Payroll Compliance 2026/27: Payrolling Benefits, Rates & Rules

The 2026/27 tax year has brought on payroll changes, including reformed Statutory Sick Pay with no waiting days, a higher National Living Wage, an improved Small Employers Relief rate, and a brand new Student Loan Plan 5 threshold. Getting any one of them wrong risks underpayment, HMRC queries, or an incorrect RTI submission.

This article brings together everything you need to know about payroll compliance for 2026/27 in one place, from statutory pay rates through to Employment Allowance, Student Loan Plan 5, and the rise of electric vehicle salary sacrifice schemes.

What Payroll Changes Happened in the 2026/27 Tax Year?

What payroll changes were made in the 2026/27 tax year? A number of changes have taken affect since the start of the 2026/27 tax year.

National Minimum Wage increases

Since the 1st of April 2026, the National Living Wage rises to £12.71 per hour for workers aged 21 and over. Workers aged 18 to 20 move to £10.85 per hour, while those under 18 and apprentices receive £8.00 per hour. These increases affect payroll directly, but they also have a knock-on effect on salary sacrifice arrangements as any scheme that reduces an employee’s gross pay must be reviewed to ensure post-sacrifice pay doesn’t fall below the new minimum.

Statutory Sick Pay reform

Since the 6th of April 2026, the old system of three unpaid waiting days is removed entirely. SSP is now payable from day one of sickness absence. The Lower Earnings Limit qualifying requirement has also changed. Instead of needing to earn at or above a fixed weekly threshold, the SSP rate is calculated as the lower of 80% of the employee’s Average Weekly Earnings or a flat rate of £123.25 per week.

Small Employers Relief increase

The additional compensation rate for Small Employers Relief has risen from 8.5% to 9% for 2026/27. This means qualifying small employers can now reclaim 109% of Statutory Maternity, Paternity, Adoption, Shared Parental, Parental Bereavement, and Neonatal Care Pay from HMRC.

Northern Ireland parental bereavement expansion

Statutory Parental Bereavement Pay and Leave has been extended to Northern Ireland, with day-one entitlement for both pay and leave. A new Statutory Miscarriage Pay and Leave right has also been introduced, specific to Northern Ireland.

Student Loan Plan 5

A new student loan repayment plan type comes into effect, with its own threshold and its own set of compliance risks which are covered in detail below. Each of these changes is covered in more depth in its own guide: see Statutory Pay Rates 2026/27, Employment Allowance 2026-27, Student Loan Plan 5, and Electric Vehicle Salary Sacrifice Schemes.

What Are the Statutory Pay Rates for SSP, SMP, and SPP in 2026/27?

Here are the Statutory Pay rates in relation to payroll for the 2026/27 tax year.

Statutory Sick Pay (SSP)

SSP is payable from the first qualifying day of sickness absence, so the previous three-day unpaid waiting period no longer applies. There is also no separate Lower Earnings Limit test to pass before SSP becomes payable. Instead, the weekly SSP rate is calculated as the lower of 80% of the employee’s Average Weekly Earnings, or a flat rate of £123.25 per week. Employers should apply transitional rules carefully where a Period of Incapacity for Work started before 6 April 2026 and continues into the new tax year, as the old and new rules may both apply to different portions of the same claim.

Statutory Maternity Pay (SMP)

SMP runs for up to 39 weeks. The first six weeks are paid at 90% of the employee’s Average Weekly Earnings. The remaining 33 weeks are paid at the lower of the standard weekly rate or 90% of AWE. To qualify, the employee needs at least 26 weeks of continuous employment ending with the qualifying week (15 weeks before the expected week of childbirth), and must earn above the relevant earnings threshold.

Statutory Paternity Pay (SPP)

SPP is payable for one or two consecutive weeks within the first 56 days following the child’s birth or adoption placement, at the same standard weekly rate as SMP.

Statutory Adoption Pay (SAP)

Follows the same structure as SMP: 90% of AWE for the first six weeks, then the standard weekly rate for up to 33 weeks.

Recovery rates

Standard employers can recover 92% of SMP, SPP, SAP, and Shared Parental Pay payments through their RTI submissions. Small employers (those with a Class 1 NIC liability of £45,000 or less in the previous tax year) benefit from the enhanced Small Employers Relief rate for 2026/27, recovering 109% of these statutory payments.

Shared Parental Pay (ShPP)

Eligible parents can share up to 37 weeks of Shared Parental Pay between them, following the two weeks of compulsory maternity leave. ShPP is paid at the same standard weekly rate as SMP and recovered at the same rates.

Getting these calculations right matters for two reasons: underpayment leaves an employee without their legal entitlement, while overpayment creates a recovery problem and an incorrect HMRC submission. The SSP change is the one most likely to catch payroll teams out this year, precisely because it removes a rule (waiting days) that has been part of every payroll professional’s mental model for years.

How Much Is the Employment Allowance in 2026/27, and Who Can Claim It?

