Autumn Budget 2026

The main rates on income tax on earnings and National Insurance rates may be staying put, but yesterday’s Budget still gives employers plenty to plan for.

The new minimum wage rates will affect employment costs, while changes to expenses and benefits reporting will mean more work behind the scenes for payroll teams.

Delivering his first Budget as Chancellor, John Healey described a package designed to give households and businesses some “breathing space”, while maintaining fiscal discipline. Opposition parties have questioned the government’s approach, with the Conservatives calling for tougher action on borrowing and public spending, while the Lib Dems arguing that more ambitious action on economic growth and the UK’s relationship with Europe was needed.

We’ve broken down the key announcements from yesterday’s Budget, what they mean for employers and when changes will take effect.

What employers need to know

National Minimum Wage increases confirmed

The government has confirmed a 3.9% increase to the National Living Wage and National Minimum Wage from 1 April 2027, benefiting an estimated 2.3 million workers.

The new hourly rates will be:

• Age 21 and over: £13.21, up from £12.71.
• Age 18–20: £11.27, up from £10.85.
• Age 16–17: £8.31, up from £8.00.
• Eligible apprentices: £8.31, up from £8.00.

The accommodation offset will also increase to £11.53 per day.

For a full-time employee earning the National Living Wage, the increase represents approximately £910 in additional gross annual earnings.

The impact goes beyond simply updating hourly rates. Higher minimum pay can affect wage bills, pay differentials between roles and the cost of maintaining existing salary structures.

It’s also worth remembering that National Minimum Wage compliance isn’t simply about paying the correct hourly rate. Working time, deductions and salary sacrifice arrangements can all affect whether an employee receives the minimum they’re legally entitled to.

We’d recommend reviewing your pay arrangements well ahead of April, particularly where employees work variable hours or receive payments and deductions that could affect minimum wage calculations.

Employer NI and income tax thresholds remain frozen

There were no increases to the headline rates of income tax or National Insurance in this Budget.

For 2027/28, the employer National Insurance rate will remain at 15%, with the annual Secondary Threshold frozen at £5,000. The Employment Allowance will also remain at £10,500 for eligible employers.

The main income tax thresholds are unchanged, including the £12,570 Personal Allowance and the £50,270 higher-rate threshold for England, Wales and Northern Ireland.

However, the National Insurance Lower Earnings Limit will increase from £129 to £133 per week.

Although the headline tax rates haven’t changed, frozen thresholds can still affect employment costs and employee take-home pay as wages rise.

With minimum wage increases approaching, you should review your workforce budgets and consider the combined impact of higher salaries and existing National Insurance obligations.

HMRC compliance activity receives additional funding

The government has also committed additional funding and resources to HMRC compliance and debt collection activity as part of its efforts to close the tax gap.

This reinforces the importance of accurate payroll reporting, reliable records and meeting PAYE obligations. With HMRC investing further in compliance activity, you should make sure your existing processes are robust and any potential issues are addressed promptly.

Mandatory payrolling of benefits

One of the biggest operational changes for payroll teams is the phased introduction of mandatory payrolling of benefits in kind.

The Budget confirms that, from 6 April 2027, employers will need to report and payroll certain taxable benefits through Real Time Information (RTI).

The initial phase will cover:

• Company cars and car fuel.
• Company vans and van fuel.
• Employer-provided medical benefits.

From April 2028, mandatory payrolling will extend to most remaining benefits and taxable expenses, with employment-related loans and employer-provided living accommodation excluded from the mandatory requirements.

Where benefit information currently sits with HR, finance or external providers, reliable processes will be particularly important to ensure payroll receives accurate data at the right time.

Further HMRC technical guidance is expected, but you should already be reviewing your readiness for April 2027.

Skilled Worker sponsorship costs receive tax clarification

If you sponsor overseas workers, you now have greater clarity on the tax treatment of certain sponsorship costs.

The government will exempt employers’ payments of certificate of sponsorship fees and Immigration Skills Charges from income tax where sponsoring a worker under the Skilled Worker route. The change applies to payments made on or after 28 October 2026.

