New Year Tax changes 2026/27

With the new tax year on the horizon, it's essential for businesses to stay up to date with any changes that may impact payroll, tax contributions, and financial planning. 

Understanding what the updates will mean for you and employees will make it that much easier to prepare for any potential adjustments. It’ll also give you greater peace of mind as you manage your financial affairs.   

So, in this article, we'll outline the key tax year changes for 2026/27, including updates to National Insurance Contributions (NICs), VAT, income tax allowances, and more. 

Please note that this article is intended as general information, and we always recommend consulting your accountant or financial advisor for tailored tax, financial and financial management advice.

When does the new UK tax year start?

In the UK, the 2026/27 tax year starts on 6 April and ends on 5 April the following calendar year. This means the tax year always runs from 6 April to 5 April.

2026/27 tax year changes: Key takeaways

The 2026/27 tax year brings several key updates:

• Making Tax Digital for Income Tax (MTD for IT). Sole traders and landlords with a qualifying income of over £50,000 in the 2024/25 tax year will need to register for MTD for IT. This means using HMRC recognised, MTD for IT compatible software to keep digital records and send quarterly updates to HMRC, rather than the previous annual Self Assessment tax return. For the new tax year Qualifying income is based on the tax year 2024/25 and is your total income from self-employment and property. It’s assessed using your gross income (also called ‘turnover’) before you deduct any expenses. 

• Employers face adjustments to costs for some employees pay. Employer’s National Insurance Contributions (NICs) rate will remain at 15%, with the Secondary Threshold staying at £5,000, continuing a higher burden for some businesses. Furthermore, the National Living Wage and National Minimum Wage rates will increase from 1 April 2026, meaning employers will need to update payroll so that eligible employees receive the new hourly rates.

• Dividend changes for investors. From 6 April 2026, dividend tax rates will go up for ordinary and upper rate taxpayers to 10.75% and 35.75%, although the dividend allowance remains at £500. Returns on Investment ISAs will remain tax-free.

• Capital Gains Tax (CGT) rates for Business Asset Disposal Relief and Investors’ Relief will be set at 18% for disposals made on or after 6 April 2026.

• Updates to some VAT sections. A new relief on charitable donations is being introduced, and taxi services will no longer be included in the Tour Operator’s Margin Scheme (TOMS), meaning they'll pay the standard rate of VAT on full fees

Sources: GOV.uk Rates and thresholds for employers 2026 to 2027 and Autumn Budget 2025.

National Insurance Contributions (NICs)

National Insurance Contributions (NICs) rates and thresholds can directly impact both your business costs and employees' take-home pay. Class 1 NICs are the most relevant, as they cover employees and employers, with contributions deducted from salaries and additional payments made by businesses.

For the 2026/27 tax year, the rate of employer’s National Insurance Contributions (NICs) will remain at 15%, after the 1.2% increase the previous tax year. This increase meant businesses faced higher costs when it comes to employee contributions.

The Employer’s NI Secondary Threshold will also remain at £5,000, after a reduction from £9,100 in 2025/26. This change, alongside the rate increase, signified a higher NI burden for many businesses, as employers began paying contributions on lower earnings. 

NICs thresholds for the 2026/27 tax year

The following table outlines the NICs thresholds for the 2026/27 tax year: 

The Primary Threshold determines when employees start paying NICs, while the Secondary Threshold applies to employers. The Upper Earnings Limit (UEL) caps the primary contribution rate before it reduces.

This structure applies across England, Wales, and Northern Ireland. Scotland follows the same NICs structure as the rest of the UK, with the same Primary and Secondary thresholds, but different income tax rates apply. 

VAT

There are a number of updates to VAT legislation for the 2026/27 tax year.

• The key change for 2026/27 is a new VAT relief on charitable donations. This means that any goods passed on to registered charities for onward use will be afforded the VAT relief up to the value of £100 per item. However, in a bid to tackle digital poverty this VAT relief will increase to £200, to help those that struggle to buy essential electronics. 

• Taxi services and providers of private hire vehicles will no longer be included in the Tour Operator’s Margin Scheme (TOMS). This previously meant they were permitted to pay VAT solely on profits rather than full transaction values, but as of the 2026/26 tax year they will be required to pay the standard rate of VAT on the full fee or fare charged.

The 2025/26 change whereby private schools had to start paying VAT on supplies of private education, boarding fees and vocational training, will remain. The previously retained VAT exemption for welfare, nursery classes higher education and English language teaching will also stay in place.

Income Tax personal allowance

For the 2026/27 tax year, the personal income tax allowance is £12,570 across England, Wales, and Northern Ireland, meaning you can earn up to this amount before paying income tax. However, tax rates differ by region.

In England and Wales, the income 2026/27 tax bands are straightforward:

In Scotland, the income tax system is more complex, with rates ranging from 19% to 48%. The Scottish tax bands for the 2026/27 tax year are:

Scottish residents pay Scottish Income Tax on wages, self-employed earnings, and most forms of taxable income, while dividend income and savings interest are taxed under UK-wide rules.

Making Tax Digital for Income Tax

From the 2026/27 tax year, Making Tax Digital for Income Tax (MTD for IT) will apply to any sole traders and landlords who have a qualifying income of over £50,000 in the 2024/25 tax year.

Qualifying income is the total income from self-employment and property. It’s assessed using the gross income (also called ‘turnover’) before you deduct any expenses.

