As of 6 April 2025, a number of tax and employment law changes officially came into force, and they directly affected small businesses across the UK that employed staff.
If you’re an employer, these changes likely increased your wage costs, added new HR responsibilities, and introduced fresh compliance risks. Here’s a clear, practical breakdown of what changed and what it meant for you:
National Insurance Contributions (NICs)
The government introduced several adjustments to NICs, aimed at increasing funding for public services, but this also meant increased costs for employers.
Employer NIC Rate Increased:
From 6 April 2025, the rate of employer NICs rose from 13.8% to 15%. This increase applied to all earnings above the secondary threshold and affected the cost of employing both part-time and full-time staff.
Lower Secondary Threshold:
The threshold at which employers started paying NICs dropped from £9,100 to £5,000 per year. That meant a larger portion of every employee’s earnings became subject to NICs, even at lower salary levels.
Employment Allowance Extended:
To soften the blow for smaller employers, the Employment Allowance increased from £5,000 to £10,500. The previous eligibility cap of £100,000 in total NICs liability was removed, allowing more businesses, especially those scaling up, to benefit.
What it meant:
Small businesses saw a general rise in staffing costs unless their NICs were fully offset by the expanded Employment Allowance.
National Minimum Wage & National Living Wage Increases
New statutory wage rates also came into effect from April, affecting payroll for almost all employers with lower-paid staff:
- National Living Wage (age 21+): Rose to £12.21 per hour (up from £11.44).
- 18–20 Year Olds: Increased to £10.00 per hour.
- 16–17 Year Olds and Apprentices: Rose to £7.55 per hour.
What it meant:
Payroll systems had to be updated immediately. Businesses employing younger workers or part-time staff saw a noticeable rise in wage bills. Non-compliance risks also increased, as HMRC began targeting underpayments more actively.
Capital Gains Tax (CGT) and Business Asset Disposal Relief (BADR)
Although not directly tied to payroll, this change mattered to many small business owners planning for exits or restructuring:
- BADR Rate Increased: The CGT rate for Business Asset Disposal Relief rose from 10% to 14% for qualifying gains. A further increase to 18% was scheduled for April 2026.
What it meant:
Business owners looking to sell or wind up their businesses now faced a higher tax bill on gains from qualifying disposals — such as selling shares or business assets. Early tax planning became more important.
Late Payment Penalties and Compliance
HMRC also rolled out tougher penalties from April:
- Late Filing and Late Payment Penalties Increased:
New structures for both self-assessment and VAT penalties came into effect, with potential fines increasing by around 6%.
What it meant:
Businesses needed to prioritise filing and payment deadlines. Even a short delay could now trigger higher penalties, making accurate and timely bookkeeping more crucial than ever.
Employment Law Changes
Several reforms to employment rights took effect from April, requiring most employers to update contracts, onboarding processes, and internal policies.
- Day-One Rights Introduced:
All employees were now entitled to key rights from the first day of employment. This included:
- Statutory Sick Pay (SSP)
- Parental leave and pay
- Protection against discrimination
- Zero-Hours Contracts Reform:
Workers on zero-hours contracts gained the right to request a predictable working pattern, based on their average hours over a 12-week reference period. Employers were required to consider these requests seriously and respond within a set time frame.
Unfair Dismissal Protection:
A statutory probation period of 6 to 9 months was introduced before an employee became eligible for protection against unfair dismissal. This applied to most new hires, with exceptions for cases involving discrimination or whistleblowing.
SSP Payable From Day One:
Statutory Sick Pay became payable from the first day of absence, removing the previous three ‘waiting days’. This increased the administrative and financial burden for short-term sickness absences.
What it meant:
Employers needed to revise employment contracts, staff handbooks, and HR policies to reflect these new entitlements. Failure to do so risked employment tribunal claims.
Summary and Key Takeaways
- Staffing costs increased due to higher NICs and minimum wage rates.
- HR and payroll systems required immediate updates to remain compliant with new employment law.
- Planning ahead became essential, especially for owners considering a sale or restructure in the near future.
- Accurate bookkeeping and timely filing took on even more importance with new penalties in force.
Need help adjusting to the April 2025 changes? We’ve supported a wide range of businesses with these updates, from reviewing payroll and staff contracts to revising tax plans for owners.
If you’re unsure how these changes impact you, or you just want to make sure you’re on the right track, get in touch with us today. Let’s make sure your business is fully compliant and ready to move forward with confidence.
