The UK Budget 2026 was delivered by Chancellor John Healey on 28 October 2026. While the main rates of Income Tax on employment earnings, National Insurance and VAT remain unchanged, the Budget introduces measures affecting employment costs, payroll administration, employee benefits, immigration and employment tax.
For organisations managing UK payroll alongside international workforces, the changes have implications for pay and benefits, sponsored employees, business travel, employee reward and tax compliance. Some measures take effect immediately, while others will be introduced over the coming years.
Here are the key developments for employers and international workforce teams to consider.
National Minimum Wage and National Living Wage
From 1 April 2027, the National Living Wage and National Minimum Wage rates will increase by 3.9%.
Employers should review pay structures, payroll configurations and workforce budgets ahead of the changes. It is also worth checking how overtime, deductions and salary sacrifice arrangements affect minimum wage compliance.
Benefits-in-Kind Payrolling
The mandatory payrolling of benefits in kind has been delayed by one year. The requirement for company cars, vans, fuel and medical benefits will now begin on 6 April 2027, with remaining benefits in kind scheduled to follow from 6 April 2028.
This gives employers additional time to prepare payroll systems, review benefits data and coordinate processes between HR, finance and payroll teams. Organisations should confirm which benefits fall within each implementation stage and monitor further HMRC guidance, particularly where benefits are provided to internationally mobile employees.
Mileage Rates
The Budget confirms a permanent increase in tax-free mileage rates for employees using their own cars or vans for business travel.
The rate for the first 10,000 business miles increased from 45p to 55p per mile, with retrospective effect from 6 April 2026. From 6 April 2027, the rate for business miles above 10,000 will increase from 25p to 35p per mile.
Employers should review expense policies, reimbursement calculations and payroll processes to ensure the correct rates are applied from the relevant dates. The rates are advisory, so organisations should also check their own reimbursement policies.
Immigration Sponsorship Costs
From 28 October 2026, an employer's payment of the Immigration Skills Charge or Certificate of Sponsorship fees will not be treated as a taxable benefit in kind in some circumstances. The change will be legislated for through Finance Bill 2026–27.
This is relevant to organisations recruiting internationally or sponsoring workers in the UK. Employers should review how these costs are classified and recorded, ensuring immigration, HR, finance and payroll teams apply the correct treatment. The change applies to the specified sponsorship charges, rather than all immigration or relocation costs.
Changes to UK Visa Routes
The Budget includes several measures relevant to employers recruiting and sponsoring international talent.
From spring 2027, the government will implement changes to visa salary requirements, including reducing occupation-specific minimum salary thresholds from the median to the 25th percentile of wages, uprating the general threshold using 2026 wage data and introducing annual updates based on Office for National Statistics wage data. It will also standardise new entrant discounts and remove the PhD discount.
Other measures include:
Employers should monitor the detailed eligibility criteria and implementation arrangements as they emerge. HR and global mobility teams may need to review recruitment strategies, sponsorship planning and support for employees moving to the UK or changing roles.
Business Travel and Subsistence
From April 2028, the government will reform the rates employers use to reimburse domestic and overseas business travel and subsistence expenses without requiring every receipt to be checked.
Benchmark Scale Rates for domestic travel will be updated to better reflect current subsistence costs, while Overseas Scale Rates will move from destination-specific rates to a simpler tiered approach.
Employers managing international assignments and business travellers should review their expense policies and systems ahead of implementation. The detailed rates and eligibility requirements will need to be confirmed before reimbursement processes are changed.
Parental Pay and Leave
From April 2029, eligible self-employed fathers, partners and adopters in Great Britain will be able to access a new Parental Allowance. Certain recently employed, unemployed or irregularly employed individuals who do not qualify for statutory paternity or adoption pay will also be eligible, provided they have sufficient work and earnings history.
HR teams should monitor the detailed eligibility and administration rules as they develop. Employers may need to review their parental leave policies, employee communications and payroll procedures as the new arrangements are introduced.
PAYE and VAT Payment Arrangements
From April 2029, businesses will be required to set up direct debit instructions for PAYE and VAT return liabilities. Other payment methods will remain available before a specified cut-off date, after which direct debit will be used to collect unpaid balances.
Finance and payroll teams should review payment controls, banking arrangements and cash-flow processes well ahead of implementation to ensure liabilities continue to be settled on time.
Electronic VAT Invoicing
From 1 April 2029, VAT invoices will need to be issued in a specified electronic format. The government has published an implementation roadmap and plans to provide full details of the policy and technical design by April 2028.
Businesses should consider the implications for invoicing systems, finance processes and integrations with suppliers and customers. Early preparation will help organisations identify any changes needed to support compliant electronic invoicing.
VAT on Cross-Border Services
From April 2027, the VAT reverse charge on cross-border supplies of services will be restricted to VAT-registered businesses. Overseas providers supplying services to UK businesses that are not VAT-registered will instead be required to account for VAT in the normal way.
Organisations purchasing services from overseas suppliers should review their arrangements and confirm whether their existing VAT treatment remains appropriate. Finance, procurement and tax teams should coordinate any necessary changes before the new rules take effect.
Employee Share Schemes
The Budget expands the Company Share Option Plan (CSOP) from 6 April 2027.
The changes will:
These changes may be relevant to employers reviewing share-based reward arrangements, particularly growing businesses seeking to attract and retain talent. Share schemes can also have employment tax and payroll reporting implications, while awards involving internationally mobile employees may require additional consideration of cross-border tax treatment.
Employers should review the eligibility requirements and detailed rules before changing their remuneration arrangements.
Company Car Benefit-in-Kind Rates
The Budget confirms Company Car Tax benefit-in-kind rates for the 2030–31 tax year. Rates will increase by one percentage point across all vehicle bands compared with 2029–30.
The rate for zero-emission vehicles will increase from 9% to 10%, while rates for cars emitting between 1 and 50g of CO₂ per kilometre will increase from 19% to 20%. Other rates will also increase by one percentage point, subject to a maximum of 40%.
Employers operating company car schemes should factor these future changes into fleet planning, employee benefit communications and remuneration reviews. Payroll and HR teams should also ensure their systems and processes are updated as the relevant rates take effect.
The UK Budget 2026 introduces changes that may affect payroll processes, employment costs, employee benefits and global mobility arrangements. Employers should review the measures relevant to their workforce and plan ahead for implementation.
Employers should distinguish between measures requiring immediate action and those that depend on future legislation, detailed guidance or later implementation dates.
At activpayroll, we support organisations in navigating changes to UK payroll, employment tax and global mobility. From minimum wage increases and benefits-in-kind reporting to employee expenses and sponsorship costs, our team can help you understand the implications of the UK Budget 2026 for your workforce, payroll processes and compliance requirements.
Please complete our Contact Us form or reach out to Steph Smith, Head of Global Mobility, to discuss how we can support your organisation in responding to the changes.