PAYE thresholds and rates: the complete employer reference
The Personal Allowance has been fixed at £12,570 by legislation until 5 April 2031, while the employer National Insurance rate rose to 15% on 6 April 2026, its highest level since the 1980s [1] [2]. Together, these two policy decisions shape the PAYE landscape for every employer running payroll in the 2026-27 tax year.
This article consolidates all the rates, thresholds, and limits that affect PAYE payroll, from income tax bands and National Insurance thresholds to statutory pay rates, the Employment Allowance, and the National Living Wage. All figures apply to the 2026-27 tax year (6 April 2026 to 5 April 2027) unless otherwise stated.
Key takeaways
- The Personal Allowance and Primary Threshold are both set at £12,570 per year, a deliberate alignment that means employees do not pay income tax or National Insurance on the same band of earnings [12].
- The employer Secondary Threshold stands at £5,000 per year, lower than the employee Primary Threshold, so employers pay NI on earnings between £5,000 and £12,570 even when the employee pays none [4].
- Statutory pay rates for maternity, paternity, adoption, shared parental, bereavement, and neonatal care are all set at £194.32 per week from week 7 [8].
- SSP is now due from day one of sickness absence, with no qualifying waiting days, following the Employment Rights Act 2025 reforms effective 6 April 2026 [9].
- The National Living Wage for workers aged 21 and over is £12.71 per hour from 1 April 2026 [1].
Income tax thresholds and bands
Income tax under PAYE is calculated on earnings above the employee's tax-free personal allowance. The standard allowance for the 2026-27 tax year is £12,570 and is represented by the tax code `1257L` [3].
England and Northern Ireland
The income tax bands for England and Northern Ireland are as follows [3]:
| Band | Annual earnings above the Personal Allowance | Rate |
|---|---|---|
| Basic Rate | Up to £50,270 | 20% |
| Higher Rate | £50,270 to £125,140 | 40% |
| Additional Rate | Above £125,140 | 45% |
The Personal Allowance tapers once total income exceeds £100,000. For every £2 of income above £100,000, £1 of personal allowance is withdrawn. An employee earning £125,140 or above has no personal allowance and pays the additional rate on all earnings above zero. Payroll software cannot fully account for this through the tax code alone; HMRC typically issues a reduced-allowance code to approximate the adjustment [5].
Scotland
Scottish taxpayers pay different rates on earnings above their Personal Allowance and are identified by an `S` prefix on their tax code (for example, `S1257L`) [3]:
| Band | Rate |
|---|---|
| Starter Rate | 19% |
| Basic Rate | 20% |
| Intermediate Rate | 21% |
| Higher Rate | 42% |
| Advanced Rate | 45% |
| Top Rate | 48% |
An employer whose Scottish employee earns more than £43,663 will deduct materially more income tax than a counterpart in England on the same salary. The correct `S`-prefix code must be applied for the calculation to be accurate.
The Personal Allowance freeze
The Personal Allowance was legislated to remain at £12,570 until 5 April 2031 [2]. Because earnings typically rise each year while the threshold stays fixed, more employees cross the higher rate threshold over time without any nominal threshold change. Employers and payroll bureaux should expect to see more employees with adjusted tax codes as the freeze continues.
National Insurance thresholds and rates
National Insurance is collected through payroll separately from income tax, and the thresholds that govern employee and employer contributions do not align with each other.
Employee Class 1 contributions
The employee-side thresholds and rates for the 2026-27 tax year are as follows [4]:
| Threshold | Weekly | Monthly | Annual |
|---|---|---|---|
| Lower Earnings Limit (LEL) | £129 | £559 | £6,708 |
| Primary Threshold (PT) | £242 | £1,048 | £12,570 |
| Upper Earnings Limit (UEL) | £967 | £4,189 | £50,270 |
Employees begin paying National Insurance when their earnings exceed the Primary Threshold. Between the PT and UEL, the rate is 8%. Above the UEL, the rate falls to 2% [4].
The Lower Earnings Limit carries no deduction obligation but serves as a qualifying threshold: employees earning above it accumulate National Insurance credits that protect State Pension entitlement, even though no cash NI is deducted below the Primary Threshold.
