From April 2026, a series of payroll and tax changes came into effect that will directly impact employer costs, employee take-home pay, and how businesses structure remuneration.
While none of these changes sit in isolation, together they create a clear picture: higher employment costs, tighter margins, and a growing need for proactive planning.
Here’s what matters most.
National Minimum Wage
From April 2026, the National Minimum Wage has increased across all age groups. The National Living Wage for those aged 21 and over is now £12.71 per hour, while the rate for 18–20-year-olds has increased to £10.85 per hour. The rates for under-18s and apprentices have both risen to £8.00 per hour.
For a full-time employee working 37.5 hours per week, the National Living Wage equates to an annual salary of approximately £24,784.50.
These increases, alongside changes to employer National Insurance and thresholds, affect the overall cost of employment and should be reflected in payroll calculations and financial planning.
Employer National Insurance: Higher costs, lower threshold
The most significant change for many businesses is the adjustment to employer National Insurance (NI).
- Employer NI remains at 15%
- The secondary threshold is still £5,000 and frozen until 2030
This means employers start paying NI on annual salaries over £5000, increasing overall payroll costs – particularly for businesses with larger teams or lower-paid employees.
What this means in practice:
Even modest salary increases or inflation-driven pay rises will now trigger more NI liability than in previous years.
Employment Allowance: More support (for more businesses)
There is some welcome stability when it comes to the Employment Allowance.
The allowance remains at £10,500, and the previous £100,000 eligibility cap continues to be removed, meaning more businesses can benefit from the relief.
For eligible companies, this helps to reduce the overall employer National Insurance burden. However, while valuable, it’s unlikely to fully offset the increased costs created by the lower NI threshold, particularly for growing businesses with expanding teams.
Frozen Income Tax Bands: The quiet cost increase
Although there are no headline income tax rate increases, thresholds remain frozen:
- Personal allowance: £12,570
- Tax bands unchanged until 2030
As salaries rise over time, more income is pulled into higher tax brackets – a phenomenon known as fiscal drag.
The impact:
Employees may feel like they’re earning more, but their take-home pay doesn’t increase at the same pace.
Statutory Sick Pay Reform: A shift in employer responsibility
From 6 April 2026, Statutory Sick Pay (SSP) has been reformed:
- Paid from Day 1 (no waiting period)
- Set at 80% of average weekly earnings
- Capped at £123.25 per week
This is a significant shift, particularly for businesses with frequent short-term absences.
What to consider:
- Increased short-term payroll costs
- A need to review absence policies and processes
- Potential impact on smaller teams without dedicated HR support
Dividends: A nudge toward salary?
Dividend tax rates have increased:
- Basic rate: 10.75%
- Higher rate: 35.75%
For directors and business owners, this may change the balance between salary and dividends.
Now is a good time to review:
- Your remuneration strategy
- Tax efficiency vs. cash flow needs
- Long-term planning rather than year-end decisions
National Insurance Thresholds: Another freeze
While the Lower Earnings Limit rises to £129/week, most other thresholds remain frozen.
In real terms, this increases the tax burden over time as wages rise with inflation.
Benefits in Kind: Simplification for employers
Some administrative relief has been introduced:
- Employer reimbursements (e.g. eye tests, homeworking equipment) are now tax and NI exempt when processed through payroll
- Employees can no longer claim separate tax relief for homeworking expenses
This simplifies reporting – but removes flexibility for employees.
Tax Codes for 2026/27
The standard emergency tax codes are:
- 1257L W1
- 1257L M1
- 1257L X
While unchanged in structure, it’s important to ensure payroll systems are updated correctly to avoid errors.
What should businesses do now?
These changes reinforce a broader trend: compliance alone isn’t enough.
Businesses need to be more proactive in how they manage payroll, tax, and remuneration.
Key actions to consider:
- Review your payroll costs and forecasts
- Reassess director remuneration strategies
- Ensure your payroll software and processes are up to date
- Consider the wider impact on cash flow and profitability
Final thoughts
April 2026 didn’t bring a single dramatic change – but the combination of adjustments is significant.
Higher employer NI, frozen thresholds, and changes to SSP all point in the same direction:
increased pressure on margins and a greater need for forward planning.
For many businesses, this is the moment to move beyond reactive compliance and start making more informed, strategic decisions around their finances.
Need clarity on what this means for your business?
These changes don’t just affect payroll – they impact cash flow, profitability, and how you structure your finances going forward.
If you’d like to understand how the April 2026 changes affect your business specifically, our team can help you review your payroll, tax position, and director remuneration – so you can plan ahead with confidence.
Get in touch now to start the conversation.
