Autumn Budget 2025: Employers
The biggest headline for employers – albeit one that had been anticipated – is a restriction to the availability of salary sacrifice schemes for pension contributions. The government’s decision to cap relief rather than abolish it entirely will introduce complexity, and employers should use the time between now and the April 2029 start date for the measure to understand and prepare for the impact. Individuals who still have outstanding loan charge liabilities will welcome the government’s response to the Loan Charge Review, which offers a new settlement opportunity to resolve this long-running issue.
Below are our summaries for employers. You can also read our summaries for businesses and individuals.
Salary sacrifice on pensions
From 6 April 2029, the government will introduce legislation to charge employer and employee National Insurance Contributions (NICs) on pension contributions made via salary sacrifice that exceed £2,000 per annum. However, ordinary employer pension contributions will continue to be exempt from NICs. This policy is projected to increase NICs revenue by an estimated £4.7 billion in 2029-30 and £2.6 billion in 2030-31.
Moore Kingston Smith comment
Salary sacrifice allows employees to give up part of their salary or bonus in exchange for employer pension contributions, and is widely used because it provides NIC savings for both employees and employers.
Reform to pension tax relief has been discussed for years without action until now. In March 2023, HMRC commissioned IFF Research to examine employer attitudes toward salary sacrifice for pensions, including exploring three hypothetical scenarios, each varying in how far relief would be restricted; from removing all NIC relief, to removing both NIC and income tax relief, through to introducing a cap on NIC relief above a set threshold. The government has today opted for the capped approach, limiting NIC savings on pension contributions beyond £2,000 per year. The research findings, published by HMRC in May 2025, warned that introducing a cap would increase costs for employers, create significant administrative complexity, and risk disengaging employees from pension saving.
Cost impact examples of the April 2029 changes
- An employee earning £50,000 and sacrificing 5% of salary will see take-home pay fall by around £40 per year, with an additional employer cost of £77.50.
- For an employee earning £100,000 sacrificing 5%, take-home pay drops by £60 per year, while employer costs rise by £465.
A cap introduces major complexity, especially where earnings fluctuate due to overtime, bonuses or commission. Employers may need to operate multiple pension contribution systems, increasing workload for HR, payroll and finance teams. Monthly modelling and monitoring will be required to ensure compliance, adding ongoing costs. The government will publish guidance on the payroll operation in due course, and clear guidance from payroll software developers will also be crucial to ensure accuracy of applying these changes.
Many employers will simply cease offering pension salary sacrifice schemes to their employees, as there is no longer any financial incentive for them to do so. This will force employees to make ordinary employee contributions, which, under a relief at source scheme, will mean that higher rate income tax relief must be claimed on a self-assessment tax return, adding further complexity. In addition, capping NIC relief risks weakening pension engagement, particularly among younger workers who are already less connected to long-term saving.
There is some light relief for employers and employees in that these changes will not take effect until 6 April 2029, giving employers and employees time to prepare and adjust. Those already using salary sacrifice can plan ahead and continue benefiting from savings in the meantime, especially employees making significant contributions under current rules.
Loan charge review outcome
The Government has issued its response to the Loan Charge Review 2025, accepting most of the recommendations and going further in several areas to provide closure for those affected. It is expected that up to 30% of the participants (the lowest earners) may have their liabilities reduced to nil.
A new settlement opportunity will be introduced for individuals and employers with outstanding loan charge liabilities. Key changes include calculating tax owed based on the years income was earned with the aim of minimising the tax owed by effectively unstacking tax years. A proportion of the untaxed income will be written off to account for promoter fees, with a tapered deduction of up to 10% for lower incomes. Late payment interest and penalties will not be charged on the tax paid late, and inheritance tax charges arising from payments made via trusts will not be pursued.
The Government will also provide an additional £5,000 deduction from the principal liability for everyone caught by the loan charge, which is estimated to remove the liability entirely for approximately 30% of individuals affected by the loan charge. There will also be a cap of £70,000 placed on the maximum amount that can be written off, affecting the highest earners that used the loan scheme, this is expected to affect less than 20% of individuals.
Finally, payment plans of up to five years will be available by default and longer plans will be considered without a fixed limit. An exceptional approach will be taken for individuals solely reliant on State Pension or Universal Credit.
HMRC will contact approximately 23,000 individuals and 4,000 employers from early 2026 to offer this new settlement opportunity. Those who do not engage will have their cases progressed under existing loan charge legislation, potentially leading to larger tax bills.
Moore Kingston Smith comment
The Government has fully embraced the proposed settlement terms, which potentially offer people affected by this highly contentious retroactive legislation with proportionate and fair terms for settlement. It is hoped that HMRC allocates sufficient resources to communicating with those affected so that they can bring some much-needed finality to their historical tax affairs.
