Payroll changes for the tax year 2026-27

As we look to enter the 2026-27 tax year, several key payroll, employment, and compliance updates come into effect from 6th April 2026. While some thresholds remain frozen, there are major reforms employers must prepare for, particularly around statutory payments, minimum wage, benefits, and the government’s wider “Make Work Pay” agenda.

Here, we have summarised the most important changes to help your business stay compliant and ahead of the curve.

Income Tax position

Across England, Wales, and Northern Ireland, HMRC has confirmed that the key income tax thresholds remain unchanged for 2026-27. The Personal Allowance continues to be set at £12,570, with the Basic, Higher, and Additional rate bands also remaining static. As wages rise in response to inflation and labour market pressures, more employees will be drawn into higher tax bands.

Reminder of the Tax bands and Threshold for England, Wales and Northern Ireland below:

Scotland continues its differentiated tax structure, maintaining the Personal Allowance of £12,570 but adjusting the thresholds applicable to the Starter, Basic, and Intermediate bands. The Higher, Advanced, and Top bands remain unchanged. The consequence is a system where more Scottish taxpayers will find themselves paying 19% and 20% tax on income segments that would be taxed at lower rates elsewhere in the UK, before progressing to 21% and higher rates.

National Insurance contributions

Employer NICs remain stable, with the Class 1 NIC rate continuing at 15%. Most NI thresholds are frozen until 2028, again extending the fiscal-drag effect into National Insurance. However, the Lower Earnings Limit for NI and benefits increase to £129 per week, which will bring more lower earners formally within NI crediting thresholds. The Primary Threshold remains aligned with the Personal Allowance, staying at £12,570. For employers, this stability provides administrative predictability but gradually increases the effective NIC burden as salaries rise.

National Minimum Wage and National Living Wage

Significant increases come into force from 6th April 2026:

These are substantial rises, particularly for younger workers, and employers should budget for the increase.

Statutory Sick Pay and family related payments

April 2026 brings one of the most extensive reforms to Statutory Sick Pay (SSP) in over a decade. SSP entitlement will begin on the first day of sickness, eliminating waiting days entirely. The removal of the Lower Earnings Limit for eligibility marks a major expansion of coverage, ensuring all employees, regardless of earnings are entitled to SSP.

A new calculation method introduces a dual structure system in which SSP is payable at the lower of 80% of average weekly earnings or the new flat rate of £123.25. This represents a shift toward a more earnings linked model and will increase employer costs, particularly for lower paid staff.

Family related statutory payments will also increase, with the standard weekly rate rising to £194.32. This rate is applicable for Statutory Maternity Pay, Statutory Paternity Pay, Statutory Adoption Pay, Shared Parental Pay, Parental bereavement and Neonatal. The Lower Earnings Limit for eligibility increases to £129 per week. These adjustments reflect inflationary trends but will have recovery implications for employers participating in the Small Employers Relief scheme.

Small Employers’ Relief compensation

The compensation rate under the Small Employers Relief (SER) mechanism increases to 9%, enabling qualifying businesses to reclaim 109% of statutory maternity, paternity, adoption, shared parental, parental bereavement, and neonatal pay. This uplift provides meaningful support for smaller employers as statutory payment rates rise. However, it also raises compliance expectations around accurate classification and claims.

Student loans and allowances

The repayment thresholds for student loans in the UK for the 2026/27 academic year are as follows:

At the same time, several key personal allowances remain stable. Marriage Allowance continues at £1,260; the Dividend Allowance remains at £500, and Blind Person’s Allowance increases to £3,250. The Working from Home Allowance is abolished from April 2026, tightening allowable tax reliefs for hybrid and remote workers.

Employment Allowance and Benefit in Kind adjustments

The Employment Allowance remains unchanged at £10,500, with no changes to eligibility criteria.

Changes to company car rates

Employment law developments

The regulatory environment is evolving alongside payroll changes. The new Fair Work Agency will be established as a unified enforcement body overseeing holiday pay, minimum wage compliance, and SSP regulation. This consolidation of enforcement powers signals stricter monitoring and more centralised compliance oversight.

The Employment Rights Act 2025 introduces several day one rights, including for unfair dismissal and paternity leave, effective April 2026. These changes significantly alter employment risk profiles, especially during probation periods. Meanwhile, mandatory payrolling of benefits is postponed until April 2027, providing employers with an additional year to modernise systems and reporting processes. Payroll providers will also be required to register formally as tax agents, increasing transparency and regulatory accountability.

How Gravita can support employers

With rising statutory costs, expanded employee entitlements, and a more assertive regulatory environment, organisations will need to reassess workforce budgeting, payroll workflows, and compliance frameworks. Gravita’s payroll specialists can provide tailored guidance, system reviews, and strategic planning support to help businesses manage the transition into the 2026/27 tax year with confidence.