COMPLIANCE
Increase to national living wage (NLW) and national minimum wage (NMW) rates Just as we have Christmas Eve, we also had a ‘Budget Eve’, on which the NLW and NMW rates for use from pay reference periods beginning on or after 1 April 2026 were announced. It was confirmed that the Government has accepted the recommendations of the Low Pay Commission in full. This means that: l NLW will increase by 4.1% to £12.71 l the 18-20-year-old rate will increase by 8.5% to £10.85 l the 16-17-year-old and apprentice rates will increase by 6% to £8 l the accommodation offset daily rate will increase by 4.1% to £11.10. National Insurance (NI) exemption on salary sacrifice pensions capped at £2,000 per year This was the big rumour that was floating around prior to the Budget, and we had hoped it wouldn’t come to fruition. There are so many questions we have around how this will work in practice for pay professionals. However, when it was announced it was also confirmed that it won’t be introduced until April 2029, giving the CIPP’s policy team time to liaise with the relevant Government departments, to ensure the policy doesn’t result in pay professionals being hit with huge additional administrative burdens. Only allowing a certain value to be contributed into pension schemes with NI savings may deter employees from saving over £2,000 a year into their pension and will increase employers’ NI bills. Prior to the Budget, the policy team contacted the Pensions Minister to raise our concerns around this potential change, especially as pensions inadequacy is already such a pertinent issue. Statutory payment rates 2026/27 Outside of the Budget announcement, the Department for Work and Pensions released the statutory payment rates for 2026/27, as follows: l statutory sick pay (SSP): £123.25 l statutory adoption pay: £194.32 l statutory maternity pay: £194.32 l statutory neonatal care pay: £194.32 l statutory paternity pay: £194.32 l statutory shared parental pay: £194.32 l statutory parental bereavement pay: £194.32
l lower earnings limit (LEL): £129.00. Please note, SSP will no longer have the LEL as an entitlement trigger, due to the changes being bought into force from 6 April by the Employment Rights Bill. Plan 2 student loan threshold The employee earnings threshold for student loan Plan 2 for 2026/27 will increase to £29,385. The Chancellor confirmed a three-year freeze to the Plan 2 student loan repayment threshold starting from the 2027/28 tax year, which will take us to 2029/30.
into their first civilian roles is being extended to April 2028.
Employee car ownership schemes (ECOS) update At Budget 2024, the Government announced that ECOS would be brought into scope of the BiK rules from April 2026. However, this year’s Budget confirmed that this will be delayed until April 2030, incorporating transitional arrangements until April 2032. This is to ensure there’s sufficient time to prepare for and adapt to the changes. Self-assessment to be coded into pay as you earn (PAYE) To help the Government reduce overall tax debt, from April 2029, income tax self- assessment (ITSA) taxpayers who have other income paid via PAYE will be required to pay their ITSA via the PAYE system. It’s hoped this will mean less large and unexpected bills at the end of the tax year for these individuals. There’ll be no change to the amount of tax they pay, just the timeframes in which they pay it. State pension increased by 4.8% The Government maintained its commitment to the pensions triple lock, confirming the state pension will increase by 4.8%, in line with average wage growth, from April 2026. Mandatory payrolling of BiKs and expenses On the same day as the Budget announcement, HM Revenue and Customs released interim guidance and legislation to aid in the preparation for reporting BiKs and expenses in real time, via payroll software, from April 2027. This can be accessed here: https://ow.ly/5RAz50XyZqQ. n
Abolition of tax relief on homeworking expenses, unless
reimbursed by employer From 6 April 2026, tax relief on
homeworking expenses will be abolished for employees who claim directly from the Government. Employers can still reimburse employees for these costs without deducting income tax and NI contributions (NICs). This will be legislated for in the Finance Bill 2025/26. Tax and NI exemptions to cover reimbursements from April 2026 From April 2026, the tax and NICs exemption for employer-provided benefits will be extended to cover reimbursements for eye tests, homeworking equipment and flu vaccinations. At present, it’s only the provision of these things that are exempt from tax and NICs, but the new announcement means employees can purchase them personally, and the employer can reimburse via expenses with no liability to tax or NICs. Benefits in kind (BiKs) easement for plug-in hybrid electric vehicles (PHEVs) The Government announced that, if a new emissions standard for PHEVs is introduced in Great Britain, it will introduce a temporary easement to mitigate the significant increase in BiK tax which would result from higher CO 2 emissions figures. The Department for Transport will be consulting on introducing the Euro 6e emissions standard for cars and vans in Great Britain from April 2026. The standard already applies in Northern Ireland from January 2025. Employer NICs relief for hiring veterans extended The employer NICs relief for hiring veterans
The CIPP will support you all the way
We realise that the next few years are going to be extremely busy for the pay professions, with the Employment Rights Bill and the recent updates from the Budget bringing substantial changes to the processes you all carry out. The CIPP’s policy and research team will be ensuring we represent you at Government level regarding these changes to ensure they’re handled correctly, and we’ll continue to provide updates and break down what all the latest developments mean for you. We’ve got you!
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| Professional in Payroll, Pensions and Reward |
Issue 116 | December 2025 - January 2026
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