Hi

The tax years 2026/27 and beyond are going to bring a number of changes to the way employees are taxed. As with the start of any new tax year, there are the usual changes that businesses need to be aware of, but next year also brings a number of changes that may take employers by surprise if they are unprepared for them.

Statutory sick pay

One of the biggest changes employers need to be prepared for ahead of the 2026/2027 tax year is the changes to statutory sick pay (SSP). For the first time ever, all employees will be entitled to SSP, regardless of their level of earnings. 

This change has been brought about by the recently enacted Employment Rights Act 2025, and this amendment to SSP was part of the Labour Party’s manifesto to ‘‘Make work pay”. 

The changes we’ll see to SSP from 6 April 2026 are as follows:

• the lower earnings limit (LEL) will be removed, allowing all employees to access SSP regardless of earnings
• SSP will be calculated as 80% of an employee’s average weekly earnings (AWE) or the current flat rate (confirmed as £123.25 from 6 April), whichever is lower
• waiting days will be eliminated, enabling eligible employees to receive SSP from the first full day of sickness absence.

What we didn’t know until late December was how that would affect anyone already off sick on 6 April. However, eligibility and transitional protections have now been confirmed.

• Employees earning below the LEL who are off sick on or after 6 April will be eligible for SSP from 6 April.
• Those serving waiting days on 6 April will receive SSP from that date onwards.
• Employees earning between £125.00 and £154.05 per week and already receiving SSP before 6 April will be transitionally protected to prevent a reduction in their SSP rate. This means they will receive the flat rate of £123.25 until they return to work, exhaust their entitlement or their contract ends. 

Confirmation around the calculation of average weekly earnings and SSP was also confirmed, as: 

• SSP for those earning below the flat rate will be based on 80% of their AWE, calculated over a relevant eight-week period
• payments will be rounded up to the nearest whole penny
• for linked periods of incapacity (within 56 days), the initial period's AWE will be used for subsequent calculations.

Employers need to ensure sick pay policies and payroll software are up to date, to align with the new rules. If you pay company sick pay, ensure relevant policies are reflected, especially if entitlement to company sick pay corresponds to an employee’s eligibility to SSP. 

Mandatory payrolling of benefits in kind

Even if you’re voluntarily payrolling currently benefits in kind, you’ll still have work to do to ensure your payroll processes are set up correctly, come mandation in April 2027.

Currently, under the voluntary scheme employers and agents simply add a taxable value to each pay period, to ensure the correct amount of income tax is paid on the relevant benefit or taxable expense throughout the year.

However, when we move to the mandatory scheme, a taxable value will still have to be added, but each benefit or taxable expense will need to be connected to a specific Real Time Information (RTI) field/data item. You can review the RTI fields likely to be required here. Employers should plan to hold conversations with benefits providers, to ensure they’re aware of the changes. 

A little further ahead

Two large announcements made in the 2025 Budget in November will have an impact to payroll processes, but not until April 2029. 

Self-assessment income to be coded into pay as you earn (PAYE)

From April 2029, income tax self-assessment (ITSA) taxpayers who also have other income paid via PAYE will be required to pay their ITSA liability throughout the tax year via the PAYE system. This is probably the first stage of making those subject to MTD for ITSA pay their ITSA liability quarterly rather than, as now, by 31 January following the end of the tax year.

Salary sacrifice pensions national insurance cap of £2,000

This announcement caused much discussion in November as it was thought that only allowing a certain value to be contributed into pension schemes with national insurance contribution (NIC) savings, could deter employees from saving over £2,000 a year into their pension. One thing it certainly would do, is increase employers’ national insurance (NI) bills. 

This will, no doubt, generate additional tax revenue. However, it comes at a cost to the working person, particularly those who are trying to plan and save for the future by putting more of their earnings into pension schemes.

Noel Guilford

PS These changes are obviously in addition to the major changes affecting self-employed individuals as a result of Making Tax Digital for Income Tax. If MTD for ITSA is likely to affect you or any of your clients, I will be presenting a webinar about the changes next month. Keep an eye out for the date and registration details coming soon.