UK AUTUMN BUDGET 2026 SERIES: - NATIONAL MINIMUM WAGE AND MILEAGE ALLOWANCE UPDATES
IMPORTANT PAYROLL CHANGES: WHAT EMPLOYERS SHOULD KNOW
The UK Autumn Budget 2026, announced on 28 October 2026, includes important updates affecting employers, employees and payroll administration. The key changes covered in this article relate to increases in the National Living Wage and National Minimum Wage, alongside changes to approved mileage allowance payments.
Employers should understand these changes and review their payroll procedures to prepare for the relevant implementation dates.
1. NATIONAL LIVING WAGE AND NATIONAL MINIMUM WAGE INCREASE
From 1 April 2027, the National Living Wage (NLW) and National Minimum Wage (NMW) rates are scheduled to increase by 3.9%. The increases are expected to benefit approximately 2.3 million workers across the UK.
The new hourly rates will be:
Age group | New hourly rate from 1 April 2027 | Current rate (April 2026) |
Aged 21 & over | £ 13.21 | £ 12.71 |
Aged 18-20 | £ 11.27 | £ 10.85 |
Aged 16-17 | £ 8.31 | £ 8.00 |
Eligible apprentices | £ 8.31 | £ 8.00 |
The National Living Wage applies to eligible workers aged 21 and over. The National Minimum Wage applies to younger workers and eligible apprentices, subject to the applicable rules.
These increases mean that employers may need to adjust hourly pay rates and review their overall payroll budgets. Businesses employing hourly paid staff, part-time workers, apprentices or seasonal employees should pay particular attention to the changes.
What should employers do?
Employers should take the following steps before 1 April 2027:
Review employee pay rates: Identify employees whose current hourly pay may fall below the new minimum rates.
Update payroll software: Ensure that the new rates are applied from the correct date.
Review payroll budgets: Assess the potential increase in wage costs and its impact on business expenditure.
Check working hours and deductions: Ensure that pay calculations comply with minimum wage requirements, taking account of relevant working time and deduction rules.
Review apprentice records: Confirm employees' ages, apprenticeship status and eligibility for the relevant rate.
Taking these steps in advance can help businesses maintain compliance and reduce the risk of underpayment.
2. TAX-FREE MILEAGE ALLOWANCE CHANGES
The Government has announced changes to approved mileage allowance payments for individuals who use their own cars or vans for qualifying business journeys.
The relevant rates are:
Business mileage | Approved mileage rate |
First 10,000 business miles | 55p per mile |
Business miles above 10,000 | 35p per mile |
The 55p rate applies from 6 April 2026, while the 35p rate for business mileage above 10,000 applies from 6 April 2027, according to the announced changes.
Approved mileage allowance payments are used to determine whether qualifying business mileage reimbursements can be paid without creating an Income Tax or National Insurance liability. The rules depend on the vehicle type, the number of business miles travelled and the circumstances of the payment.
For employers, it is important to distinguish between reimbursing qualifying business mileage and paying an employee's ordinary commuting expenses. Normal travel between home and a permanent workplace is generally not treated as qualifying business mileage.
What should employers do?
Employers should review their mileage policies and reimbursement procedures to ensure that payments are calculated correctly.
Recommended actions include:
Maintain accurate mileage records: Employees should record the dates, destinations and business purpose of their journeys.
Review reimbursement policies: Ensure that the rates used are appropriate for the relevant tax year and journey type.
Update payroll procedures: Review the treatment of mileage payments where reimbursements exceed the applicable approved amounts.
Keep supporting documentation: Retain mileage claims and approvals to support the business purpose of the expenditure.
Communicate changes to employees: Explain any updates to mileage reimbursement procedures before they take effect.
A clear mileage policy can help businesses manage travel expenses while ensuring that reimbursements are processed consistently.
KEY TAKEAWAY
The National Living Wage and National Minimum Wage increases, together with the announced mileage allowance changes, make it important for employers to review their payroll arrangements and expense policies in advance.
Businesses should verify employee pay rates, maintain accurate mileage records and ensure that payroll systems reflect the applicable rates and implementation dates.
Need support with your Tax related queries?
ASESA Solutions Ltd can assist with accounting, bookkeeping, payroll, Personal Tax Returns and other services.
📞 020 3983 9881 📧 sales@asesa.co.uk
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