In October, the UK government announced major tax adjustments and new employment standards, bringing both opportunities and challenges for businesses and workers alike.

With significant changes to income tax, National Insurance contributions, minimum wage and policies, the budget’s impact will be felt across the workforce.

Below, we explore the specific changes and how these could potentially impact you and your agency…

➡️ Business and taxation
  • Business rates
    • During COVID-19, temporary business rates relief was introduced to support the retail, hospitality and leisure (RHL) sectors. This short-term measure was extended several times, but the current 75% relief is due to end on 31 March 2025. 
    • The government plans to bring in permanently lower business rate multipliers from 2026/27 for RHL properties with rateable values under £500,000. For properties over this rateable value a higher multiplier will apply. This will, for example, affect the majority of large distribution warehouses used by online companies. 
    • To provide support in the interim, business rates relief will be extended from April 2025 but reduced to 40% and capped at £110,000 per business. Many high street businesses, pubs, restaurants and shops may see higher business rates as a result. The small business multiplier will be frozen for 2025/26 at 49.9p, while the standard multiplier will be uprated by inflation to 55.5p.
    • These increases may lead to tightened budgets for hiring, impacting demand for temporary and permanent recruitment services in these sectors. Recruitment agencies may need to prepare for fluctuations in hiring demand as RHL businesses adjust to higher operating costs.
  • Making Tax Digital for Income Tax Self-Assessment (MTD) 
    • The requirement to file tax returns using MTD is due to come into effect from 6 April 2026. Those initially affected by the rules will be those with annual income from a sole trader business or property, or both together, of £50,000. This will drop to £30,000 from 6 April 2027. The Budget includes the announcement that the government is committed to delivering MTD, and will expand the rollout to those with incomes over £20,000 by the end of the Parliament. Anyone who will be affected by these rules should make sure they are ready to comply with them in good time: understanding the requirements and making sure that it is possible to comply with them is not something that should be done at the last minute.
    • Many recruitment agencies work with self-employed contractors or temporary workers who will be affected by MTD requirements, especially those earning above £20,000. Agencies will need to ensure that candidates understand the changes and may consider providing resources or guidance on MTD compliance. By helping candidates prepare for MTD, agencies can build trust and strengthen candidate relationships.
  • Income tax thresholds frozen until 2028
    • Income tax thresholds will remain static until April 2028, impacting tax brackets and planning. For businesses, this can affect payroll tax forecasting and for employees, it may impact net earnings over time.
    • As tax brackets remain static amid potential wage increases, more employees may find themselves in higher tax bands over time, reducing their net earnings. This “fiscal drag” could lead candidates to prioritise higher paying positions to maintain real income, increasing competition for better compensated roles.
➡️ Health, education and social
  • VAT on private school fees
    • Starting in January 2025, VAT will apply to private school fees, including boarding services, at 20%, aiming to secure additional funding for education and young people.
    • As a result of increased schooling costs, some candidates might prioritise roles that offer education-related benefits, such as school fee assistance or enhanced childcare support. Recruitment agencies could find themselves advising clients on offering attractive benefits packages that appeal to talent with young families or highlighting roles with these benefits to attract candidates.
  • National Health Service (NHS) funding and productivity goals
    • The Department for Health and Social Care has allocated £214.1 billion to the NHS for the 2025/26 period, reflecting an annual real terms growth rate of 3.8% from 2023/24 through 2025/26. Resource funding will see a £22.6 billion increase in 2025/26 compared to 2023/24, providing NHS England with an average real terms growth rate of 4.0% over two years; the highest rate since pre 2010, apart from the COVID-19 period.
    • The Government has also allocated more than £2 billion to upgrade NHS technology and address the backlog in hospital maintenance, aiming to transform healthcare delivery and make the NHS fit for future generations. This investment includes a commitment to achieve 2% productivity growth next year.
    • The substantial funding increase is likely to drive hiring across NHS England to meet expanded healthcare services, with heightened demand for a wide range of healthcare professionals, including doctors, nurses, allied health professionals, and administrative staff. Recruitment agencies may see a surge in job orders from NHS trusts and healthcare providers, particularly in specialist roles needed for addressing backlogs and enhancing productivity.
➡️ Workforce
  • Employer NICs and secondary threshold changes
    • From April 2025, the employer NIC rate will increase from 13.8% to 15%, while the secondary threshold (at which NICs begin) will decrease to £5,000, affecting employer costs significantly.
    • This will have a number of significant impacts on the recruitment industry – higher employment costs for agencies and a direct increase from employment costs. For those who focus on low margin sectors, this may require a sector refocus or a fee re-evaluation to pricing structure to clients which could potentially put pressure on client budgets. 
    • To counterbalance rising employment costs agencies are looking to invest in technology and automation to help streamline hiring processes, putting them at the forefront of the competition, driving efficiency throughout the business and reducing overheads internally. This enables agencies to focus on a valued driven service to strengthen relationships with clients despite higher associated costs.

Top tip – make sure your software is keeping up with the latest rates!! 

