Stealth Taxes, Rising Wages and NIC Changes: The Payroll Update for 2026 & Beyond

Mar 9
4 min read

There have been quite a few updates across tax, payroll, and employment legislation recently. Some are already in motion, some arrive in April 2026, and a couple are further down the road.

Rather than drowning in technical wording, here’s a plain English rundown of the changes that matter and what they might mean for employers, payroll teams, and employees.

Income Tax Thresholds Still Frozen Until 2031

Income tax rates and allowances remain unchanged for the 2026/27 tax year, and the current plan is to keep them frozen until April 2031.At first glance that sounds like stability. In reality, it quietly increases tax revenue.

As salaries rise with inflation, more people drift into higher tax bands. This is why the policy is often referred to as a “stealth tax increase.”

Key thresholds remain:

Personal Allowance: £12,570
Higher rate tax starts: £50,270
Personal allowance taper starts: £100,000
Additional rate tax begins: £125,140

One unusual quirk sits between £100,000 and £125,140. Because the personal allowance is gradually removed, the effective marginal tax rate becomes 60%.

In simple terms, earning an extra £1 in this band can result in keeping just 40p of it.

This is often where pension contributions or charitable donations can make tax planning worthwhile.

Another threshold worth remembering is £60,000, where the High Income Child Benefit Charge begins.

Student Loan Repayment Threshold Frozen

Graduates with Plan 2 student loans will see their repayment threshold frozen at £29,385 from April 2027 for three years.

Repayments are calculated at 9% of income above the threshold.

Freezing the threshold means that as salaries rise, more of that income becomes subject to repayment.

It doesn’t increase the loan balance itself, but it accelerates repayment and reduces take-home pay, which for many people feels very similar to a tax increase.

Scottish and Welsh Income Tax Differences

Income tax isn’t completely uniform across the UK.

The Scottish Government sets its own rates and bands for employment income.

For 2026/27:

Scotland has a 19% starter rate
The top Scottish rate reaches 48%
The highest band starts at £125,140

While Scotland starts slightly lower than the rest of the UK, it ends significantly higher.

The Welsh Government technically has similar powers, but has not yet chosen to vary the UK rates.

Looking ahead, there has been discussion about allowing devolved governments to set different tax rates for property income in the future.

Company Car Tax Continues to Rise Gradually

Company car tax rates have already been mapped out through 2029/30 to provide longer-term certainty.

However, that does mean tax charges increase gradually each year, even if the car itself doesn’t change.

The maximum Benefit in Kind percentage will increase from 37% to 39% by 2029/30.

The policy direction remains clear. Encourage businesses and employees to move toward electric vehicles, which still attract the lowest tax rates.

Several related benefit values are increasing in line with inflation for 2026/27:

Company car fuel benefit multiplier: £29,200
Company van benefit: £4,170
Van fuel benefit: £798

Changes to Expenses and Employee Benefits

From 6 April 2026, employees will no longer be able to claim tax relief themselves for working from home expenses if their employer does not reimburse them.

Previously employees could claim a small deduction through HMRC.

Employers can still reimburse home working costs tax free.

HMRC accepts up to £6 per week without requiring evidence of the actual additional costs.

At the same time, the tax exemption for certain employer provided benefits is expanding.

From April 2026 the exemption will include reimbursements for:

Eye tests
Home working equipment
Flu vaccinations

These changes simplify the rules and make it easier for employers to provide these benefits without triggering tax or NIC.

National Insurance Thresholds and Costs

Employer National Insurance has been a major topic since the changes announced in the October 2024 Budget.

Under current plans:

The £5,000 employer NIC threshold will remain frozen until April 2031
The Upper Earnings Limit is also frozen because it tracks the higher rate income tax threshold

For small businesses, the Employment Allowance allows eligible employers to reduce their NIC bill by up to £10,500 per year.

However, businesses with larger teams will still feel the impact of employer NIC as payroll grows.

Two thresholds will increase in line with inflation for 2026/27:

Lower Earnings Limit: £129 per week
Small Profits Threshold: £7,105

National Living Wage Increase

The National Living Wage rises from April 2026.

New hourly rates will be:

£12.71 for workers aged 21 and over
£10.85 for workers aged 18 to 20
£8.00 for under 18s and apprentices

For employers with larger workforces, these increases can have a noticeable impact on payroll costs across the year.

The ripple effect often pushes other salaries higher too, as businesses maintain pay gaps between entry-level roles and supervisory positions.

Pension Salary Sacrifice Changes Coming in 2029

Salary sacrifice pension arrangements have long been a popular way to reduce National Insurance.

Under these arrangements, employees reduce their salary and the employer pays the pension contribution directly. This avoids both employee and employer NIC.

However, from 6 April 2029, full tax relief will be limited to the first £2,000 of salary sacrifice contributions.

Above that level, both employer and employee NIC will apply as if the salary had been paid normally.

Importantly, this change only affects salary sacrifice arrangements.

Standard employer pension contributions remain unaffected.

Final Thoughts

None of these changes dramatically transform the payroll landscape overnight. However taken together they do have a meaningful impact.

Frozen tax thresholds increase the tax burden over time.Employer NIC remains a significant cost for growing businesses.Minimum wage rises continue to push payroll costs upward.

For employers and payroll teams, the key takeaway is simple.

Good payroll planning matters more than ever.

Understanding these changes early allows businesses to budget properly, avoid surprises, and make informed decisions about pay, benefits, and workforce planning

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