Kickstart Your Year with Payroll Outsourcing: Updates Alert 2025

As we approach the start of 2025, UK employers must stay ahead of changes impacting payroll processing. With new tax rates, National Insurance thresholds, and National Minimum Wage updates, understanding these adjustments will ensure compliance and help streamline payroll tasks for the coming year. Here’s a quick guide to the key payroll updates for 2025.

1. Income Tax Thresholds for 2025-2026

The amount of Income Tax you withhold from your employees is determined by their tax code and the portion of their taxable income that exceeds their Personal Allowance.

England and Northern Ireland
For the 2025 to 2026 tax year in England and Northern Ireland, the standard employee personal allowance is:

• £242 weekly
• £1,048 monthly
• £12,570 annually

The PAYE tax rates are as follows:

• Basic rate: 20% – Applied to income up to £37,700

• Higher rate: 40% – Applied to income ranging from £37,701 to £125,140

• Additional rate: 45% – Applied to income exceeding £125,140

Scotland
For the 2025 to 2026 tax year, the standard employee personal allowance is:

• £242 per week

• £1,048 per month

• £12,570 per year

Scotland's PAYE tax rates are:

• Starter rate: 19% – On income up to £2,827

• Basic rate: 20% – On income between £2,828 to £14,921

• Intermediate rate: 21% – On income between £14,922 to £31,092

• Higher rate: 42% – On income between £31,093 to £62,430

• Advanced rate: 45% – On income between £62,431 to £125,140

• Top rate: 48% – On income above £125,140

Income Tax rates and thresholds are subject to parliamentary approval.

Wales
For the 2025 to 2026 tax year, the standard employee personal allowance is:

• £242 per week

• £1,048 per month

• £12,570 per year

Wales follows the same PAYE tax rates as England and Northern Ireland:

• Basic rate: 20% – Applied to income up to £37,700

• Higher rate: 40% – Applied to income within the range of £37,701 to £125,140.

• Additional rate: 45% – Applicable to income over £125,140

Emergency Tax Codes

The emergency tax codes starting from 6 April 2025 are:

• 1257L W1

• 1257L M1

• 1257L X

Employers must apply the correct tax codes and monitor changes to ensure that employees' pay meets these thresholds.

A payroll outsourcing company can help with income tax thresholds for 2025 by:

1. Staying Updated on Tax Laws: 

   
   Ensuring compliance with the latest tax rates and brackets.
   
   

2. Accurate Tax Calculations: 

   
   Correctly calculating taxes based on income tax thresholds for employees.
   
   

3. Tax Optimisation: 

   
   Advising on deductions and structuring payroll to minimise tax liabilities.
   
   

4. Automation & Error Reduction: 

   
   Using software to avoid errors in tax calculations.
   
   

5. Timely Filing & Reporting: 

   
   Managing tax returns and meeting deadlines.
   
   

6. Year-End Tax Reporting: 

   
   Generating necessary forms and adjusting payroll for tax discrepancies.

This ensures compliance, reduces tax-related risks and helps optimise employee tax burdens.

2. National Insurance Contributions (NICs) for 2025 - 2026

National Insurance is crucial for employee benefits and pensions, and the rates and thresholds for 2025 - 2026 will see slight adjustments:

National Insurance deductions can only be applied to earnings that exceed the lower earnings limit.

Class 1 National Insurance thresholds for 2025 to 2026:

(With reference to the above table - Primary Threshold is for the Employees and Secondary Threshold stands for the Employers)

An outsourced payroll provider can help with National Insurance Contributions (NICs) for 2025 by:

1. Staying Updated: 

   
   Ensuring compliance with the latest NIC rates and thresholds.
   
   

2. Accurate Calculations: 

   
   Correctly calculating employee and employer NICs based on salary and applicable thresholds.
   
   

3. Automating Deductions: 

   
   Using payroll software to automatically apply NICs deductions.
   
   

4. Timely Payments: 

   
   Ensuring NICs are paid on time to avoid penalties.
   
   

5. Reporting: 

   
   Providing accurate NICs reports and year-end summaries, like P60 forms.
   
   

3. Minimum Wage and National Living Wage for 2025 - 2026

The UK’s minimum wage rates for 2025 have been updated, so employers need to adjust pay for eligible employees accordingly. Here are the revised rates:

For individuals aged 21 and over, the hourly rate is £12.21

• Aged 18 to 20 inclusive - £10.00 per hour

• For individuals under 18, the hourly rate is £7.55

• Apprentices aged under 19 - £7.55 per hour

• Apprentices aged 19 and over, but in the first year of their apprenticeship - £7.55 per hour

Employers must comply with these updated pay rates for eligible employees, meeting the legal requirements for pay levels.

Final Thoughts

In conclusion, payroll outsourcing companies provide invaluable support to UK employers by ensuring accurate and timely payroll calculations. They help businesses navigate the complexities of tax laws, National Insurance Contributions (NICs), and employee benefits, all while staying up to date with changing regulations. By automating processes, reducing errors, and offering expert advice, these providers allow employers to focus on core business activities, confident that their payroll is compliant and efficient. With the ongoing complexities of payroll management, outsourcing offers peace of mind and ensures businesses remain compliant with the latest legal requirements.

Ready to streamline your operations and boost efficiency? Partner with Doshi Outsourcing today and unlock tailored business solutions that drive success. Get in touch now for a free consultation and see how we can help your business grow!