  • Employment allowance increase
    • EA allows businesses with Class 1 ERNIC of £100,000 or less in the previous tax year to deduct £5,000 from their Class 1 ERNIC bill (as long as there is more than one employee earning above the secondary threshold). This allowance will be increased to £10,500 and the £100,000 cap is removed with effect from 6 April 2025.
  • Rising national living wage (NLW)
    • From 1 April 2025, the NLW will apply for those aged 21 or over and will rise from £11.44 per hour to £12.21, considerably above the rate of inflation. There are also increases to the rates that apply to workers aged 18 to 20 (£10) and under 18s and apprentices (£7.55).
    • With the NLW rise, candidates in sectors such as hospitality, retail, and entry-level roles may expect higher pay for temporary or permanent positions. Recruitment agencies will need to manage candidate expectations around compensation, ensuring that wage offers align with the new NLW rates. This may also lead to increased competition between agencies for top talent, as candidates are likely to become more selective in choosing employers who meet or exceed the new wage standards.
  • Interest on late paid tax 
    • HMRC currently charge interest at 7.5% on tax that is paid late and credit a taxpayer with 4% on repayments of tax. These rates rise and fall with the Bank of England base rate, and the ‘turn’ of 3.5% is built in to the calculation. The Budget includes an announcement that the rate on late payments will increase by 1.5 percentage points from 6 April 2025. This appears to be a straightforward increase in HMRC’s turn to 5%.
  • High Income Child Benefit Charge (HICBC)
    • The HICBC continues to apply to the higher earner of a couple where one receives Child Benefit and either of them has income of more than a set threshold. For 2024/25 the threshold is £60,000; the band of income over which the clawback is calculated is £20,000 (1% of the total benefit for every £200 of income), so that the whole benefit is lost when income reaches £80,000. The HICBC is one reason that an individual might have to register for self-assessment and file a tax return.
    • In March, Chancellor Jeremy Hunt announced plans to reform the HICBC from April 2026 to take into account the combined income of the household, rather than just the higher earner. This would reduce the unfairness of clawing back nothing from a couple each earning £59,000, compared to full clawback where one of the couple earns £80,000. Chancellor Rachel Reeves has decided not to proceed with this plan. The charge will therefore remain dependent on the income of the higher earner of the couple.
  • Pension contributions
    • In advance of the Budget, there was speculation that the Chancellor could raise significant tax revenues from pension schemes: she might restrict the tax relief on pension contributions or change the rules on drawing benefits, or impose Employer NIC on employer contributions to employees’ funds. On the other hand, this could also have discouraged pension saving and could have been seen as a tax on ‘working people’. In the event, she made no changes. 
    • The maximum amount that can be withdrawn as a tax-free lump sum remains £268,275 unless the person is entitled to ‘protection’ in relation to the original introduction of the Lifetime Allowance or any of the subsequent reductions of the limit. 
    • The only changes relating to pension funds were a specific change to the rules involving transfers of UK pension funds to other foreign arrangements, with effect from 30 October 2024, and the inclusion of unused funds and death benefits in the IHT estate on death from 6 April 2027.
    • It was also widely predicted that the Chancellor would end the ability to leave a pension fund free of IHT on death. She has announced that this change will take effect from 6 April 2027: unused pension funds and death benefits payable from a pension into a person’s estate will become chargeable, restoring the position before the 2015 pension reforms.
  • Crackdown on umbrella companies
    • In 2026, the responsibility for PAYE deductions will shift to recruiters and end clients when using umbrella companies, to address tax avoidance in this sector.
    • The upcoming 2026 change, which shifts the responsibility for PAYE deductions to recruiters and end clients using umbrella companies, is aimed at tackling tax avoidance within the sector. This will have significant implications for recruitment agencies, particularly those that rely on umbrella companies to manage temporary or contract workers.
    • Under the new rules, the agency that supplies the worker to the end client will be legally responsible for ensuring PAYE is properly operated on the worker’s pay. This includes any shortfall in PAYE, whether the agency operates its payroll internally or uses an umbrella company to process payments. Recruitment agencies will need to ensure full compliance with the new regulations, which could add complexity to their payroll processes.

The recent changes in UK tax and employment regulations present both challenges and opportunities for recruitment agencies. As businesses adjust to new tax brackets, National Insurance rates and shifts in payroll responsibilities; agencies must stay proactive in navigating these changes. It’s essential for agencies to be prepared to manage hiring fluctuations, especially in sectors impacted by higher operating costs or wage increases. Providing candidates with up-to-date information on tax compliance and compensation adjustments will be crucial to maintaining strong relationships and ensuring smooth operations.

Adapting to these changes by embracing technology, offering competitive benefits packages and offering guidance on new regulations will be key to positioning recruitment agencies for success in an evolving market. By understanding the impacts of these adjustments and anticipating client needs, agencies can turn these challenges into opportunities, ensuring they remain a valuable resource for businesses and talent alike.

We understand that navigating the latest tax and employment changes can be complex for recruitment agencies. With new tax thresholds, National Insurance increases and the responsibility shift for PAYE deductions, agencies must adapt quickly to ensure compliance and maintain smooth operations. A robust payroll and HR system like mywage can help businesses streamline processes, automate tax calculations and ensure compliance with the latest legislation.

 

By integrating our comprehensive suite of tools, agencies can efficiently manage payroll, keep up with changing tax rates and track employee benefits. Our platform provides real-time updates on regulatory changes, helping you stay ahead of new requirements and avoid costly mistakes. Whether it’s simplifying the payroll process or managing self-employed contractors, mywage enables recruitment agencies to focus on what matters most: growing their business and supporting their clients.

 

www.mywage.co