The UK’s Autumn Budget 2026, delivered on 28 October 2026, introduces changes to minimum wages, employment taxes, employee share plans and immigration. With measures taking effect on different dates through to 2030, employers should assess the implications for payroll, reward arrangements and workforce planning. This article examines the key changes for employers (for a discussion of the full Budget 2026, see the analysis prepared by BDO in the UK).
The National Living Wage (NLW) and National Minimum Wage (NMW) rates will rise by 3.9% from 1 April 2027. The hourly NLW rate for workers aged 21 and over will increase to GBP 13.21. The NMW will rise to GBP 11.27 for workers aged 18 to 20 and GBP 8.31 for workers aged 16 to 17 and eligible apprentices.
Employers should prepare by identifying workers paid at or close to the new minimum rates and reviewing their pay, deductions and working-time arrangements before 1 April 2027.
The changes will raise direct employment costs and may put pressure on wider pay structures as employers seek to maintain pay differentials between roles or grades. Budgeting for the increases should therefore extend beyond workers currently paid the statutory minimum.
Employers planning smaller increases for workers paid above the minimum should also review NMW compliance. If their pay rises by less than 3.9%, the gap between their hourly rate and the statutory minimum will narrow, leaving less room for deductions or additional working time before an underpayment arises. An hourly rate above the statutory minimum does not, on its own, remove the risk of underpayment in the relevant pay reference period.
NMW underpayments can result in back pay due to workers, financial penalties and public naming by the government. Employers should therefore consider the potential reputational consequences, as well as the direct financial cost.
These preparations come ahead of the full transfer of responsibility for NMW enforcement to the Fair Work Agency from April 2027.
Under the proposals, the individual EMI2 option limit will increase from GBP 60,000 to GBP 120,000 and the exercise period will extend to 15 years. Currently, an employee’s individual EMI limit takes account of CSOP options granted by the employing company or another company in the same group. Importantly, the government will remove the interaction between the CSOP and EMI individual option limits, which should make it easier to use the two schemes alongside each other. This could allow employees to hold options over shares worth up to GBP 370,000, measured at grant over the prescribed timeframes, with favourable tax treatment on exercise. The change could be particularly relevant where employees already hold substantial EMI or CSOP awards and employers want to offer further equity incentives as the business grows.
Supporting changes include extending the EMI exercise window following a disqualifying event from 90 to 180 days and extending the EMI Employee Ownership Trust (EOT) exception to companies preparing to become EOT-controlled.
Employers using, or considering, employee share options should review their incentive arrangements ahead of 6 April 2027. The review should cover existing awards, the scope for future grants and how the proposed flexibility could support recruitment, retention and employee engagement.
The immediate priority is to prepare for the April 2027 wage and share-plan changes. Employers should also map the effective dates for later changes to mileage reimbursements, company vehicle benefits, travel expenses and PAYE payments, and assess how the immigration measures could affect recruitment and sponsorship budgets. Bringing payroll, HR and finance teams together can help turn the announcements into a practical implementation plan, while allowing for further guidance and legislative detail.
Stuart Strong
BDO in the UK
Minimum Wage Increase
The National Living Wage (NLW) and National Minimum Wage (NMW) rates will rise by 3.9% from 1 April 2027. The hourly NLW rate for workers aged 21 and over will increase to GBP 13.21. The NMW will rise to GBP 11.27 for workers aged 18 to 20 and GBP 8.31 for workers aged 16 to 17 and eligible apprentices.Employers should prepare by identifying workers paid at or close to the new minimum rates and reviewing their pay, deductions and working-time arrangements before 1 April 2027.
The changes will raise direct employment costs and may put pressure on wider pay structures as employers seek to maintain pay differentials between roles or grades. Budgeting for the increases should therefore extend beyond workers currently paid the statutory minimum.
Employers planning smaller increases for workers paid above the minimum should also review NMW compliance. If their pay rises by less than 3.9%, the gap between their hourly rate and the statutory minimum will narrow, leaving less room for deductions or additional working time before an underpayment arises. An hourly rate above the statutory minimum does not, on its own, remove the risk of underpayment in the relevant pay reference period.
NMW underpayments can result in back pay due to workers, financial penalties and public naming by the government. Employers should therefore consider the potential reputational consequences, as well as the direct financial cost.
These preparations come ahead of the full transfer of responsibility for NMW enforcement to the Fair Work Agency from April 2027.
