2025 Tax Year: A Breakdown of Key Changes for Employers
The 2025 tax year introduces a variety of changes that employers need to be aware of to stay compliant and manage their payroll processes effectively. While some updates provide tax relief, others bring new responsibilities. Below is a summary of the key changes you need to consider:
Income Tax and Tax Credits
Standard Rate Cut-off Points: These have been increased, allowing a greater portion of your employees' income to be taxed at the lower rate.
Tax Credits: Personal, employee, and earned income tax credits have all increased, providing additional financial relief for your workforce.
Universal Social Charge (USC)
Reduced Middle Rate: A decrease in the middle USC rate offers tax savings for many employees.
Increased Threshold: The income threshold for the middle USC rate has been raised, reducing the tax burden further for eligible individuals.
Pay-Related Social Insurance (PRSI)
Increased Rates: Effective October 1st, 2024, PRSI rates have risen for both employers and employees.
Potential Impact on Pensions: The delay in pension auto-enrolment may influence the long-term sustainability of the Social Insurance Fund.
Company Car Benefit-in-Kind (BIK)
Extended Incentives for Electric Vehicles: Favourable BIK tax treatment for electric vehicles continues as part of the government's sustainability initiatives.
Home Charging Expenses: Employers can now claim a BIK exemption for providing home charging facilities to employees.
Small Benefit Exemption
Increased Limit and Broader Range: The annual limit for tax-free small benefits has risen, and the range of eligible benefits has been expanded.
National Minimum Wage
Increased Hourly Rate: A rise in the national minimum wage will impact hourly pay rates for all workers.
Statutory Sick Leave
Extended Entitlement: Employees are now entitled to seven days of statutory sick leave per year.
Pension Auto-Enrolment
Delayed Rollout: The pension auto-enrolment scheme has been postponed to September 30th, 2025.
What DO Employers Need to Do?
To ensure compliance and smooth payroll processing, employers should take the following steps:
Update Payroll Software: Incorporate the new tax rates, cut-off points, and tax credit values into your payroll system.
Review Tax Certificates: Obtain and apply the updated Revenue Payroll Notifications (RPNs).
Adjust PRSI Calculations: Update payroll systems to reflect the increased PRSI rates.
Revise Company Car BIK Calculations: Ensure your calculations for company cars, especially electric vehicles, align with the latest rules.
Review Small Benefit Policies: Update policies to reflect the increased limit and expanded range of eligible benefits.
Monitor National Minimum Wage Compliance: Confirm that all employees are paid at least the new minimum wage rate.
Prepare for Statutory Sick Leave: Adjust your payroll system to track and administer the increased entitlement.
Understand Pension Auto-Enrolment: Familiarize yourself with the delayed rollout and its potential impact on your workforce.
Staying ahead of these changes is vital for maintaining compliance and ensuring accurate payroll processing. By proactively addressing these updates, employers can mitigate risks and provide clarity for their employees.
For more information or assistance in managing these updates, please don’t hesitate to get in touch with us.