Comprehensive Adjustments to Sick Pay, Benefits, And Pensions Incoming in 2026/27
- TBA
- Mar 18
- 3 min read
As with the start of any new tax year, almost all taxpayers will encounter a series of routine changes.
Compared to previous years however, the 2026/27 tax year appears exceptionally unusual, involving systemic adjustments to sick pay, the taxation methods for benefits, and even the collection mechanisms for pensions and income tax.
What exactly will happen? And how should one prepare for the future starting now?
Comprehensive reform of Statutory Sick Pay
Before the arrival of the 2026/27 tax year, a major reform requiring primary focus is the comprehensive adjustment of Statutory Sick Pay (SSP).
Under the Employment Rights Act 2025, the scope of SSP will be significantly expanded – for the first time in UK history, all employees, regardless of their earnings level, will be eligible for Statutory Sick Pay, marking a fundamental shift in the sick pay protection system.
From 6 April 2026, the Lower Earnings Limit (LEL) will be abolished. The calculation for SSP will change to the lower of 80% of an employee’s Average Weekly Earnings (AWE) or a flat standard rate (£123.25). Additionally, the 'waiting days' system will be scrapped, allowing eligible employees to start receiving SSP from the very first day of their sickness.
In light of these changes, all employers and agencies should ensure that sick pay policies and payroll software are updated in a timely manner to comply with the new regulations.
Mandatory payrolling of benefits in kind
Another key upcoming change is the mandatory payrolling of benefits in kind.
From April 2027, the government will officially require employers to report and pay income tax related to benefits in real-time through the payroll system.
It is particularly important to emphasise that even for businesses already 'voluntarily' payrolling benefits, there remains a significant amount of preparatory work to complete under the mandatory regime.
Unlike the current model, which simply requires adding a taxable amount during the pay period, every future benefit or taxable expense must accurately correspond to specific fields within the Real Time Information (RTI) system. This means that payroll processes, data structures, and the interface with benefit providers will undergo substantial changes.
Changes to PAYE and pensions
Beyond the confirmed short-term changes, two decisions announced in the November 2025 Autumn Budget will be officially implemented in April 2029, exerting a further and more profound impact on the payroll and tax systems.
1. Further integration of Self Assessment and PAYE (April 2029)
In the future, Self Assessment (ITSA) taxpayers who also have PAYE income will be required to pay their self-assessed tax liabilities in instalments throughout the year via the PAYE system. This approach is highly consistent with the logic of payrolling benefits, with the core objective being the achievement of 'real-time tax payment' to close the tax gap.
2. Capping NI exemptions for pension salary sacrifice (April 2029)
By now, many will be familiar with this change.
From April 2029, for pension contributions made via salary sacrifice, only the first £2,000 per year will be exempt from National Insurance (NI). This change has been controversial, as it may discourage employees from increasing savings for long-term retirement while directly driving up National Insurance costs for employers.
Although it will increase treasury revenue, the cost is primarily borne by workers and employers, particularly affecting those who proactively engage in long-term financial planning.
The view from TB Accountants
In summary, across the 2026/27 tax year and the series of reforms thereafter, a clear trend is visible: the UK tax and payroll system is moving entirely from 'annual retrospective reporting' towards 'real-time compliance and full-process management'.
These changes do not exist in isolation but are interconnected, progressive restructurings of the system.
The earlier you understand the policy logic and adjust your systems and processes, the more controllable future uncertainties become. Waiting until policies officially take effect to scramble a response often results in higher compliance costs, more frequent adjustments, and even unnecessary tax risks.
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