The Income Tax (Pay As You Earn) (Amendment) Regulations 2025

Published: Wed 12th Mar 25 Came into force: Sun 6th Apr 25

Made under: Income Tax (Earnings and Pensions) Act 2003

The 2025 regulations amended the 2003 PAYE Regulations by defining a 'secondary threshold' and modifying calculations for first relevant payments.

The Income Tax (Pay As You Earn) (Amendment) Regulations 2025, effective April 6, 2025, amend the 2003 PAYE Regulations.

Key changes include defining a 'secondary threshold' aligned with the 1992 Social Security Contributions and Benefits Act and modifying regulations 47(2), 48(2), 49C(2), and 49D(2) to use either the lower earnings limit or the secondary threshold (whichever is lower) for initial payments.

The amendments aim to enhance clarity and consistency in income tax deduction calculations.

Arguments For

Improved Clarity and Consistency: The amendments clarify the calculation process for income tax deductions, leading to greater consistency in application.
Alignment with Social Security Legislation: The introduction of the 'secondary threshold' aligns PAYE regulations with the Social Security Contributions and Benefits Act 1992, creating a more integrated system.
Administrative Efficiency: The changes might streamline payroll processes for employers by clarifying the criteria for determining the applicable threshold.
Legal Basis: The regulations are made under the authority of section 684(1) and (2) of the Income Tax (Earnings and Pensions) Act 2003.

Arguments Against

Potential for Confusion: The introduction of a new threshold may initially cause confusion among employers and payroll administrators.
Minor Impact: The explanatory note indicates no substantive changes to tax policy, suggesting the amendments may offer only minimal practical benefits.
Unforeseen Consequences: While unlikely, there could be unintended consequences related to the interaction of the 'secondary threshold' with other tax regulations.
Implementation Challenges: There may be some costs associated with adapting payroll software and training staff.

The Commissioners for His Majesty’s Revenue and Customs make these Regulations in exercise of the powers conferred by section 684(1) and (2) of the Income Tax (Earnings and Pensions) Act 2003[1] and now exercisable by them[2].

These regulations were created by the Commissioners for His Majesty's Revenue and Customs.

They are authorized to do so by section 684(1) and (2) of the Income Tax (Earnings and Pensions) Act 2003.

These Regulations may be cited as the Income Tax (Pay As You Earn) (Amendment) Regulations 2025 and come into force on 6th April 2025.

The official name of these regulations is the Income Tax (Pay As You Earn) (Amendment) Regulations 2025.

They become effective on April 6, 2025.

The Income Tax (Pay As You Earn) Regulations 2003[3] are amended as follows.

This section indicates that the following sections will amend the Income Tax (Pay As You Earn) Regulations 2003.

In regulation 2(1) insert in the appropriate place— ““secondary threshold” means the secondary threshold for Class 1 contributions for the purposes of section 5(1) of the Social Security Contributions and Benefits Act 1992[4];”

This regulation adds a definition of "secondary threshold" to regulation 2(1) of the 2003 PAYE Regulations.

The definition refers to the secondary threshold for Class 1 social security contributions as defined in the Social Security Contributions and Benefits Act 1992.

In regulations 47(2), 48(2), 49C(2) and 49D(2)— (a) before “the lower earnings limit” insert “either”; and (b) after “the lower earnings limit” insert “or the secondary threshold, whichever is the lesser amount,”.

This regulation amends several regulations (47(2), 48(2), 49C(2), and 49D(2)) within the 2003 PAYE Regulations.

The changes add the option of using either the lower earnings limit or the newly defined secondary threshold, selecting the lower value, when calculating income tax.

Angela MacDonald Justin Holliday Two of the Commissioners for His Majesty’s Revenue and Customs 7th March 2025

This section contains the signatures of two Commissioners for His Majesty's Revenue and Customs, and the date the regulations were signed, March 7, 2025.

EXPLANATORY NOTE (This note is not part of the Regulations) These Regulations amend the Income Tax (Pay As You Earn) Regulations 2003 (“the PAYE Regulations”) (S.I. 2003/2682) which make provision for the assessment, charge, collection and recovery of income tax in respect of pay as you earn income. Regulation 3 of these Regulations amends regulation 2(1) of the PAYE Regulations which contains the definitions of terms in those Regulations. Regulation 3 inserts a new definition of “secondary threshold” into the PAYE Regulations. Regulation 4 of these Regulations amends regulations 47(2), 48(2), 49C(2) and 49D(2) of the PAYE Regulations to add reference to the secondary threshold so that the PAYE Regulations now require an employer to apply either the lower earnings limit or the secondary threshold, whichever is the lesser amount, on the making of the first relevant payment. A Tax Information and Impact Note has not been prepared for these Regulations as they contain no substantive changes to tax policy.

The explanatory note summarizes the regulations' purpose and impact.

It clarifies that the amendments primarily introduce a new 'secondary threshold' definition and adjust existing regulations to incorporate this threshold into calculations for first payments.

It also notes that no detailed tax impact assessment was needed because the changes are not considered substantive alterations to tax policy.

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