Pay & Tax

Policy

Strengthen Statutory Sick Pay

See the day one employment rights and unfair dismissal section of the reform hub.

National Minimum Wage

The Government has promised to deliver a genuine living wage that accounts for the cost of living. It has changed the Low Pay Commission’s remit to factor in the cost of living when recommending minimum wage rates. It has also instructed the Low Pay Commission to narrow the gap between the minimum wage rate for 18-20 year-olds and the National Living Wage as a first step towards achieving a single adult rate.

As a result, the following changes will be applicable from 1 April 2025:

• Daily accommodation offset will increase from £9.99 to £10.66.

• National Living Wage (21 and older) will increase from £11.44 to £12.21 an hour.

• National Minimum Wage for 18 to 20-year-olds will rise from £8.60 to £10.00 an hour.

• National Minimum Wages for Under 18s and Apprentices will increase from £6.40 to £7.55 per hour.

Tax and National Insurance Contributions (‘NICs’)

The Labour Party’s manifesto said that there would be no increase to NICs, the basic, higher, or additional rates of Income Tax, or VAT.

The Autumn Budget on 30 October 2024 announced:

• No increases to Income Tax Rates (basic, higher or additional rates).
• No increases to employee NICs or VAT.
• Income Tax and NIC personal allowance thresholds will remain frozen until the 2028 deadline set by the Conservative Government. From April 2028, these will be uprated in line with inflation.
• The rate of employer NICs will increase by 1.2 percentage points, from 13.8% to 15% from 6 April 2025.
• The Secondary Threshold – the per-employee threshold at which employers become liable to pay NICs on each employee’s salary will reduce from £9,100 per year to £5,000 per year from 6 April 2025 until 6 April 2028 and then increase by CPI thereafter.
• The Employment Allowance will increase from £5,000 to £10,500 and be extended to all eligible employers by removing the £100,000 threshold for eligibility. Meaning that 865,000 employers will pay no NICs next year.

Internships and Apprenticeships

The Government has indicated it wants to ban unpaid internships, except when they are part of an education or training course. The Government planned to launch a Call for Evidence on this by the end of 2024, but this is awaited.

The Government has announced it wants to make changes to the funding of apprenticeships in England. The Government plans to replace the existing apprenticeship levy with a new growth and skills levy – but details are awaited.

Private Equity

The manifesto said that “private equity is the only industry where performance-related pay is treated as capital gains. Labour will close this loophole.” Provision for this was specifically included in its fiscal plan in the manifesto too.

The Government introduced a call for evidence on this topic, which closed on 30 August 2024. It was announced in the Autumn Budget 2024 that there will be a phased approach to reforms in respect of the tax treatment of carried interest:

• Phase one – Capital Gains Tax rates on carried interest will be increased to 32% from 6 April 2025; and
• Phase two – from April 2026 carried interest will be taxed fully within the Income Tax framework, with ‘bespoke rules.’

If the taxation position for carried interest changes, this would have an impact on the incentivisation structures in Private Equity.

Capital Gains Tax (‘CGT’)

It was announced in the Autumn Budget 2024 that for CGT:

• Lower rate – will increase from 10% to 18% for qualifying disposals made on or after 30 October 2024; and higher rate – will increase from 20% to 24% for qualifying disposals made on or after 30 October 2024.
• These new rates will match the residential property rates, which will be unchanged at 18% for the lower rate and 24% for the higher rate.
• The rate for Business Asset Disposal Relief and Investors’ Relief will increase to 14% from 6 April 2025 and will increase again to match the lower main rate at 18% from 6 April 2026.

Tackling Tax Non-Compliance in the Umbrella Company Market

Alongside the Autumn Budget 2024, the Government published a policy paper indicating that it will legislate to change the responsibility for who must account for Pay As You Earn (‘PAYE’) and NICs where an umbrella company is used in a labour supply chain to engage a worker. This has also been confirmed by the Government in its response to the previous Government’s consultation in 2023 on non-compliance in the umbrella company market (i.e. a business which employs a worker with a view to that worker being supplied to work for and be under the control of an end-client). See the Umbrella Companies section for details on the changes proposed.

---

Timing and developments

Minimum wage

New rates will increase on 1 April 2025.

Tax and NICs

Timings vary but increases to employer NICs will apply from 6 April 2025.

Unpaid internships and apprenticeships

Plans to launch a call for evidence on unpaid internships was promised for later in 2024 but this is seemingly delayed. Introduction of the new growth and skills levy and other apprenticeship reforms likely to commence during 2025/26 – although timings are not yet known.

Private equity carried interest

Phase one of CGT rate increases will apply from 6 April 2025. Phase two of taxing carried interest as Income Tax will apply from April 2026.

Capital Gains Tax

Increase to rates will apply to qualifying disposals made on or after 30 October 2024.

Tax responsibility in umbrella companies

April 2026. The Government has also said it will set out full details of how this measure will operate in the coming months, alongside draft legislation which it will consult upon.