Payroll Changes for 2026-27: Key Updates for the New Tax Year 

Key Update: Statutory Sick Pay (SSP) reforms

• The SSP system up to 5 April 2026
• What has changed from 6 April 2026
• Practical impacts for employers

Year End Update

• National Insurance: Rates and Allowances Update (2026/27)
• Income Tax: Rates and Allowances Update (2026/27)
• Employment Allowance (2026/27)
• Apprenticeship Levy (2026/27)
• Payrolled Benefits in Kind: Important Reminder
• National Minimum Wage Update: April 2026
• Student Loans: Repayment Update (2026/27)
• Statutory Payment Rates: 2026/27 Update

Further Insights

• Preparing for the Fair Work Agency: What Employers Need to Know

As the new payroll year gets underway, reviewing the latest legislative changes is more important than ever. Those working in payroll should pay particular attention to UK payroll changes 2026/27. While some areas remain unchanged, others have introduced key updates that could affect how payroll is managed.

In this issue, we outline the most important changes, share practical insights, link directly to HMRC guidance, and direct you to additional resources on our website to help keep you informed and compliant.

Full HMRC guidance can be found here Rates and thresholds for employers 2026 to 2027 – GOV.UK

Key Update: Statutory Sick Pay (SSP) Reforms 

From 6 April 2026, Statutory Sick Pay (SSP) has undergone its most significant reform in over four decades. Up to 5 April 2026, the SSP framework had remained largely unchanged since its introduction in 1983, operating on two core principles: a three‑day waiting period before payment began and an earnings threshold that excluded many lower‑paid workers. That long‑standing model has now been fundamentally reshaped.

The SSP System up to 5 April 2026 

Since 1983, SSP eligibility depended on employees earning at least the Lower Earnings Limit (LEL) and being absent for four or more consecutive qualifying days, with the first three days treated as unpaid “waiting days”. This meant:

• Employees earning below the LEL were not entitled to SSP at all.
• Short sickness absences of fewer than four days attracted no statutory pay.
• SSP was paid at a flat weekly rate, regardless of an employee’s normal earnings.

What Has Changed From 6 April 2026 

Under the Employment Rights Act 2025, SSP has been modernised to widen access and provide earlier financial support. The key reforms now in force are:

• Day‑one entitlement
  SSP is now payable from the first full day of sickness absence. The three statutory waiting days have been abolished entirely.
• Removal of the Lower Earnings Limit
  Eligibility is no longer linked to earnings. All employees, regardless of pay level or hours worked, can now qualify for SSP
• New earnings‑linked calculation
  SSP is paid at the lower of:
  • 80% of an employee’s Average Weekly Earnings (AWE), or
  • The statutory flat weekly rate (uprated to £123.25 from April 2026).
    This ensures lower‑paid employees receive pay linked to their normal earnings, while higher earners continue to receive the flat rate.
• Transitional rules for ongoing absences
  HMRC has introduced detailed guidance for sickness absences that started before 6 April 2026 and continued beyond that date, including how to handle waiting days already served and employees newly eligible due to the removal of the LEL

Practical Impacts For Employers 

These reforms have immediate operational and financial consequences:

• Increased SSP liability
  SSP is now triggered by any qualifying absence, including single‑day sickness. Employers with frequent short‑term absences or large part‑time workforces are likely to see higher SSP costs overall
• Policy and contract updates
  Any references to waiting days or earnings thresholds in sickness policies, contracts, or handbooks are now out of date and should be reviewed.
• Greater focus on absence management
  With SSP payable immediately, patterns of short‑term absence may become more visible. Consistent reporting, return‑to‑work conversations, and clear record‑keeping are more important than ever.

Next steps: Employers should ensure payroll systems are fully aligned with the new rules, review sickness absence policies, and familiarise themselves with HMRC’s transitional guidance.

Year End Update 

National Insurance: Rates and Allowances Update (2026/27) 

From 6 April 2026 

Employee Class 1 NI – as previous year

• No NI is payable on earnings up to £12,570 per year.
• NI is charged at 8% on earnings between £12,571 and £50,270, and 2% above this level.

• Employer Class 1 NI  –  as previous year
  • Employer contributions are payable at 15% on earnings above £5,000 per year.
• Lower Earnings Limit (LEL)
  • The LEL increases to £129 per week, allowing employees earning between the LEL and the Primary Threshold to build NI credits without paying contributions.

