As Autumn Budget 2025 approaches, speculation is building that Chancellor Rachel Reeves may once again turn to employment taxes as a relatively discreet means of balancing the public finances.
With the UK still facing weak productivity growth and limited fiscal headroom, subtle adjustments to National Insurance, benefits-in-kind and compliance enforcement could provide a meaningful revenue boost without the political risk of headline tax rises.
Pre-Budget conjecture will often grow to fill the inevitable wait for Budget Day clarity. Even so, it is helpful for employers to consider the practical implications of employment tax changes.
National Insurance – the quiet fiscal lever
National Insurance contributions (NICs) consistently rank among the Treasury’s most reliable revenue streams, generating around £180 billion annually – approximately 18% of total UK tax receipts. Even small adjustments can have a material fiscal impact.
The most likely move in the current environment would be the freezing of NIC thresholds or the delay of planned increases, effectively creating a so-called stealth tax that raises revenue through fiscal drag as wages rise. A modest 1p change in the main employee NIC rate could raise over £5 billion per year, according to recent estimates from the Office for Budget Responsibility.
For employers, the prospect of increased secondary NIC costs – particularly for higher earners – cannot be ruled out. While politically sensitive, such measures can be framed as targeted contributions from those best able to afford them, aligning with broader fairness narratives.
Benefits-in-kind under review
Employment-related benefits are another potential focus area. The UK Government has, in recent years, used the benefit-in-kind regime to drive behavioural change – most notably through the preferential treatment of ultra-low emission vehicles (ULEVs). However, as take-up of electric company cars accelerates, maintaining generous tax incentives is becoming increasingly costly and hard to justify fiscally. The Chancellor could therefore look to tighten benefit rules or phase out ULEV car advantages faster than planned.
Similarly, hybrid working arrangements and homeworking allowances could come under scrutiny, particularly as HMRC seek to modernise outdated rules that pre-date flexible work patterns.
There may also be a push to simplify the benefits code to reduce administrative complexity for employers, potentially linked to ongoing digitalisation of PAYE and reporting processes.
Compliance and enforcement intensifying
Even without rate rises, HMRC can still increase tax yield through enhanced compliance. HMRC’s data-driven employer compliance programmes have expanded significantly, with intervention activity reportedly up 20% year-on-year.
Future Budget announcements could build on this by funding additional investment in digital tools, extending real-time information reporting, or enhancing oversight of umbrella companies and off-payroll arrangements (see below for links to our recent articles on these topics). These initiatives not only raise revenue but also signal a tougher stance on perceived non-compliance across the labour supply chain.
Practical implications for employers
The overall direction of travel points to subtle tightening rather than wholesale reform around the employment taxes landscape. Employers would be well advised to:
- Review NIC forecasting and consider potential exposure to threshold freezes
- Revisit benefit structures and salary sacrifice arrangements, particularly those reliant on currently favourable rules, notably pensions and electric vehicles
- Strengthen compliance controls and ensure readiness for increased HMRC scrutiny, particularly around PAYE Settlement Agreements (PSAs) and P11D reporting
This Autumn Budget may not deliver dramatic employment tax changes, but the Chancellor has several levers available to raise revenue quietly. A combination of threshold freezes, benefit reform and enhanced enforcement could generate billions in additional receipts. For employers, proactive planning and robust compliance will be key to navigating what could be a more demanding employment tax landscape in 2026.
How BKL can help
Our specialists in employment tax and business tax can guide you through the changing regulations and ensure that you’re fully compliant. This includes reviewing your processes to help you minimise your risk and your tax liability.
For a chat about how we can help you, get in touch with Stephen Baker or send us an enquiry.