Round-Up of Changes to Employment Taxes
- Mileage rate: For employees using their own cars for business travel, the rate for reimbursing fuel and other related costs will increase from 25p to 35p per mile for business mileage above 10,000 miles in a tax year. The change takes effect from 6 April 2027. The rate for the first 10,000 business miles will remain at 55p per mile.
- Company cars: From 6 April 2030, the percentage used to calculate the taxable benefit for zero-emission company cars will rise to 10%. For other vehicles, the applicable percentage will increase by 1%, subject to a maximum of 40%. The company car fuel benefit multiplier will be GBP 30,200 from 6 April 2027. For company vans, the taxable benefit charge will be GBP 4,310 and the fuel benefit charge GBP 825 from 6 April 2027. Employers should factor the revised car and van charges into their fleet and reward planning.
- Travel expenses: The government will reform the rates employers can use to reimburse domestic and overseas business travel and subsistence expenses without checking receipts. From 6 April 2028, Benchmark Scale Rates will rise to GBP 20 for travel exceeding five hours, GBP 60 for travel exceeding 10 hours and GBP 75 for travel exceeding 24 hours. Overseas Scale Rates will move from a destination-specific framework to a tiered approach intended to reduce administration. Further details are awaited. From the same date, employees will be able to claim tax relief for unreimbursed employment expenses exceeding GBP 2,500 through Pay As You Earn (PAYE), rather than through income tax self-assessment.
- Termination payments: The government will clarify the legislation governing the tax treatment of termination payments, including the definition of serious ill-health lump sums and the requirements for medical evidence. The changes are to be included in the Finance Bill, with effect from Budget Day.
- Image rights payments: Changes treating employment-related image rights payments as employment income, taxable in the same way as wages, will now take effect from 6 April 2028, giving affected sectors more time to prepare.
EMI and CSOP Changes
The Chancellor announced changes to Enterprise Management Incentives (EMI) and Company Share Option Plans (CSOP), with CSOP to be renamed EMI2. The proposals are intended to give employers greater flexibility to use share options to attract, retain and incentivise employees. The government intends to legislate for the changes in Finance Bill 2026–27, with effect from 6 April 2027. Employers should consider the proposals when planning future option awards, while monitoring the final legislation.Under the proposals, the individual EMI2 option limit will increase from GBP 60,000 to GBP 120,000 and the exercise period will extend to 15 years. Currently, an employee’s individual EMI limit takes account of CSOP options granted by the employing company or another company in the same group. Importantly, the government will remove the interaction between the CSOP and EMI individual option limits, which should make it easier to use the two schemes alongside each other. This could allow employees to hold options over shares worth up to GBP 370,000, measured at grant over the prescribed timeframes, with favourable tax treatment on exercise. The change could be particularly relevant where employees already hold substantial EMI or CSOP awards and employers want to offer further equity incentives as the business grows.
Supporting changes include extending the EMI exercise window following a disqualifying event from 90 to 180 days and extending the EMI Employee Ownership Trust (EOT) exception to companies preparing to become EOT-controlled.
Employers using, or considering, employee share options should review their incentive arrangements ahead of 6 April 2027. The review should cover existing awards, the scope for future grants and how the proposed flexibility could support recruitment, retention and employee engagement.
Attracting Skilled Overseas Talent
Several measures in Budget 2026 aim to make the UK more attractive to highly skilled international talent, while maintaining a more restrictive approach to lower- and medium-skilled migration. The key announcements for employers are:- Expansion of the Global Talent, High Potential Individual and Graduate visa routes.
- Changes to minimum salary requirements for work visas to better reflect labour market conditions.
- A longer period for sponsored workers to find new employment.
- An exemption from income tax and National Insurance contributions (NICs) for the immigration skills charge and certificate of sponsorship fees.
BDO Perspective
For employers, Budget 2026 calls for a coordinated review of employment costs, compliance and reward strategy. The minimum wage increases require more than a payroll update: employers should assess the effect on pay differentials and check whether deductions or working-time arrangements could result in underpayments. At the same time, the proposed EMI and EMI2 changes offer an opportunity to review how share options support recruitment and retention, taking account of existing awards and the final legislation.The immediate priority is to prepare for the April 2027 wage and share-plan changes. Employers should also map the effective dates for later changes to mileage reimbursements, company vehicle benefits, travel expenses and PAYE payments, and assess how the immigration measures could affect recruitment and sponsorship budgets. Bringing payroll, HR and finance teams together can help turn the announcements into a practical implementation plan, while allowing for further guidance and legislative detail.
Stuart Strong
BDO in the UK