Payroll systems should already reflect these rates, but employers are encouraged to review their settings and budgets for the year ahead.

Income Tax: Rates and Allowances Update (2026/27) 

For the 2026/27 tax year, Income Tax rates and allowances remain unchanged across the UK, with thresholds continuing to be frozen for England and Wales with some changes in Scotland.

England & Northern Ireland 

• Personal Allowance: £12,570
• Basic rate: 20% on income from £12,571 to £50,270               (earnings band £37,700)
• Higher rate: 40% on income from £50,271 to £125,140          (earnings band £74,870)
• Additional rate: 45% on income above £125,141

Wales 

• Wales continues to apply the same Income Tax rates and thresholds as England & Northern Ireland for 2026/27.
• HMRC collects the tax, with the Welsh Government retaining the power to vary rates in future years.

Scotland 

Scotland applies its own Income Tax rates and bands to non‑savings, non‑dividend income: 

• Personal Allowance £12,570
• Starter rate: 19% on income from £12,571 to £16,537            (earnings band £3,967)
• Basic rate: 20% on income from £16,537 to £29,526               (earnings band £12,989)
• Intermediate rate: 21% on income from £29,527 to £43,662  (earnings band £14,136)
• Higher rate: 42% on income from £43,663 to £75,000            (earnings band £31,338)
• Advanced rate: 45% on income from £75,001 to £125,140     (earnings band £50,140)
• Top rate: 48% on income above £125,141

Points to note

• Personal Allowance
  These tables assume a Personal Allowance of £12,570. Tax is only paid on income above the Personal Allowance. If your allowance is lower, higher, or nil, more or less of your income will fall into the earnings bands. The tax rates and bands themselves do not change.
• High earners
  The Personal Allowance is reduced by £1 for every £2 of income above £100,000 and can be reduced to £0.
  The Personal Allowance is fully lost once income reaches £125,140, meaning all income is taxable above this level.

Employment Allowance (2026/27) 

The Employment Allowance continues to offer eligible employers a valuable reduction to their employer National Insurance bill for the 2026/27 tax year.

Key points: 

• Eligible employers can reduce their employer Class 1 National Insurance liability by up to £10,500 per year.
• The allowance is claimed through the payroll and is applied automatically against employer NI until the allowance is used up.
• There is no £100,000 employer NI threshold – this restriction was removed in previous years and does not apply.

Eligibility reminders: 

• Most small and medium‑sized employers are eligible.
• Connected companies or charities can only claim one Employment Allowance between them, not one per entity.
• The allowance cannot be claimed by:
  • Companies with only one employee who is also a director
  • Public authorities (with limited exceptions for charities)

Employers should review their structure each tax year to confirm eligibility, particularly where there are group companies or changes in ownership.

Apprenticeship Levy (2026/27) 

The Apprenticeship Levy continues to apply for the 2026/27 tax year, with no changes to the core rules. 

Key points: 

• The levy applies to employers with an annual pay bill over £3 million.
• It is charged at 0.5% of the total pay bill, minus a £15,000 annual allowance.
• The allowance is applied monthly and reduces the amount of levy payable.
• Connected companies or charities must share the £15,000 allowance – it is not available per entity.
• Employers below the £3 million pay bill threshold do not pay the levy,

Employers should review group structures and payroll figures each tax year to confirm whether the levy applies and how the allowance should be allocated. 

Payrolled Benefits in Kind: Important Reminder 

From 6 April 2027, the payrolling of Benefits in Kind (BIKs) will become mandatory for all employers. Although this change is still a year away, now is the time to start preparing.

What employers should do now: 

• Review payroll systems to ensure they can support mandatory payrolling of benefits.
• Begin planning how benefits will be reported and taxed through payroll.
• Communicate upcoming changes to employees, as payrolling will affect net pay and tax codes.
• Review current benefit arrangements to identify any required process changes.

Important 2025/26 obligation 

Even if you currently payroll benefits, employers must still submit a P11D(b) for the 2025/26 tax year, declaring the Class 1A National Insurance due on benefits provided.

Early preparation will help ensure a smooth transition ahead of the April 2027 deadline.

