Autumn Budget 2026: What the latest payroll and employment tax changes mean for employers

The 2026 Autumn Budget announced a number of new measures, and confirmed that previously announced reforms are still on track.

As an Employer, the coming tax year will bring higher National Minimum Wage rates, significant changes to how employee benefits are reported and taxed, and further considerations around student loan deductions and workforce costs. 

Beyond the immediate payroll implications, the Budget also introduces changes affecting self-employed individuals and parental support. Here, we explain the key announcements, what they mean for your business and your people, and where to focus your preparations ahead of April 2027. 

PAYE and Employment Taxes: What employers need to know 

Income Tax – frozen thresholds continue to influence take-home pay 

The main Income Tax rates and thresholds for employment income remain unchanged for the 2027/28 tax year, continuing the Government’s previously announced freezes.  Although there is no increase to the headline rates of Income Tax, frozen thresholds mean employees receiving salary increases may see a greater proportion of their earnings subject to tax. 

The standard Personal Allowance remains at £12,570, with the higher-rate threshold remaining at £50,270 for individuals entitled to the full Personal Allowance. 

Income Tax rates and thresholds: England, Wales, and Northern Ireland

Scottish Income Tax rates and bands for employment income are determined separately by the Scottish Government. 

What does this mean for employers and employees? 

For employees, pay increases may not translate into equivalent increases in take-home pay, particularly where earnings move into higher tax bands or the Personal Allowance begins to taper above £100,000. 

When reviewing salaries and communicating pay awards, it helps to explain how gross pay, take-home pay and wider benefits fit together. 

National Insurance: no change to headline rates, but employment costs remain a consideration 

The main employee and employer Class 1 National Insurance rates remain unchanged for 2027/28. 

• Employees will continue to pay National Insurance at 8% between the Primary Threshold and Upper Earnings Limit, and 2% above the Upper Earnings Limit. 
• Employers will continue to pay Class 1 National Insurance at 15% on earnings above the Secondary Threshold, subject to applicable reliefs and exemptions. 

Class 1 National Insurance rates and thresholds 

The increase in the Lower Earnings Limit does not change the point at which employees begin paying National Insurance, but it is relevant to contributory benefit entitlement and National Insurance records. 

The Employment Allowance remains at £10,500 per eligible employer, helping qualifying businesses reduce their annual employer National Insurance liability. 

Employer implications 

Although headline Class 1 rates are not increasing further, it is important to factor the full cost of employment into salary reviews, recruitment budgets and workforce plans. 

A pay rise can cost your business significantly more than the salary increase alone once employer National Insurance, pension contributions and employee benefits are taken into account. 

Salary Sacrifice Pensions: the £2,000 National Insurance cap remains on the horizon 

The Autumn Budget 2026 brings no change to the previously announced reform of pension salary sacrifice arrangements, scheduled to take effect from 6 April 2029. 

Under the reform, the National Insurance exemption for pension contributions made through salary sacrifice will be limited to £2,000 per employee per tax year. Salary-sacrificed pension contributions above that amount will become subject to employee and employer Class 1 National Insurance. 

Importantly, this is not a £2,000 cap on pension contributions or on Income Tax relief. Pension contributions above the limit can continue, subject to the usual pension tax rules, but the National Insurance advantages will be reduced. 

Employers should start by checking how many employees sacrifice more than £2,000 each year, what the additional employer costs could be, and whether your payroll and pension arrangements can support the change. Keep National Minimum Wage checks part of this review: salary sacrifice must not reduce cash earnings below the applicable minimum wage. 

National Minimum Wage: higher rates and a growing focus on compliance 

From 1 April 2027, the National Living Wage and National Minimum Wage rates will increase by 3.9% across all age categories. 

These increases will be particularly relevant to employers operating in sectors with larger numbers of lower-paid or hourly-paid employees, including hospitality, retail, care, leisure and logistics. 

National Minimum Wage and National Living Wage rates 

Figures are hourly rates. The apprentice rate applies to apprentices under 19 and those aged 19 or over in the first year of their apprenticeship. 

The compliance considerations go beyond hourly rates 

At Affinia, we are seeing an increase in requests for National Minimum Wage compliance reviews, particularly in response to regional and sector-focused enforcement activity. 

Two areas attracting particular attention are salary sacrifice pension arrangements and the recording of working hours for salaried employees. Salary sacrifice pension arrangements can offer tax and National Insurance efficiencies. However, employers must ensure that the reduction in contractual cash earnings does not bring an employee below the applicable National Minimum Wage. Paying an annual salary does not automatically demonstrate compliance. You also need to consider the applicable rules for salaried hours worked, how additional hours are treated and whether your working-time records are accurate. 

For example, an employee may receive a salary that appears comfortably above the National Minimum Wage based on their contracted hours. However, regularly working additional hours without appropriate monitoring could create an underpayment risk. 

Payrolling Benefits: implementation timetable remains on track  

The Autumn Budget 2026 confirms that the Government remains committed to the phased introduction of mandatory payrolling of benefits in kind, with the first phase taking effect from 6 April 2027. 

Although these reforms have already been widely communicated, confirmation of the timetable gives employers greater certainty. Now is the time to check that your payroll systems, benefit reporting processes and internal responsibilities are ready for the transition. Under the new arrangements, employers will increasingly be required to report taxable benefits through payroll in real time. 