The Employment Allowance lets eligible employers reduce their annual employer Class 1 National Insurance bill by up to £10,500 for 2026/27.

Who can claim: businesses with two or more employees where at least one worker (other than a sole director) earns above the Class 1 secondary threshold of £5,000 per year; charities; community amateur sports clubs; and businesses of any size, including those with employer NIC bills well above £100,000.

Who cannot claim: companies where the sole employee is also a director; connected companies under common control (which can only claim once between them, not once per entity); employers whose NIC liability relates solely to a domestic carer or support worker in a personal household; and public bodies carrying out functions of a public nature.

The allowance is not automatic, it must be claimed each tax year through an Employer Payment Summary (EPS) submission that includes the Employment Allowance claim indicator. It then offsets against employer NIC as it arises in each payroll run, until the full £10,500 has been used or the tax year ends. A claim can be submitted at any point during the year and the full annual allowance remains available from that point forward.

What Is Student Loan Plan 5, and How Does It Affect Payroll in 2026?

Student Loan Plan 5 is the newest addition to the student loan landscape, applying to English and Welsh students who started higher education courses on or after the 1st of August 2023. Employers began receiving HMRC start notices for Plan 5 employees from April 2026, as affected graduates entered work and their earnings crossed the repayment threshold.

There are five student loan plan types plus a postgraduate loan type that may appear in employer payrolls:

• Plan 1: pre-September 2012 English/Welsh students, and pre-September 1998 Scottish/Northern Irish plans. Threshold £26,065. Rate 9%.

• Plan 2: English/Welsh students from September 2012 onwards. Threshold £28,470. Rate 9%.

• Plan 4: Scottish students from September 2012 onwards. Threshold £32,745. Rate 9%.

• Plan 5: English/Welsh students from August 2023 onwards. Threshold £25,000. Rate 9%.

• Postgraduate Loan: Master’s and Doctoral loans. Threshold £21,000. Rate 6%.

The threshold differences matter a great deal in practice. An employee on Plan 4 earning £28,000 makes no deduction at all under their plan, while an employee on Plan 2 earning the same amount makes a deduction of £184.50 per year. Applying the wrong plan code to an employee produces a systematic error across every pay period for that individual. For a bureau managing many affected employees, this can add up to a material underpayment issue that HMRC’s reconciliation process will eventually flag.

How Can Electric Vehicle Salary Sacrifice Schemes Save Employers Money in 2026?

Electric vehicle salary sacrifice has become one of the most commercially attractive employee benefits available, driven by a very low Benefit in Kind rate combined with the tax and National Insurance savings of salary sacrifice.

In an EV salary sacrifice scheme, an employee agrees to give up a portion of their gross salary in exchange for the use of an electric vehicle. Because the salary reduction happens before income tax and NIC are calculated, both the employee and the employer save. The employee gets a car at an effective cost significantly below a personal lease, because they’re paying from pre-tax income. The employer reduces its NIC liability on the sacrificed portion of salary.

The Benefit in Kind rate on a pure electric car is 4% of the vehicle’s list price for 2026/27. For an EV with a £40,000 list price, the annual BiK value is £1,600, producing an income tax charge of just £320 for a basic rate taxpayer. HMRC has confirmed the BiK rate roadmap through to 2030, rising by 1 percentage point in 2027/28 (5%), then 2 points in each of 2028/29 (7%) and 2029/30 (9%), giving employers and employees certainty for multi-year lease planning.

For employers, the National Insurance saving is the headline financial benefit. At 15% employer NIC, a business with 20 employees each sacrificing £500 a month saves approximately £18,000 a year in employer NIC alone.

How Should Your Payroll Strategy Change for the New Tax Year?

The 2026/27 tax year is a natural point to reassess your payroll strategy. Determine whether it’s still being treated as a “have to” service or whether it’s being run as a genuine value driver for your practice or bureau.

Manual tracking of statutory rate changes, Employment Allowance renewals, and student loan plan types across a client base introduces exactly the kind of error that HMRC’s reconciliation processes are designed to catch. Automating rate updates, RTI submissions, and eligibility checks frees up time that would otherwise go into rekeying figures and chasing corrections.

Also, rather than managing payroll approvals and client queries through email threads, moving clients onto an online portal for entering additional pay period details and approving summaries removes a significant amount of back-and-forth. It also reduces the risk of a compliance change being missed because it wasn’t communicated clearly enough in time.

Once the baseline compliance work is running smoothly, there’s room to have proactive conversations with clients about the commercial impact of these changes, such as what the NLW increase means for their staffing costs, whether they’re claiming the full Employment Allowance they’re now entitled to, and whether an EV salary sacrifice scheme could be a cost-effective addition to their benefits package. That conversation repositions payroll from a compliance cost into an advisory service clients are willing to pay more for.

Frequently Asked Questions

This content may have been developed with the assistance of AI tools. Content is reviewed by a member of the Bright team before publication. Guidance on legislation can be obtained from your industry body.