Employment tax update - March 2025

This bulletin follows the release of the March Agent Update (Issue 129). In this issue we cover the content most relevant to employment taxes and reward activities.

Official rate of interest from 6 April 2025

• The official rate of interest (ORI) will increase from 2.25% to 3.75% on 6 April 2025. The ORI is used to calculate the income tax charge on the benefit of employment-related loans and living accommodation.
• It is also worth noting that from 6 April 2025 the ORI may be changed quarterly during the tax year and therefore employers and agents need to remain aware of such changes to accurately calculate benefits in kind (BIKs). 

Student loan repayment and payrolled benefits in kind

• From 2024/25 onwards, a new box has been added to the self-assessment tax return for payrolled BIKs that are subject to Class 1A National Insurance contributions (NICs) only. This is for student or postgraduate loan purposes.
• When HMRC work out student loan payments, they use the total PAYE income declared on the self-assessment tax return. If the income figure includes payrolled BIKs, then self-assessment would calculate student or postgraduate loan repayments on this.
• Student or postgraduate loan repayments are not due on BIKs taxed through payroll that are subject to Class 1A NICs only.
• The new box will allow individuals to enter payrolled BIKs separately to the total PAYE income on the self-assessment tax return.
• For the 2024/25 tax return, the amount of payrolled BIKs subject to Class 1A NICs should be reported as follows:
  • online tax return – box titled “Payrolled benefits included in pay from employer which affect your student loan repayments”; and
  • SA102 paper tax return – box titled “Payrolled benefits included in box 1 which affect your student loan repayments”.
• For the 2023/2024 tax return or earlier, self-assessment systems were not able to distinguish between payrolled BIKs and rest of PAYE income. HMRC provided steps to complete tax returns to make sure the right amounts of student or postgraduate loans are repaid.
• Affected individuals have until 31 January 2026 to make any amendments to their 2023/24 tax return following the steps set out.

Basic PAYE Tools – new release

• An update to the Basic PAYE Tools will be released at the end of March 2025 to support the 2025/26 tax year. It is important that employers (or, where relevant, payroll agents) update and use version 25.0 from 6 April 2025. 

Update on employee hours data requirements

• The Government previously proposed the requirement for more detailed employee hours data provided through PAYE Real Time Information (RTI) returns – this proposal is not going ahead.
• However, from 6 April 2025 there will be requirements to include start and end dates of self-employment and dividend income paid to company owner managers in their own business through self-assessment tax returns. 

Check payroll for female employees who pay less NIC

• HMRC has added more information to guidance to help employers check the eligibility of employees who pay the married women’s and widow’s reduced rate of NICs (sometimes called the “small stamp”).
• Employers must check the employee’s date of birth and gender are correct and whether they are eligible to pay the reduced rate of NICs before payroll is submitted.
• The updated guidance payroll for female employees who pay less National Insurance now states that married women born before 6 April 1961 could choose to pay less NICs until 1977, when the scheme ended. If the employee opted in before it ended, she can keep paying a reduced rate. 
• Guidance on which NI category letter to use for the employee’s payroll submission on the reduced rate is also updated and explained in the general payroll guidance. 

NICs and relevant motoring expenditure

• In the December 2023 Employer Bulletin HMRC shared an update following the decision at the Upper Tribunal in the case of Wilmott Dixon and Laing O’Rourke. This case found that car allowance payments were relevant motoring expenditure.
• If business mileage is undertaken by an employee and mileage payments of less than the highest applicable approved mileage allowance payment rate for tax are paid, not all of the car allowance will be chargeable to Class 1 NICs. 
• A calculation determines the total amount of relevant motoring expenditure that can be paid without deductions. Class 1 NICs are due on relevant motoring expenditure payments above that amount. 
• Employers can claim repayments through RTI. HMRC have guidance on how to fix problems with running payroll, including how to make corrections to an employee’s NICs deduction.
• If the employer is not applying for a refund, employees can claim a repayment for NICs using HMRC’s usual process. Further guidance on claiming a National Insurance refund is available.

Separately to our regular agent update, as the end of the 2024/25 tax year (5 April 2025) is approaching, we have published a bulletin summarising key compliance and reporting considerations for employers and individuals following the end of the tax year. If you would like any help with the preparation of the returns, or have any questions in relation to your compliance obligations, do not hesitate to contact us.