Class 1A National Insurance: a significant change   

Importantly, the changes are not limited to collecting employees’ Income Tax through payroll. 

From April 2027, employers will also be required to report and pay the associated Class 1A National Insurance contributions through payroll in real time for benefits brought into mandatory payrolling. The same requirement applies where employers choose to voluntarily payroll other eligible benefits. Employers will not be able to payroll the Income Tax while continuing to account for the associated Class 1A National Insurance separately at the end of the tax year. 

This represents a significant change to existing reporting and payment arrangements. 

What should employers be considering? 

Preparation should already be underway, particularly where benefits information is currently held outside the payroll function. 

Check how benefits information moves between payroll, HR, finance, fleet management and your benefits providers, so the right information reaches payroll accurately and on time. You will also need to review your payroll software, benefit valuations, employee communications and the timing of Class 1A National Insurance payments. 

The changes may also affect employees’ payslips and tax codes as benefits move from retrospective taxation to real-time payroll reporting. Employers with globally mobile employees should review HMRC’s proposed exception arrangements where real-time benefit reporting creates genuine practical difficulties. 

Student Loans: frozen thresholds and their impact on take-home pay    

Student Loan and Postgraduate Loan deductions remain an important part of payroll processing, particularly where employees have multiple loan arrangements or earnings close to repayment thresholds. 

For 2027/28, the Plan 1 threshold will increase, while the previously announced freeze to Plan 2 continues. 

Student Loan and Postgraduate Loan repayment thresholds 

The percentages apply to earnings above the relevant repayment threshold. Outstanding 2027/28 thresholds are subject to further confirmation. 

The continued freeze to the Plan 2 threshold at £29,385 until April 2030 means employees may see increased deductions as their earnings rise, even though the repayment percentage remains unchanged. 

For example, an employee with a Plan 2 loan receiving a £2,000 annual salary increase could see an additional £180 deducted in Student Loan repayments over a full year, assuming all the additional earnings are above the threshold. 

Employer implications 

Check that your payroll uses the correct loan plans in line with HMRC instructions, and that your software is updated with the applicable thresholds for the new tax year. Clear communication can also help employees understand why increases in gross earnings do not always produce equivalent increases in net pay. 

Business Mileage: further changes to approved mileage rates 

Following the earlier announcement increasing the Approved Mileage Allowance Payment (AMAP) rate from 45p to 55p per mile for the first 10,000 business miles, effective retrospectively from 6 April 2026, the Autumn Budget has confirmed a further increase for higher business mileage. 

From 6 April 2027, the approved rate for business mileage exceeding 10,000 miles annually will increase from 25p to 35p per mile for employees using their own cars or vans for business travel. These changes provide an opportunity for employers to review their existing mileage reimbursement arrangements, particularly where employees regularly undertake significant business travel. 

Employers should ensure their expenses policies and reporting systems reflect the revised approved rates. Where mileage payments exceed the applicable HMRC approved amount, the excess may be subject to PAYE Income Tax and National Insurance reporting requirements. Where employers reimburse employees below the approved rates, employees may be eligible to claim Mileage Allowance Relief on the difference, subject to the relevant qualifying conditions. 

Further Budget announcements: related considerations 

The following measures sit outside routine employer PAYE processing, but may still matter to you as a business owner or to people in your workforce. 

National Insurance for the self-employed: what is changing? 

The Budget confirmed changes to Classes 2 and 3 National Insurance contributions, alongside continued freezes to the main Class 4 rates and thresholds. 

Classes 2, 3 and 4 National Insurance 

Self-employed individuals with profits at or above the Small Profits Threshold generally continue to receive National Insurance credits without paying Class 2 contributions. 

Voluntary Class 2 and Class 3 contributions remain relevant to individuals seeking to maintain or improve their National Insurance records and entitlement to certain contributory benefits. 

Although these measures do not directly affect employer payroll calculations, they may be relevant to business owners and individuals with a combination of employed and self-employed income. 

Parental support: bridging the gap for self-employed fathers and partners 

The Budget also announced plans to extend parental financial support to eligible self-employed fathers, partners and adopters from April 2029. 

Currently, qualifying employees can receive Statutory Paternity Pay, whereas self-employed individuals do not have an equivalent entitlement. The introduction of a new Parental Allowance aims to address this difference by providing eligible self-employed parents with up to two weeks of financial support. 

The allowance will operate separately from employer-administered Statutory Paternity Pay, and further guidance is expected on eligibility, payment arrangements and the claims process. While the change will not create an additional Statutory Paternity Pay obligation for employers, it represents an important development in extending parental support to individuals outside traditional employment arrangements. 

How we can help  

Our Payroll and Employment Taxes specialists support businesses with you to make sense of changing payroll legislation and employer obligations, helping you understand what they mean for your business. 

Whether you need support preparing for mandatory payrolling of benefits, reviewing National Minimum Wage compliance, understanding the impact of employment tax changes or managing your ongoing payroll obligations, our team can help.  We take the time to understand your business and your workforce, working with you to identify potential risks, improve payroll processes and provide practical advice that fits your needs.