Are you prepared for upcoming changes to payroll and tax?
From 6 April 2026, several significant legislative, tax and compliance changes will come into effect. Payroll operations should be prepared for the changes that introduce new complexities, particularly around statutory sick pay reform, National Minimum Wage compliance and increased regulatory oversight.
Our Payroll Services team has set out the key changes below. If you need support with any of the issues in this article, please get in touch.
Income tax bands and personal allowance
The personal allowance remains frozen at £12,570 for 2026/27, with income tax bands unchanged across England, Wales and Northern Ireland. More employees may be drawn into higher tax bands due to wage inflation.
England & Northern Ireland rates for 2026/27:
- Basic rate (20%): up to £37,700.
- Higher rate (40%): £37,701 – £125,140.
- Additional rate (45%): over £125,140.
Scottish tax structure remains differentiated, with multiple bands including Starter (19%), Basic (20%), Intermediate (21%), Higher (42%), Advanced (45%) and Top (48%).
PAYE tax codes
The emergency tax codes for 2026/27 are:
- 1257L W1;
- 1257L M1;
- 1257L X.
These apply from 6 April 2026.
National Insurance (NI)
- Employer Class 1 NI remains at 15%.
- Most NI thresholds remain frozen until 2028, increasing “fiscal drag”.
- Lower earnings limit rises to £129/week, expanding NI credit eligibility.
- Primary threshold aligns with personal allowance at £12,570.
Statutory sick pay (SSP) reform
This is one of the most significant payroll changes in over two decades, with a major overhaul of the system.
From 6 April 2026:
- SSP is now payable from day one (no waiting days).
- SSP is calculated as 80% of average weekly earnings (AWE), capped at £123.25/week.
- The lower earnings limit no longer applies.
- Transitional rules apply for cases spanning the changeover.
Payroll teams may need to run three concurrent SSP calculations (new rules, old rules, transitional protections).
National Minimum Wage (NMW) and National Living Wage (NLW)
Significant increases come into effect from 6 April 2026, especially for younger workers:
- NLW (21+): £12.71.
- 18–20 year-olds: £10.85.
- 16–17 & apprentices: £8.00.
- Accommodation offset: £11.10 per day.
Employers must take extra care with:
- unpaid working time;
- salary sacrifice;
- uniform deductions;
- 52 week reference period compliance.
Introduction of student loan Plan 5
The new Plan 5 begins repayment collection from 6 April 2026.
The plan applies to students who started their course on or after 1 August 2023, with an annual repayment threshold of £25,000, with no scheduled increase for 2026/27. Deductions will be 9% of earnings above £25,000.
Updated repayment thresholds for existing plans
Thresholds for most existing loan plans increase by 3.2% from April 2026, except Plan 5 and postgraduate loans which remain static.
Payrolling of benefits
Mandatory payrolling of benefits has been delayed until April 2027. For 2026/27, payrolling remains voluntary.
If you are voluntarily going to payroll benefits for the 2026/27 tax year the deadline for registration is 5 April 2026. If you haven’t registered, then benefits can’t be processed through payroll and will need to be submitted through a normal P11D by 6 July 2027.
New employer obligations
The Employment Rights Act 2025 introduces broad reforms affecting how employers manage workers, with implications for payroll processing and HR coordination.
The Act includes stronger day one rights (e.g. unfair dismissal protections, certain family leave rights) and increased expectations on contract transparency and compliance documentation.
These changes mean employers may need to update onboarding, payroll eligibility checks and policy frameworks.
Additionally, new day one rights for unfair dismissal and unpaid parental leave, paternity leave and bereaved partners leave are expected and employers should prepare for increased oversight under the new regulatory landscape.
Our detailed checklist will help your organisation get ahead of these changes.
Launch of the new Fair Work Agency (FWA)
From 6 April 2026, the UK introduces the FWA, consolidating enforcement of:
- National Minimum Wage;
- SSP;
- holiday pay;
- agency worker rights;
- wider labour market abuses.
The FWA has powers to investigate, issue penalties and bring legal proceedings. This means:
- stricter policing of rolled-up holiday pay issues;
- greater scrutiny of irregular hours and part year worker calculations;
- potential civil penalties for miscalculation.
Contact us for support
If you have any questions or would like to discuss how these changes impact your organisation, please contact our Payroll Services team.
