Chancellor finally reveals her hand in 2025 Budget
The “smorgasbord” of tax rises announced in last month’s budget includes a significant change to the tax treatment of salary sacrifice arrangements for pensions, writes David Mills, Employment Partner and national Head of Employment at law firm Mills & Reeve.
As from April 2029, only the first £2000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. The Treasury estimates that this will raise £4.7 billion by 2029/30, though this figure may prove to be lower when changes in behaviour are taken into account.
The change will reduce the incentives for employees to contribute to their pension schemes and may lead to employers changing the way their benefits packages are structured.
In addition – as happened this time last year – a further round of above inflation increases in the National Minimum Wage has been announced. As from April 2026 the headline rate rises by 4.1 per cent to £12.71 per hour, and the new rate for workers aged 18 to 20 will be 8.5 per cent higher.
Employers will also be concerned about the additional compliance costs flowing from the implementation of the Employment Rights Bill, which starts in earnest next year. However, whatever their views on tax and spend, employers will be relieved that, now the budget has been announced, the damaging uncertainty about how the Government plans to balance the books for the remainder of this Parliament should diminish. Employees will also be thankful that the tax rises associated with freezing personal allowances for an additional three years will take a while to kick in.
Indeed, you could say that, like some of the nation’s expenditure on the Christmas shopping, the Chancellor has adopted a spend now pay later approach in her latest budget. It is to be hoped that much needed growth will pick up in the UK before these new tax charges start to bite in earnest.
• For more Mills & Reeve comment on the 2025 Budget visit Latest legal publications | Mills & Reeve