If Making Tax Digital for Income Tax applies to you, you’ll need to register for MTD for IT and use compatible software that is HMRC recognised, to keep digital records of your income and expenses.

Instead of the traditional annual Self Assessment tax return, you’ll now need to send quarterly updates of your income and expenses from your software.

It’s worth being aware that for the first tax year (2026 to 2027), there won't be penalty points for late filing of quarterly updates. However, in the following tax year (2027 to 2028), two penalties in a 24-month period will result in a fine of £200, and late payments will incur interest.

ISAs

For the 2026/27 tax year, the ISA overall allowance remains at £20,000 but with a £12,000 limit on Cash ISAs for the under 65s. This means that the remaining £8,000 allowance will need to be directed towards Stocks and Shares ISAs, except for people over 65 who will still have a Cash ISA allowance of up to £20,000.

Any returns from these investments, including income and capital gains, are free from tax. If you don’t use the full £20,000 allowance within the tax year, it cannot be carried over to the next year, so it’s essential to make the most of this limit.

Total annual limits have been frozen until 2031, meaning no changes are expected.

The annual capital gains tax allowance remains at £3,000, so holding investments in an ISA ensures you won’t be affected by capital gains tax or income tax.

National Minimum Wage

From 1 April 2026, the National Living Wage (NLW) and National Minimum Wage (NMW) rates will increase in line with recommendations from the Low Pay Commission to ensure that pay goes up in real terms. Employers must ensure that all eligible employees receive the updated hourly rates from this date.

The updated rates are as follows:

• National Living Wage (for those aged 21 and over): £12.71 per hour (+4.1%)

• 18-20 year olds: £10.85 per hour (+8.5%)

• 16-17 year olds: £8.00 per hour (+6%)

• Apprentice rate: £8.00 per hour (+6%)

The NLW increase equates to around £900 per year for a person working full time.

Employers should review their payroll to ensure compliance with these new rates and ensure that all workers aged 16 and over are paid at least the applicable minimum wage for their age group.

Dividends

While the dividend allowance will remain at £500 for the 2026-27 tax year, the rate of dividend tax will increase.

• The ordinary rate will go up from 8.75% to 10.75%

• The upper rate will rise from 33.75% to 35.75%

• The additional rate will stay at 39.35%

This means that shareholders can continue to receive up to £500 in dividend income from their investments without being taxed on it. Any dividends received above this threshold will be subject to the applicable dividend tax rates. 

With the increase in dividend tax rates, some people may want to ensure they are exploring options such as ISA deposits and pension contributions to help increase long-term saving.

Capital gains

Capital Gains Tax (CGT) rates for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) and Investors’ Relief will be set at 18% for disposals made on or after 6 April 2026. 

This will affect individuals disposing of qualifying business assets, and may impact their tax liabilities on the gains made from such sales.

Statutory Sick Pay (SSP) and Statutory Maternity Pay (SMP)

Effective from 6 April 2026, statutory pay rates for employees will see an increase. Statutory Sick Pay (SSP) will rise from £118.75 to £123.35, or 80% of the employee’s average weekly earnings, whichever is the lower of the two. This designed to offer more financial support for employees unable to work due to illness. 

Additionally, statutory payments for maternity (SMP), paternity, adoption, shared parental leave, and parental bereavement leave will increase from £187.18 to £194.32 per week, or 90% of your average earnings, whichever is the lower of the two. Maternity Allowance will also match this increase. 

The earnings threshold required for employees to qualify for SSP or family-related payments will increase from £125 to £129 per week, though eligibility for Maternity Allowance will continue to be set at £30 per week for at least 13 weeks of that period.

Employment Allowance

The Employment Allowance will remain at £10,500, with the previous £100,000 threshold for eligibility removed in the preceding 2025/26 tax year. This change allows more businesses to claim the allowance, and mean some of their cost burden is eased. 

Other eligibility requirements for the Employment Allowance remain unchanged.

Student loan thresholds

For the 2026/27 tax year, updated thresholds for student loan and postgraduate loan repayments will come into effect. Employers must ensure their payroll systems are set to calculate and deduct repayments automatically for employees earning above these thresholds.

The new thresholds are as follows:

The deduction rates remain at 9% for student loans and 6% for postgraduate loans, calculated on earnings above the respective thresholds.

Company cars

From 6 April 2026, company car rates for electric vehicle will rise from 3% to 4%, although they still offer a cost-effective choice for businesses.

Advisory fuel rates help employers calculate mileage reimbursement for company cars. 2026/27 rates vary by engine size and fuel type, with petrol rates ranging from 12 to 22 pence per mile and diesel from 12 to 18 pence per mile. Hybrid cars are treated as either petrol or diesel for these purposes.

For fully electric cars, the advisory electricity rate is set at 7 pence per mile, and 15 pence per mile for public charging. Note that electricity is not classified as a fuel for car fuel benefit purposes.

Stay on top of your finances with QuickBooks

Managing tax year changes can be challenging, but QuickBooks offers the tools and solutions to help you stay compliant and confident. With seamless payroll management, you can easily adapt to changes in National Insurance rates and statutory pay requirements. 

Our intuitive accounting software also simplifies VAT tracking, perfect for if you're managing B2B or B2C transactions, and helps you keep on top of your income and expenses. In addition, powerful cash flow insights give you a clear picture of your business finances.

Start your QuickBooks journey today to get ahead of the 2026/27 tax year changes and manage your business finances with ease.

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