National Minimum Wage Update: April 2026 

New rates for the National Living Wage (NLW) and National Minimum Wage (NMW) took effect on 1 April 2026. Below are the changes:

What this means in practice: 

• Employers should review and update payroll systems to reflect the new hourly rates.
• The accommodation offset has also increased check policies where accommodation is provided.
• Ensure all hours-including training, travel, and overtime – are accounted for in NMW calculations.
• Underpayments can result in arrears, financial penalties, and reputational risk if named publicly.

Student Loans: Repayment Update (2026/27) 

For the 2026/27 tax year, student loan repayment rates and thresholds remain unchanged, with thresholds continuing to be frozen.

Current repayment thresholds: 

• Plan 1: 9% on earnings above £26,900
• Plan 2: 9% on earnings above £29,385
• Plan 3: postgraduate    6% on earnings above £21,000           
• Plan 4 (Scotland): 9% on earnings above £33,795
• Plan 5: 9% on earnings above £25,000
• Postgraduate Loan: 6% on earnings above £25,000

Important note on Plan 5 

Plan 5 is the newest student loan repayment plan, introduced for borrowers who started undergraduate courses in England from August 2023 onwards.

Statutory Payment Rates: 2026/27 Update 

The following statutory weekly payment rates have increased for the 2026/27 tax year. Here’s a clear comparison between previous and current amounts:

• Statutory Sick Pay (SSP)
  • Before: £118.75 per week
  • From 6 April 2026: £123.25 per week (or 80% of Average Weekly Earnings if lower)
• Family-Related Pay (Maternity, Paternity, Adoption, Shared Parental, Parental Bereavement & Neonatal Care)
  • Weeks 1–6 (SMP/SAP): 90% of Average Weekly Earnings (no cap) – remains the same
  • Weeks 7–39 (SMP/SAP) & full duration of Paternity, Shared Parental, Bereavement & Neonatal Care Pay:
    • From 5/6 April 2026: £194.32 per week (or 90% AWE if lower)

Further Insights

Preparing for the Fair Work Agency: What Employers Need to Know 

The forthcoming Fair Work Agency will bring a more joined‑up and proactive approach to enforcement of employment rights. For employers, this means greater scrutiny of payroll practices, clearer expectations around compliance, and less tolerance for avoidable errors.

While the Agency’s remit is wide, experience suggests enforcement activity will focus heavily on high‑risk payroll areas, particularly where errors are common and directly affect workers’ pay.

Key payroll areas in focus 

National Minimum Wage (NMW)

NMW compliance remains a priority area for enforcement. Employers will be expected to demonstrate that:

• Workers are paid correctly for all hours worked, including training, travel time, and overtime.
• Salary sacrifice arrangements and deductions do not reduce pay below the minimum wage.
• Rates are reviewed and updated promptly following annual increases.

Holiday Pay 

Holiday pay calculations continue to be a major risk area, especially for workers with variable hours or pay. Employers should ensure:

• Holiday pay reflects normal pay, including regular overtime and allowances where required.
• Systems correctly calculate pay based on appropriate reference periods.
• Records clearly evidence how holiday pay has been calculated.

Statutory Sick Pay (SSP) 

With significant SSP reforms now in force, including day‑one entitlement and wider eligibility, employers must be confident that:

• SSP is applied from the first qualifying day of sickness.
• Payroll systems correctly assess entitlement and calculate payments.
• Sickness policies and processes align with the new rules.

What will be expected of employers? 

The Fair Work Agency is expected to place greater emphasis on:

• Accurate payroll systems and records
• Clear audit trails showing how pay has been calculated
• Evidence that employers have taken reasonable steps to understand and apply the rules
• Proactive compliance, rather than reactive correction

What employers should do now?

• Review payroll settings and internal processes for NMW, holiday pay, and SSP.
• Identify areas where manual intervention or judgement is relied upon.
• Update policies and employee communications where rules have changed.
• Train payroll and HR teams on current legislation and upcoming reforms.

Further support 

To help employers prepare, Henderson Loggie hosted a webinar covering the Employment Rights Act, with a specific focus on National Minimum Wage Statutory Sick Pay and Holiday Pay. You can watch the recording here

Staying informed and prepared now will help reduce risk and ensure your payroll practices stand up to closer scrutiny in the years ahead

Get in touch

Last Updated on 17 April 2026