"This Budget creates a perfect storm for employment costs. Extending income tax and national insurance threshold until 2030-31, and the introduction of a £2,000 cap on national insurance relief from 2029 for pension salary sacrifice means businesses face a compound burden that will reshape hiring and retention strategies. What makes this particularly challenging is the timing. Employers are simultaneously preparing for the Employment Rights Bill changes and the Fair Work Agency's launch in April 2026."
"The real story here is fiscal drag (described as stealth tax). By extending the freeze on income tax thresholds until 2030-31 - three years beyond the original end date - millions of UK workers could face higher tax bills as wage growth pushes them into higher tax brackets. Middle-income earners are likely to be most affected by the threshold freeze, as wage increases push them into higher tax brackets even though the rates themselves remain unchanged."
"With the income tax threshold freeze extended to 2030-31 and salary sacrifice arrangements being capped, employers face a difficult balancing act: how to retain middle earning talent when the cost of doing so has increased substantially. Businesses can't afford to wait - now is the time to model the impact on future payrolls. Those who plan ahead will be best placed to navigate the hurdles ahead."
The Budget extends income tax and national insurance thresholds to 2030-31 and introduces a £2,000 cap on NI relief for pension salary sacrifice from April 2029, creating higher employment costs. Fiscal drag will push many workers, especially middle-income earners, into higher tax brackets as wages rise despite unchanged rates. An employee earning £50,000 today could face a larger portion taxed at 40% by 2030. Employers must model payroll impacts now and consider shifting compensation toward perks—pensions, flexible benefits, and salary sacrifice—while preparing for Employment Rights Bill changes and the Fair Work Agency launch in April 2026.
Read at London Business News | Londonlovesbusiness.com
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