Minimum wage rates rose on 1 April 2025. NLW now £12.21, and big increases for younger workers too. Make sure you're compliant – underpayment can cost up to £20K per worker and a director ban. Time to check your payroll!

Employers must ensure they are paying staff at least the National Minimum Wage (NMW) or National Living Wage (NLW). The NMW and the NLW are the minimum legal amounts that employers must pay their workers.

The new NMW and NLW rates came into effect on 1 April 2025. The NLW rate has now increased from £11.44 to £12.21. This represents an increase of 77p or 6.7%. The NLW is the minimum hourly rate that must be paid to those aged 21 or over. The increase represents a pay rise of over £1,400 a year for someone working full-time and earning the NLW.

The NMW (for 18-20 year olds) has increased from £8.60 to £10.00 an hour. This is largest increase ever in the NMW (a whopping 16.3% increase) that means younger workers having their pay boosted by up to £2,500 a year. This increase is part of a move to narrows the gap in wage rates for 18-20 years olds and the NLW and ultimately create a single adult wage rate for all those aged 18 and up. 

The NMW rates for 16 to 17 year olds increased from £6.40 to £7.55 – an increase of £1.15 or 18% per hour. The Apprentice Rate mirrors this increase.

It is important that employers ensure they have updated their wage rates and that they pay the legal minimum wage rates. There are significant penalties for employers who are found to have paid workers less that they are entitled to by law. If an employee has been underpaid, the employer must pay any arrears without delay. There are penalties for non-payment of up to 200% of the amount owed. The penalties are reduced by 50% if all of the unpaid wages and 50% of the penalty are paid in full within 14 days.

The maximum fine for non-payment can be up to £20,000 per employee and employers who fail to pay face up to a 15-year ban from being a company director as well as being publicly named and shamed.

As the UK tax year ends on 5 April, employers must complete several key payroll tasks to stay compliant with HMRC. Processing the final payroll run is essential, ensuring all pay, deductions, and benefits are correctly recorded. The final Full Payment Submission (FPS) must be sent to HMRC on or before the last payday, along with an Employer Payment Summary (EPS) if required.

Employers must provide P60s to all employees who were on payroll at the year-end by 31 May 2025. These summarise total earnings and deductions, and employees rely on them for tax returns or financial applications. It’s also crucial to ensure all P45s have been issued correctly for any leavers.

If benefits like company cars or private healthcare were provided, these must be reported via P11D forms by 6 July 2025. Employers also need to pay Class 1A National Insurance on benefits by 22 July 2025. For those using payrolling benefits, all records must be accurately maintained.

Ensuring that PAYE and National Insurance Contributions (NICs) are up to date is crucial, with final payments for the tax year due by 22 April 2025. Updating employee tax codes for the new tax year is equally important, as HMRC issues revised codes on 6 April. Payroll software should be updated to reflect changes in tax thresholds, National Insurance bands, and minimum wage rates.

Submitting a final Employer Payment Summary (EPS) by 19 April 2025 is necessary if reclaiming statutory payments. Employers should also conduct a payroll audit to verify employee details and deductions. Staying aware of legislative changes in the new tax year, including updates to income tax thresholds and statutory pay rates, ensures compliance and smooth payroll processing.

If redundancy strikes, you could receive up to £30,000 tax-free. Whether it’s statutory or a more generous employer offer, understanding your entitlements and the latest caps on weekly pay can make a real difference to your finances.

There is a tax-free threshold of £30,000 for redundancy payments, regardless of whether the payment is your statutory redundancy pay, or a more generous amount offered by your employer.

If you have been employed for two years or longer and are made redundant, you are typically entitled to redundancy pay. The legal minimum you are entitled to receive is known as "statutory redundancy pay." However, there are exceptions to this entitlement, such as if your employer offers to retain you in your current role or provide suitable alternative employment, and you refuse the offer without a valid reason.

The amount of statutory redundancy pay is determined by your age and length of service, and is calculated as follows:

Weekly pay is capped at £700, with a maximum of 20 years of service considered. The maximum statutory redundancy payment for the tax year 2024-25 is £21,000, with slightly higher limits applicable in Northern Ireland. The cap on weekly pay for redundancy calculations is expected to increase in April 2025, though details have yet to be announced.

Employers may opt to offer a higher redundancy payment, or you may be entitled to an increased amount based on the specific terms outlined in your employment contract.

Employees working from home may be eligible to claim a tax deduction for certain job-related expenses. If your employer does not cover these costs or allowances, you have the option to claim tax relief directly from HMRC.

You may qualify for tax relief if you are required to work from home. This could apply if your job necessitates living far from the office or if your employer does not have an office. However, tax relief is generally not available if you opt to work from home, even if your employment contract permits it or if your office is occasionally full.

You can claim tax relief for £6 per week (or £26 per month if paid monthly) to cover additional costs associated with working from home, without the need to maintain specific records. The amount of tax relief you receive depends on your highest tax rate. For example, if you pay the basic rate of 20% tax, you will receive £1.20 per week in tax relief (20% of £6). Alternatively, you can claim the actual amount of additional costs incurred, but you must provide evidence to HMRC. HMRC accepts backdated claims for up to four tax years.

You may also be entitled to claim tax relief for using your personal vehicle, whether it is a car, van, motorcycle, or bike. Generally, tax relief is not available for regular commuting to and from your usual workplace. However, the rules are different for temporary workplaces, where such expenses are usually allowable, or if you use your vehicle for other business-related travel. Additionally, you may be able to claim tax relief on equipment purchased for work, such as a laptop, chair, or mobile phone.

Should your employer not cover these expenses or allowances, you can claim tax relief directly from HMRC.