For employers that regularly recruit overseas workers, the change provides greater certainty around the tax treatment of sponsorship costs and confirms that these payments won’t be treated as a taxable benefit for employees. You may wish to review your policies and processes to ensure the exemption is applied correctly.

Non-compete clauses in employment contracts face reform

The Budget also includes plans to reform non-compete clauses, which can restrict employees from working for competitors or starting a competing business after leaving an organisation.

The government wants to prevent these clauses from unnecessarily limiting job opportunities or making it harder for growing businesses to recruit experienced workers.

The proposals will apply across the economy, although the precise restrictions and how they’ll operate are still to be determined.

A consultation is expected shortly, with the government planning to set out its detailed position in early 2027 before introducing legislation.

This could mean reconsidering how employment contracts protect commercially sensitive information and business interests, particularly where restrictive covenants are routinely included in contracts.

There’s no immediate requirement to change existing agreements. However, if you’re a business that relies heavily on non-compete clauses, you should keep a close eye on the consultation and consider how the proposed reforms could affect recruitment and retention strategies.

Tax-free mileage allowances are increasing

Healey confirmed that the increased tax-free mileage rate of 55p for the first 10,000 business miles, introduced from April 2026, will become permanent.

From 6 April 2027, the approved rate for business mileage above 10,000 miles will also increase from 25p to 35p per mile.

These rates determine how much employers can reimburse employees tax-free for qualifying business journeys in their own vehicles.

Employers aren’t legally required to reimburse employees at the approved mileage rates. However, businesses that use HMRC’s rates within their expenses policies will need to make sure their processes reflect the changes.

This is a good opportunity to review mileage policies, check how business journeys are recorded and make sure your expense calculations remain accurate.

Changes to travel and subsistence expenses

The Budget also announced reforms to the benchmark rates used when reimbursing employees for qualifying business travel and subsistence expenses.

From 6 April 2028, the updated benchmark rates will be:

• £20 for qualifying travel lasting over five hours.
• £60 for qualifying travel lasting over ten hours.
• £75 for qualifying travel lasting over 24 hours.

The government also plans to simplify overseas subsistence rates, replacing the existing destination-specific system with a tiered approach.

These are approved tax-free reimbursement limits rather than mandatory employee entitlements, and the relevant qualifying conditions will continue to matter.

Employers with regular business travel should monitor the final HMRC guidance and consider whether their current expenses policies or systems will need updating.

New Direct Debit requirements for PAYE

Another change to watch is how employers pay their PAYE liabilities.

The government plans to require businesses to have a Direct Debit instruction in place for PAYE and VAT return liabilities from April 2029, subject to certain exceptions.

However, employers will retain the flexibility to pay using other methods before a specified cut-off date. HMRC will use the Direct Debit arrangement to collect any outstanding balance after that point.

Although implementation is still some way off, the change will be relevant to payroll and finance teams responsible for managing tax payments and maintaining appropriate financial controls.

Further operational guidance and details of the exceptions are expected.

What should employers do now?

Several of the changes announced won’t take effect immediately, but some will require far more preparation than others.

The April 2027 minimum wage increases and mandatory benefits in kind reforms deserve particular attention now, especially where payroll processes or employee data will need reviewing.

You should prioritise:

• Reviewing employment costs: Factor the new minimum wage rates and existing National Insurance thresholds into workforce budgets.
• Checking payroll readiness: Identify any system or process changes needed for mandatory payrolling of benefits in kind.
• Updating expenses policies: Review mileage arrangements and monitor upcoming changes to subsistence allowances.
• Keeping track of implementation dates: Distinguish changes coming in April 2027 from those planned for 2028 and beyond.

With several reforms approaching alongside existing employment legislation changes, giving payroll and HR teams enough time to prepare will help avoid unnecessary disruption.

The government has now published its main Budget documents, with further technical guidance expected on some measures.

For the latest information, you can refer to the Autumn Budget 2026 and HMRC’s overview of tax legislation and rates.