Budget 2026:
What it means for your payroll
Budget 2026: What it means for your payroll
Budget 2026 was published on 28 October. For payroll, the headline is reassuring: there are no increases to the main rates of income tax, National Insurance or VAT. The changes employers should plan for include a rise in the minimum wage, confirmed dates for payrolling benefits and higher mileage rates.
Here is what each change means for employers, and what to do about it.
No change to the main tax rates
The government has kept the headline rates of income tax, National Insurance contributions and VAT the same. This does not mean your total payroll costs will stay unchanged: higher wages can increase employer National Insurance and pension contributions even when the rates remain the same.
For employers with staff on or close to the minimum wage, the wage increase is a key cost to budget for. Scottish income tax rates are set separately by the Scottish Parliament, and Welsh rates are set by the Senedd.
Minimum wage rises from 1 April 2027
The government has announced a 3.9% increase in minimum wage rates from 1 April 2027.
| Rate | 2026/27 | From 1 April 2027 |
|---|---|---|
| National Living Wage (21 and over) | £12.71 | £13.21 |
| 18 to 20 year olds | £10.85 | £11.27 |
| 16 to 17 year olds and eligible apprentices | £8.00 | £8.31 |
| Accommodation offset (per day) | £11.10 | £11.53 |
Wage rates are per hour. The apprentice rate applies to apprentices under 19, or aged 19 and over in the first year of their apprenticeship. Other apprentices aged 19 and over must receive at least the rate for their age.
For someone working 35 hours a week on the National Living Wage, the increase adds £910 a year to gross pay, before employer National Insurance and pension costs.
What to do now
- Check employees paid at or close to the new rates, including salaried staff whose pay needs checking against minimum wage rules.
- Budget for the extra pay, including employer National Insurance and pension contributions where applicable.
- Check salary sacrifice arrangements: they must not reduce pay below the minimum wage.
- Apply the new rates from the first pay reference period starting on or after 1 April 2027.
Payrolling benefits in kind: dates confirmed
The Budget confirms the phased timetable for moving most benefits in kind from end-of-year P11D reporting into payroll.
| Benefit | Mandatory payrolling from |
|---|---|
| Company cars, vans, car and van fuel, and medical benefits | 6 April 2027 |
| Most other benefits in kind | 6 April 2028 |
Employment-related loans and employer-provided living accommodation are excluded from these mandatory start dates. A mandatory timetable for those benefits will be confirmed separately.
Once a benefit is payrolled, its taxable value is included in payroll calculations and the income tax is collected through each pay run. HMRC will remove the relevant current-year benefit adjustment from the employee’s tax code, although earlier tax underpayments can still be collected through it.
What to do now
- List every benefit you provide and who receives it.
- Gather the information you will need, such as car list prices, CO2 figures and medical insurance premiums.
- Talk to your payroll provider about reporting the benefits and handling the associated employer National Insurance.
- Explain the change to employees before April 2027, including how it could affect their tax codes and take-home pay.
Company car, van and fuel charges
The van benefit charge, and the car and van fuel benefit charges, will rise in line with inflation from 6 April 2027.
The government has also set company car tax percentages for 2030/31. Rates will increase by one percentage point compared with 2029/30, subject to a maximum of 40%. The percentage for electric cars will rise from 9% to 10%.
If you are planning a car scheme or salary sacrifice for electric cars, build these future rates into your cost calculations.
Higher mileage rates are now permanent
The government has confirmed that the approved mileage rate for employees using their own car or van for qualifying business travel will stay at 55p a mile for the first 10,000 business miles each tax year. This rate already applies for 2026/27.
From 6 April 2027, the rate for business miles above 10,000 rises from 25p to 35p.
What to do now
- Check your expenses policy and update your reimbursement rates if you want to pay the full approved amount.
- If you pay less than the approved amount, employees may be able to claim tax relief on the shortfall. This is tax relief, rather than repayment of the full difference.
Need a hand?
If you would like help checking pay rates against the new minimum wage, or getting ready for payrolling benefits, get in touch with our team. We answer most queries within four hours.
Email hello@intelligentpayroll.co.uk or call 0161 524 7696.
Sources:
Budget 2026;
HMRC tax measures;
minimum wage rates;
payrolling benefits guidance.
Based on announcements and guidance available on 28 October 2026. Some measures remain subject to legislation and further guidance. This article provides general information; seek advice on your own circumstances.
=======================================
Still have questions?
We are here to make payroll simpler, safer, and easier to trust. Get in touch if you would like to know more about how this change might affect your business.
For more information, contact us today or book a demo.