Payroll Takes Centre Stage in UK 2025 Budget—Most Significant Changes in Years

The latest UK Budget announcement unveiled one of the most payroll-centric packages in years. From rises in statutory payments to significant structural reforms in income tax collection, employers now have a clearer picture of what compliance will involve in 2026 and 2027. These measures aim to modernise administration, cut tax debt, and enhance accountability within the tax profession. For payroll leaders with payroll operations in the UK, the message is clear: start preparing early, start now.

HMRC to Introduce Mandatory Registration for Tax Advisers

The government will require tax advisers and agents to register with His Majesty's Revenue and Customs (HMRC) under a new supervisory framework aimed at increasing transparency and eliminating noncompliant advice. The proposal involves mandatory registration, annual confirmation, and potential sanctions for noncompliance. The measure seeks to improve standards across the tax advice market and forms part of a broader regulatory tightening. This change is likely to affect payroll teams that rely on third-party tax advisers, especially those supporting complex expatriate or share scheme arrangements.

Self-Assessment Income to Be Coded Into PAYE From 2029

HMRC will require Self-Assessment liabilities to be collected through Pay As You Earn (PAYE) for taxpayers who also receive PAYE income. Starting from April 2029, affected individuals will “automatically pay regular payments throughout the year,” reducing large year-end bills and improving cash flow predictability. This aligns with HMRC’s broader strategy to manage tax debt more proactively. Employers will need to anticipate more dynamic tax codes and increased employee queries as the transition approaches.

New Statutory Payment Rates Confirmed for the 2026–2027 Tax Year

HMRC has confirmed the statutory rates for the 2026–2027 tax year, including maternity, paternity, adoption, shared parental, parental bereavement, and sick pay. These increases follow the yearly inflation adjustments and ensure that statutory payments stay aligned with average earnings. Employers should start updating their budgeting and payroll plans for the 2026 rollout.

Context from the Broader Budget Announcements

The supporting Budget materials highlight several other payroll-related adjustments and updates, such as:

• Minimum wage will increase from April 2026, including a rise in the National Living Wage to £12.71 for workers aged 21 and over, as well as changes to rates for employees younger than 21.
• The tax-free personal allowance (£12,570 since 2021) and National Insurance thresholds were frozen until 2028, but this has now been extended until 2030–31 (for Scotland and Wales, this may differ).
• National Insurance relief for salary sacrifice pension contributions will be capped at £2,000 from 2029, thereby restricting employees' ability to sacrifice part of their pay for a benefit (such as a pension).
• State Pension will increase by 4.8% from April 2026.

These announcements complement the earlier notice to extend the requirement for mandatory benefits processing in payroll until April 2027, now further clarified by HMRC.

Key Takeaways

The UK payroll landscape is entering a phase of substantial transformation. Three highlights stand out:

1. The mandatory registration of tax advisers signals a broader tightening in tax governance. Payroll teams should review adviser dependencies and ensure contractual and operational alignment before the regime goes live.
2. Coding Self-Assessment through PAYE is a fundamental change that will increase the volume and variability of coding notices and require mandatory processing of benefits through PAYE as of April 2027. Payroll should prepare systems and employee communications for higher frequency adjustments.
3. Higher statutory payments, rising minimum wages, frozen thresholds, and capped NI relief all contribute to increased employment costs. Accurate modelling will be essential.

The UK Budget reveals a government eager to modernise the tax system, shift more responsibility into real-time processes, and improve transparency. For payroll leaders, the route ahead is clear: start early with your internal teams (e.g., HR, rewards, benefits, tax, legal), communicate regularly, and carry out thorough testing. 

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Max van der Klis-Busink, MCIPP, RPP, is the Owner of Passion For Payroll and Vice President of Global Strategy on PayrollOrg’s Board of Directors.