How Accounting Firms Can Adapt to the 2025-26 Payroll Reforms

The 2025-26 payroll reforms aren’t just another tick-box exercise. They’re reshaping how payroll is processed, reported, and reviewed. And for accounting firm owners, it’s not about compliance alone; it’s about competitiveness, client retention, and profitability.

If your firm handles payroll in-house or manages it for clients, these reforms will hit your operations. The question is: will you be ready – or playing catch-up?

Let’s break it down.

What’s Changing?

Following the 2024 Autumn Budget and the 2025 Spring Budget, several payroll reforms are being rolled out. While the government’s narrative is focused on “modernising” PAYE and improving HMRC data accuracy, for accounting firms, it means more admin, more tech, more oversight.

Here are the key changes you should be aware of:

1. Increase in Employer National Insurance Contributions (NICs)

Starting April 2025, the employer NIC rate will rise by 1.2 percentage points to 15%. Additionally, the earnings threshold at which employers begin paying NICs will decrease from £9,100 to £5,000. This change disproportionately affects low-wage sectors, increasing employment costs by over 4% for the bottom fifth of earners, compared to about 1.5% for the top fifth.

2. Integration of Benefits-in-Kind into Payroll

Employers will be required to process all benefits-in-kind through payroll, phasing out the use of P11D forms. This shift necessitates updates to payroll systems to handle real-time reporting of benefits, ensuring accurate tax deductions and compliance.

3. Real-Time Tax Code Updates

HMRC will implement real-time tax code updates, requiring employers to apply changes promptly. Delays or errors in applying new tax codes could lead to compliance issues and employee dissatisfaction.

4. Mandatory Digital PAYE Submissions

From April 2026, all PAYE submissions must be made digitally. Manual or paper-based submissions will no longer be accepted, compelling firms to adopt compliant digital payroll solutions.

5. Enhanced Employer Responsibilities

Employers will face increased responsibilities, including stricter checks on right-to-work documentation, pension auto-enrolment compliance, and adherence to minimum wage laws. Failure to comply could result in significant penalties.

6. Tighter Deadlines and Increased Penalties

The reforms introduce stricter deadlines for payroll submissions and payments. Late submissions will incur higher penalties, and interest on late PAYE payments will accrue more rapidly, emphasizing the need for timely and accurate payroll processing.

What This Means for Your Firm

This isn’t just about HMRC tightening the screws. It’s about firms like yours having to:

Upgrade systems
Train staff
Review processes for every payroll client
Offer real-time compliance without stretching internal resources

That’s a lot of added pressure. Especially if your team is already stretched thin or if payroll isn’t your main revenue stream.

And yet, your clients will expect you to be faster, more accurate, and more proactive than ever before.

Two Smart Ways to Adapt (and Stay Ahead)

1. Technology Integration That Actually Works

There’s a tech tool for everything, sure. But the right tech stack should:

Handle real-time PAYE updates
Integrate with HR and accounting software
Auto-flag issues like incorrect NI codes or benefit processing errors
Reduce human input (and human error)

Investing in smart payroll tech isn’t about bells and whistles. It’s about reducing the compliance burden and freeing up your team’s time.

According to a study, 64% of UK accounting firms still use spreadsheets for parts of their payroll processing. That’s a risk in 2025-26.

Choose software that connects seamlessly with HMRC APIs and your clients’ systems. And make sure your staff actually like using it—training fatigue is real.

2. Outsourcing Payroll (The Right Way)

If payroll isn’t your core service, consider handing it over. Not to lose control—but to gain efficiency.

With a reliable payroll outsourcing partner, you can:

Scale payroll clients without scaling headcount
Keep turnaround times low, even during peak months
Ensure compliance without hiring in-house experts
Reduce your risk of penalties and client dissatisfaction

Real number: UK accounting firms spend an average of 7-12 hours per month per client on payroll tasks. Outsourcing can cut that by 60-70%.

Your firm remains the face of service. But behind the scenes, a specialist team handles the nitty-gritty—from auto-enrolment to P11Ds to FPS submissions.

Frequently Asked Questions

1. How soon do we need to change our systems?

Start in 2025. The final rollout is 2026, but leaving it late means rushed training, potential errors, and last-minute panics. Build a transition timeline now.

2. What happens if we continue with manual or semi-manual payroll processes?

You’ll likely face late penalties, data mismatch errors, and frustrated clients. Manual payroll is being quietly killed off by HMRC’s digital focus.

3. We already use cloud payroll software. Isn’t that enough?

Not necessarily. Check whether it can handle real-time tax code changes, digital benefit integration, and direct submission to HMRC. Not all platforms are future-ready.

4. Isn’t outsourcing expensive?

Not compared to the cost of hiring, training, and retaining an in-house payroll team. Plus, you avoid sick leave cover, system downtime, and burnout.

5. Will we lose control if we outsource?

Not with the right partner. You remain client-facing. The outsourcing team works in your systems, your templates, your tone. It’s invisible support.

Let’s Be Honest

Running a firm today is already overwhelming. The last thing you need is HMRC making it harder to retain clients with shifting rules and red tape.

But this isn’t just a problem—it’s a strategic opportunity.

Firms that adapt now—by combining smart tech and outsourcing muscle—will pull ahead. You’ll deliver faster, more compliant payroll services without increasing your costs. And your clients will stay.

Meanwhile, firms that hesitate risk late penalties, staff overload, and losing clients to more agile competitors.

Final Thoughts: Move First, Not Last

2025-26 will be the most significant shift in UK payroll compliance in a decade.

Accounting firms who prepare early will win big, and those who wait will scramble. The key is not just understanding the reforms but building a model that thrives under them.

We’re already helping UK firms transition payroll operations smoothly through reliable outsourced payroll support, tech-aligned processes, and white-labelled solutions that keep their brand intact.

Want to test how it works? Sign up for a no-obligation payroll outsourcing trial here.

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Let us take care of the compliance, while you focus on growing your firm.

Need a quick chat instead? Reach out to book a discovery call with our payroll team. No hard sell. Just honest answers to your payroll headaches. Call us at +44 208 146 0808 or drop an email at [email protected].

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We hope you enjoyed reading this blog. If you want our team to help you resolve talent gaps, reduce costs and transform your business operations, just book a call.

Pooja Kshirsagar

With a rich experience of curating content for various industries, Pooja believes in the power of words in marketing and building brands. She enjoys experimenting with different forms of content and is currently on a mission to add value to the accounting industry through her detailed and researched write-ups.

Unauthorized copying or plagiarism of our content is a violation of intellectual property rights. We take such matters seriously and will pursue legal action to protect our original work. Anyone found engaging in such activities will be held accountable under applicable laws.

Originally published Apr 15, 2025 09:04:57, updated Apr 15 2025

Topics: Outsourcing, Payroll, Payroll outsourcing, payroll reforms