For finance leaders, controllers and in-house tax teams, the 2026/27 employment tax landscape is not simply one of updating payroll rates. It is a year in which cost changes and control failures can quickly flow through to margin, forecasting, cash management and HMRC intervention risk. Changes announced in recent Budgets make it clear that employers are dealing with a higher payroll cost base, while the April 2026 Employer Bulletin also shows a sharper operational focus from HMRC on PAYE accuracy, payroll identifiers and reconciliation discipline.
Cost Pressures
The most immediate cost pressure comes from changes in rates and increases in allowances failing to keep up for many. For 2026/27, employer Class 1 NIC continues to be charged at 15%, and the same 15% rate also applies to Class 1A NIC on expenses and benefits and Class 1B NIC on PAYE Settlement Agreements. At the same time, the Employment Allowance rose to £10,500 in April 2025 but is frozen for 2026/27 — which did provide welcome support for the smallest employers but did little to offset the full impact for larger or labour-intensive businesses. In practical terms, the last few years have taught us that finance teams should treat payroll tax as a live planning variable rather than a static assumption carried over from the prior year.
That point is reinforced by National Minimum Wage and National Living Wage changes. From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 per hour, with the 18–20 rate at £10.85 with other youth and apprentice rates also rising. HMRC has reiterated that minimum wage compliance is not simply about paying the correct hourly headline rate; it depends on calculation integrity, including the treatment of deductions and the identification of all working time. For finance teams, the key issue is that payroll cost inflation and compliance risk now sit side by side: the same pay review exercise should test both affordability and technical compliance.
Statutory Sick Pay is another area where finance teams should expect operational and financial consequences. For 2026/27, SSP is £123.25 per week or 80% of average weekly earnings, if lower, and the wider employment-law reforms taking effect from April 2026 mean more employees will qualify and payment starts from the first day of sickness absence rather than after waiting days. That combination matters commercially. Even where the weekly SSP rate looks manageable in isolation, broader eligibility and the need for earlier payment increase processing demands and may alter short-term absence cost assumptions in sectors with high employee numbers or volatile attendance patterns.
Transport and travel costs also deserve a fresh look. HMRC increased the approved mileage allowance payment for cars and vans to 55p per mile for the first 10,000 business miles, with 25p thereafter, effective from 6 April 2026. HMRC has also updated the advisory fuel rates from 1 June 2026, including differentiated advisory electricity rates of 7p per mile for home charging and 15p per mile for public charging for fully electric cars. These changes are highly relevant for businesses with mobile employees, car allowances, grey-fleet travel or electric vehicle fleets, because they affect reimbursement policy, benefit modelling and business travel budgets. Finance teams should therefore revisit mileage policies, monthly management accounts assumptions and any internal recharge methodology that relies on historic rates.
A sensible business response is to bring these items together in one employment cost reset. In practice, that means updating the payroll cost model for higher NIC, testing the impact of revised wage floors, reviewing sickness assumptions under the new SSP rules, and checking whether company car and mileage policies remain aligned with the latest HMRC positions. The finance function should also expect knock-on effects in budgeting for benefits, bonuses, overtime and workforce planning. Preparing for the cash flow impacts of advancing Class 1A NIC payment following the introduction of mandatory payrolling of benefits in 2027/28 should also be part of the plan. In other words, 2026/27 is not a year for incremental payroll updates; it is a year for re-baselining the employer cost stack.
Process Risk
The second major issue is HMRC process risk, which is becoming more visible in official guidance. HMRC says it is changing the way certain National Insurance refunds are processed where they cannot be corrected through RTI. Once the new functionality is live, approved refunds will be repaid by applying a credit to the employer’s PAYE online account rather than by bank transfer, although the underlying claims process will not change. HMRC is also enhancing PAYE Online so employers can see where credits came from and how they were allocated, and it is adding a clearer breakdown for end-of-tax-year adjustments. These are operational changes, but they matter to finance because they affect how payroll balances reconcile to HMRC statements and how quickly unexpected credits or liabilities are identified.
Even more important is HMRC’s clear frustration with RTI data quality, especially around payroll IDs. HMRC says employers continue to create duplicate employments when they change a payroll ID but fail to use the payroll ID change indicator, or fail to provide the old payroll ID. It also warns that start dates are sometimes submitted incorrectly, or omitted for genuine new employments, which causes HMRC systems to merge or duplicate records. In addition, HMRC highlights problems where a payroll ID is reused for a different employee, leading to split RTI data, disputed charges and records appearing against the wrong individual. This is not a niche payroll issue; it is a control issue that can create inaccurate liabilities, time-consuming corrections and management reporting distortions.
From a finance and governance perspective, the practical answer is disciplined master data control. Employers should ensure that payroll ID changes are formally governed, that payroll systems do not recycle identifiers, and that HR-to-payroll onboarding and offboarding processes capture the correct start-date logic. HMRC’s guidance is explicit: where a payroll ID changes, employers should use the change indicator and provide both the old and new IDs; for genuine new employments, a start date must be present; for continuing employments, it should be left blank. A monthly RTI exception review, owned jointly by payroll and finance, is increasingly a sensible minimum control rather than a “nice to have”.
There is also a broader point for financial specialists. Employment tax compliance now has a stronger balance sheet and cash-management dimension. If NIC refunds are being credited to PAYE accounts rather than paid directly, someone needs to monitor those credits and ensure they are allocated correctly. If duplicate employments are created in HMRC systems, finance may see unexplained charges, mismatches in payroll clearing accounts or timing differences between expected and reported liabilities. If payroll identifiers are weakly controlled, the business risks not just a payroll correction exercise but unnecessary friction in year-end close, internal audit and external reporting. These are exactly the sorts of low-level process failures that consume disproportionate management time.
Actions
The message for 2026/27 is straightforward. First, employers need to address payroll cost inflation in a structured way, with particular attention to NIC, wage floors, SSP and employee travel reimbursements. Secondly, they need to treat PAYE process accuracy as a financial control issue, not just a payroll administration matter. Businesses that refresh their cost models, tighten payroll master data governance and actively reconcile PAYE online credits and adjustments will be in a materially better position than those that rely on routine annual uplift exercises. In the current HMRC environment, good employment tax management is increasingly about execution as much as technical correctness.
This article was previously published in Tax Weekly, a Croner-I publication.
Caroline HarwoodBDO in United Kingdom