As we approach the Autumn 2025 Budget, there has been much speculation about the potential extension of the freeze on income tax and National Insurance thresholds, allowances and bands. Similarly, within employment tax we have seen many tax exemptions and limits remain at the same levels for many years despite the increased costs faced by employers.
While headline rates of income tax and National Insurance may not increase in this Budget, the continued freeze of thresholds, bands, allowances, exemptions and limits across the tax system continues to have significant implications for both individuals and employers.
The stealth tax effect for individuals
The Chancellor may reaffirm the Government’s commitment not to raise the rates of basic, higher, or additional rate income tax or National Insurance for individuals. Employers are, of course, still coping with the rise in the Employers’ National Insurance threshold and contribution rate in the 2024 Budget. However, by continuing to freeze, for example, the personal allowance at £12,570 and the basic rate tax limit at £37,700, more individuals pay tax for the first time or move into the higher rate tax bracket on income above £50,270 as wages of “working people” rise with inflation and pay reviews.
Similarly, since 2010 when an individual’s adjusted net taxable income exceeds £100,000, their personal allowance for the tax year is gradually reduced by £1 for every £2 of income received over £100,000. This leads to an effective tax rate in the band where the personal allowance is tapered to zero of 60%. As the £100,000 limit at which personal allowance tapering starts has not been increased since 2010, many more taxpayers have also been dragged into this 60% tax band.
The stealth tax effect for employers
Although the focus for discussion on the effect of stealth taxes is on the effects for individual taxpayers, in employment taxes we see numerous other examples. Many rules to determine the tax position of expenses and benefits in kind provided to employees include monetary amounts above which the item becomes taxable or the tax due increases. Some of these amounts have not been increased for many years. A few examples are:
| Expense or benefit | Amount | Last changed |
| Annual social function | £150 per head | 2003 |
| Removal expenses | £8,000 | 1993 |
| Trivial benefit exemption | £50 per benefit | 2016 |
| Expensive accommodation charge | Properties > £75,000 | 1988 |
| Mileage rates for business travel in private cars | 45p for first 10,000 miles, then 25p | 2011 |
| Incidental overnight expenses business travel | £5 UK / £10 Overseas per night | 2003 |
| Long service award | £50 per year of service | 2003 |
| Flat rate meal allowances business travel | £5 (5 hours) / £10 (10 hours) / £25 (15 hours) | 2016 |
Freezing the thresholds mentioned above acts as a stealth tax on both employers and employees – especially when employers cover the tax on benefits. Take annual staff social functions as an example. The tax-free allowance per employee hasn’t increased since 2003. But inflation has. This means the real value of what employers can spend before triggering a tax charge has fallen significantly. To make matters worse, many employers choose to settle the income tax and PAYE on behalf of their staff. With more employees now paying higher rates of tax due to fiscal drag, and with increased Employers’ National Insurance costs, the total cost of hosting the same event in 2025 as in 2003 has risen sharply in real terms.
This principle applies to all the examples listed above.
Why stealth taxes matter for individuals
- Inflationary salary increases could push employees into higher tax brackets.
- Their purchasing power may stagnate, even as their gross income rises.
- Employees may be less incentivised to push for promotion or increase their hours, with some even choosing to reduce their hours, due to being pushed into higher tax brackets.
Why stealth taxes matter for employers
- Payroll costs may rise as employees seek higher net pay to offset increasing taxes and higher employer National Insurance is payable.
- HR and finance teams may face pressure to review and adjust compensation packages.
- Employee retention and satisfaction may be challenged by reduced take-home pay and employers reducing their spend on some staff benefits, and remuneration planning for directors and senior staff becomes more complex.
- Budgeting and forecasting must account for hidden increases in tax liabilities and increased employment costs.
- Businesses may need to reassess employee benefits and explore more tax-efficient reward structures.
What You Can Do Now
We recommend that individuals and employers prepare for this scenario with a proactive approach:
- Review your tax position annually to understand your exposure.
- Explore tax-efficient remuneration strategies, including pensions, share schemes, and benefits-in-kind.
- Model future scenarios to anticipate how threshold and allowance freezes may affect your finances/budgets over the next 3–5 years.
- Speak to your PEM adviser to ensure your strategy and affairs are resilient to stealth tax increases.
Looking Ahead
Even if headline rates remain untouched, the fiscal pressures facing the government of an expected £40–50 billion revenue shortfall, according to the Office for Budget Responsibility, and a commitment to their manifesto pledge makes continuing threshold, allowance and band freezes an attractive tool to raise revenue without headline political fallout.
Our focus is on your future. Whether you’re an employer, director, or individual taxpayer, now is the time to reassess your position and ensure you’re prepared for what may come.
Do you need help navigating the possibilities?
We are hosting an in-person Autumn Budget 2025 seminar on 28 November. Places are limited so we will make a video of the event available week commencing 1 December 2025.
For a more personal approach, our tax specialists are here to support you with tailored advice and forward-looking planning. Get in touch to schedule a review or explore how we can help you stay ahead.
