Employment

National Insurance contributions

Employees

For 2026/27 the rates of Class 1 employee NICs are 8% and 2%. The employer rate is 15%. These remain the same for 2027/28.

The Secondary Threshold is the point at which employers become liable to pay NICs on an individual employee’s earnings and is currently set at £5,000 a year. This remains for 2027/28. The government has announced that this will be maintained at this level until 5 April 2031.

The self-employed

For 2026/27 the rates of Class 4 self-employed NICs are 6% and 2%. These rates remain the same for 2027/28.

For Class 2 NICs from 6 April 2027:

• self-employed people with profits of £7,355 and above get access to contributory benefits, including the State Pension, through a National Insurance Credit, without paying Class 2 NICs
• those with profits under £7,355 who pay Class 2 NICs voluntarily to get access to contributory benefits, including the State Pension, will continue to be able to do so. The main Class 2 rate will be £3.80 per week.

Other NIC points

The government will increase the Lower Earnings Limit (LEL) from 2027/28. For those paying voluntarily, the government will increase Class 3 NICs for 2027/28.

The LEL will be £6,916 per annum (£133 per week). The Class 3 rate will be £19.05 per week.

The remaining NIC limits and thresholds will, as previously announced, be maintained at current levels until 5 April 2031.

Employer NICs relief for veterans

The government has extended the employer NICs relief for employers hiring qualifying veterans to 5 April 2028.

This means that businesses continue to pay no employer NICs up to annual earnings of the Veterans Upper Secondary Threshold of £50,270 for up to the first year of a veteran’s employment in a civilian role.

National Living Wage and National Minimum Wage

The government has announced increased rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from 1 April 2027. The hourly rates which will apply are as follows:

The apprenticeship rate applies to apprentices under 19, or 19 and over in the first year of apprenticeship. The NLW applies to those aged 21 and over.

Taxable benefits for company cars

The rates of tax for company cars are amended for 2027/28:

• the charge for zero emission cars rises from 4% to 5%
• the charge for other cars with emissions below 70g/km increases by 1%
• the maximum benefit of 37% remains.

The government has confirmed increases to the benefit in kind rates for company cars for tax years up to and including 2029/30 and will introduce legislation to set the rates for the tax year 2030/31.

The government has announced that it is introducing a temporary easement to mitigate the increasing benefit in kind tax liabilities of Plug-in Hybrid Electric Vehicle (PHEV) company cars due to new emission standards. The easement will apply retrospectively from 1 January 2025 to 5 April 2028. Transitional arrangements will apply to certain PHEVs until 5 April 2031.

Car Fuel Benefit Charge

The government will increase the Car Fuel Benefit Charge from 6 April 2027.

Company vans

The government will increase the Van Benefit Charge and the Van Fuel Benefit Charge from 6 April 2027.  

Mandating the reporting of benefits in kind via payroll software

The government has confirmed that the use of payroll software to report and pay tax on benefits in kind will become mandatory, in phases, from April 2027. This will apply to income tax and Class 1A NICs.

From 6 April 2027, mandatory payrolling will apply to:

• company cars
• car fuel
• vans
• van fuel and
• employer-provided medical benefits.

The mandatory payrolling of most other benefits in kind will be introduced from 6 April 2028. This excludes loans and accommodation, which will remain voluntary.

Changes to salary sacrifice for pensions from April 2029

The government is changing how salary sacrifice for pension contributions works.

Salary sacrifice is when an employee agrees to reduce their gross salary or sacrifice a bonus and, in return, the employer pays the same amount into their pension.

From April 2029, only the first £2,000 of employee pension contributions through salary sacrifice each year will be exempt from NICs. Contributions through salary sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to the usual limits).

Employers and employees can still make contributions above £2,000 through salary sacrifice arrangements. However, employee contributions above this amount will be subject to employer and employee NICs like other employee workplace pension contributions.

Employers will need to report the total amount sacrificed through their existing payroll. All employer pension contributions will continue to be free of NICs.

Changes to employee share schemes

The government will introduce legislation to make changes to the Company Share Option Plan (CSOP) and Enterprise Management Incentives (EMI) schemes:

• the CSOP individual option limit will be increased to £120,000
• the interaction between the CSOP and EMI individual options limits will be removed
• the CSOP exercise period will be extended to 15 years
• the period for certain tax-advantaged and non-tax advantaged shares and share options reserved by third parties to be excepted from the disguised remuneration rules will also be extended to 15 years
• the exception for Employee Ownership Trusts (EOTs) in the EMI rules will be extended to companies arranging to be controlled by an EOT
• the EMI exercise window following disqualifying events will be extended to 180 days.

The changes will take effect from 6 April 2027.

Enterprise Management Incentives: changes to the process to notify a grant of options

The government will introduce legislation to remove the requirement for a company to submit a separate notification of a grant of an EMI option to HMRC. Instead, a company will be required to notify such a grant through the end-of-year return.

The changes will take effect for options granted on or after 6 April 2027.

Legislation to clarify the tax treatment of image rights payments

The government will introduce legislation to clarify that image rights payments related to an employment are treated as taxable employment income.

These payments will be subject to Income Tax and NICs.

The changes will take effect from 6 April 2028 rather than 6 April 2027 as previously announced.

Income Tax: certificate of sponsorship fee and immigration skills charge

The government will introduce legislation to exempt from Income Tax an employer’s payment of a fee for a certificate of sponsorship or an immigration skills charge, which employers are required to pay when sponsoring a worker under the Skilled Worker route. The changes will apply to payments made on or after 28 October 2026.

Cancelled shifts: technical update

Statutory payments provided for cancelled, moved or curtailed shifts are taxable as employment income.

The government will introduce legislation to ensure that statutory payments made to agency workers for cancelled, moved or curtailed shifts are also covered by existing tax legislation.

The changes will take effect from 6 April 2027.

Approved Mileage Allowance Payments and Self-Employed simplified mileage rates

The government had previously announced that Approved Mileage Allowance Payments and simplified mileage rates for business mileage up to 10,000 would be increased from 45p per mile to 55p from 6 April 2026.

The government has now announced that for business mileage above 10,000 miles the rates will be increased from 25p per mile to 35p. The changes will take effect from 6 April 2027.

Reform of Benchmark Scale Rates and Overseas Scale Rates

The government will reform and simplify Benchmark Scale Rates (BSRs) and Overseas Scale Rates (OSRs) which are used by employers to reimburse their employees for domestic and overseas travel and subsistence expenses, without the need to check receipts.

BSRs will be modernised to better reflect current subsistence costs. The OSRs will be simplified replacing the more than 200 destination-specific OSRs with a simplified tiered approach that links to the updated BSRs.

This will be implemented from 6 April 2028.

Reforming how taxpayers claim for employment expenses

The government will remove the £2,500 Income Tax Self Assessment expenses threshold from April 2028, allowing more taxpayers to claim tax relief on non-reimbursed expenses through PAYE.

This change will simplify the process for taxpayers by removing the need to enter Self Assessment solely to claim employment expenses, and ensure more tax relief claims are subject to evidence before relief is issued.