Overview of Changes Affecting Employers in 2026–27
Several policy shifts will affect payroll operations, benefits management, and student loan deductions. Key items include:
- Student Loan Plan 5: New repayment plan going live from 6 April 2026. Employers will receive HMRC notices in March 2026 to identify employees entering repayment under Plan 5. (gov.uk)
- Automatic winter payment recovery: High-income pensioners (over £35,000 total income) will see their PAYE code automatically adjusted to repay the winter-related payment. Employers generally won’t need to take action themselves. (gov.uk)
- Mandatory payrolling of benefits-in-kind (BiKs): From tax year 2027-28, most employers will no longer need to register voluntarily for payrolling BiKs and expenses—it will become mandatory for the majority. Preliminary guidance has been published. (gov.uk)
Actions Employers Should Be Taking Now
- Update payroll software and tools before 6 April 2026 to accommodate the new student loan thresholds and Plan 5 deductions. Also, ensure compatibility with updated tax codes regarding winter payment recovery. (gov.uk)
- Monitor HMRC guidance on payrolling BiKs. Review interim technical specifications and check whether benefit types like financial loans, living accommodation, vouchers are affected. (gov.uk)
- Prepare communications to employees, especially for those impacted by Plan 5 or whose tax codes are being changed due to winter payment recovery. Transparency helps avoid confusion.
Important Thresholds & Rules
- Plan 5 repayment threshold is set at £25,000 (earnings above which employees start repaying). Deduction rate remains 9% like Plan 1,2,4. (gov.uk)
- New student loan start notices begin in March 2026 for employers. Use plan types as per HMRC’s updated starter checklist. (gov.uk)
- Employers should adopt HMRC’s Basic PAYE Tools (BPT) version 26.0 from 6 April 2026 for the 2026-27 year if they have fewer than 10 employees. (gov.uk)
Practical Example
XYZ Ltd, a small business: three employees. One is a new pensioner aged 68 receiving Winter Fuel Payment. The company’s payroll software automatically updates tax code from HMRC in April. XYZ must ensure the updated PAYE tax code is reflected, but no action needed beyond integrating the new code.
School Café Ltd, with five employees: two employees start receiving student loan Plan 5 repayments. Starting April 2026, deductions for these employees kick in using the new threshold of £25,000. Payroll department updates employee starter details, uses the updated starter checklist—contacts new HMRC notices.
Mitigating Risks
- Mistakes in applying Plan 5 or winter payment recovery could lead to under- or over-deduction, resulting in refunds or penalties.
- Delaying updates to payroll software or misunderstanding tax code notices can produce compliance issues.
- Proactively audit internal payroll systems ahead of April 2026 to test with sample cases.
By taking steps today—checking software, understanding employee statuses, communicating clearly—employers can ensure a smooth transition when these changes take effect.