 85p rise)
- National Insurance and Income Tax Thresholds Frozen
- Thresholds will remain unchanged until April 2031, meaning more employees could drift into higher tax bands as wages rise.
- Dividend Tax Increase
- SME owners and directors will see dividend tax rates rise by 2 percentage pointsfrom next year. From April 2027, the property basic rate will be 22 per cent and the property higher rate will be 42 per cent.
- State Pension and Benefits
- The State Pension will rise by 4.8% in April 2026.
- Salary Sacrifice – A £2,000-a-year cap on the amount that can be put into pensions will be in place from April 2029. More can be put in, but it will be taxed.
- The two-child benefit cap has been scrapped, which may affect payroll teams managing salary sacrifice childcare schemes.
- Some benefits, such as personal independence payment, attendance allowance and disability living allowance, as well as carer’s allowance will rise by 3.8% in April.
- Cash ISA Limit Cut
- A restriction on the amount of tax free savings will be reduced from £20,000 to £12,000, with a push on encouraging more investment in shares rather than cash savings.
How this could impact employers
- Budgeting for wage rises: Payroll teams should prepare for higher wage costs from April 2026.
- Tax Planning: Frozen thresholds mean employees may face “fiscal drag,” where pay rises push them into higher tax brackets. Clear communication will help staff understand why their take-home pay may feel different.
- SME Considerations: Dividend tax rises could impact directors who rely on dividends for income. Payroll and finance teams should factor this into remuneration planning.
- Employee Support: With pensions and benefits changing, payroll teams can play a vital role in guiding employees through adjustments, offering resources or signposting financial wellbeing support.
And in Cornish budget related news, this ones an exciting one: The autumn budget announced £30-million of new funding for Cornwall to invest in its critical minerals, renewable energy and marine innovation. The fund divulged to Cornwall Council and to replace the Shared Prosperity Fund, will be able to invest in growth-driving interventions to support the county’s local infrastructure, research and development and supply chain development.
Alongside these Payroll related updates, there are other changes including a freeze on rail fare increase and a road tax on EV vehicles. The autumn budget 2025 brings both challenges and opportunities.
Here’s some handy tips to help you prepare for the changes ahead of April 2026:
- Update Payroll systems early: Ensure your software is ready for the April 2026 minimum/real living wage changes.
- Communicate clearly: Share updates with employees in advance – especially around tax thresholds and wage increases.
- Review contracts and budgets: Factor in wage rises when planning staffing costs for the next financial year.
Feeling overwhelmed by them all? We’re here to help, contact us at Pixie Payroll if you have any queries on these changes or need any Payroll assisted services.