Employer Class 1 contributions
The employer-side thresholds and rates for the 2026-27 tax year are as follows [4]:
| Threshold | Weekly | Monthly | Annual |
|---|---|---|---|
| Secondary Threshold (ST) | £96 | £417 | £5,000 |
| Upper Secondary Threshold (UST) | £967 | £4,189 | £50,270 |
The employer rate is 15% on all earnings above the Secondary Threshold [4]. The rate rose from 13.8% on 6 April 2026. The Secondary Threshold was reduced from £9,100 to £5,000 per year in April 2025 and remains at £5,000 until at least April 2030 under the current freeze [1].
The combined effect of these two changes means an employer paying a full-time employee on the National Living Wage pays around £2,700 more in employer NI per year than under the 2024-25 thresholds and rates.
Employer NI reliefs
Several categories of worker attract a 0% employer National Insurance rate on earnings up to the Upper Secondary Threshold [5]:
| Category | NI category letter | Earnings cap |
|---|---|---|
| Employees under 21 | M | Up to £50,270 / year |
| Apprentices under 25 | H | Up to £50,270 / year |
| Armed Forces veterans (first 12 months) | V | Up to £50,270 / year |
| Freeport tax sites (36 months, 60% on site) | F or I | Up to £25,000 / year |
| Investment Zone employers | E or D | Up to £25,000 / year |
Applying the correct NI category letter is the employer's responsibility. HMRC-recognised payroll software assigns category letters based on employee age and contract type and updates them automatically when an employee turns 21 or 25. A further special case is Category B, which applies to married women and widows who hold a valid reduced rate election (also known as the married woman's stamp). These employees pay employee National Insurance at 1.85% on earnings between the Primary Threshold and the Upper Earnings Limit, rather than the standard 8%, and 2% above the UEL [4]. Elections can no longer be made, but those held before 11 May 1977 remain valid where the employee has not broken certain qualifying conditions. Payroll software must identify these employees through their NI category letter B to ensure the correct reduced rate is applied rather than the standard employee rate.
Employment Allowance
The Employment Allowance reduces an eligible employer's Class 1 NI liability by up to £10,500 per tax year in the 2026-27 tax year [6]. It is claimed by submitting an Employer Payment Summary (EPS) to HMRC and is applied against the employer's monthly PAYE payment until the allowance is exhausted.
Most businesses and charities qualify. The allowance is not available to employers whose sole employee is also a director, nor to domestic employers such as those paying for personal care. The allowance cannot reduce the employer's NI liability below zero in any given month; any excess carries forward to the next payment [6].
Statutory pay rates
PAYE payroll also handles the calculation and reporting of statutory payments. All rates below apply to the 2026-27 tax year.
Statutory sick pay
The weekly rate of SSP is £123.25 or 80% of the employee's average weekly earnings, whichever is lower [9]. SSP is now payable from the first day of sickness, following the removal of the three qualifying waiting days on 6 April 2026 [9]. The Lower Earnings Limit qualifying condition was also removed: every employee qualifies for SSP regardless of how little they earn, with low earners receiving 80% of their average weekly earnings rather than the flat rate.
SSP is not recoverable from HMRC. Employers absorb 100% of the cost [5].
Family-related statutory pay
The statutory rate applying from week 7 is £194.32 per week for all family-related payments [8]:
| Payment | First 6 weeks | From week 7 |
|---|---|---|
| Statutory Maternity Pay (SMP) | 90% of average weekly earnings | £194.32 / week or 90% AWE, lower |
| Statutory Paternity Pay (SPP) | N/A | £194.32 / week |
| Statutory Adoption Pay (SAP) | 90% of average weekly earnings | £194.32 / week or 90% AWE, lower |
| Statutory Shared Parental Pay (ShPP) | N/A | £194.32 / week |
| Statutory Parental Bereavement Pay (SPBP) | N/A | £194.32 / week |
| Statutory Neonatal Care Pay (SNCP) | N/A | £194.32 / week |
Employers can recover SMP, SPP, SAP, and ShPP from HMRC. Employers with a total Class 1 NI liability of £45,000 or less in the previous tax year recover 109% of costs under Small Employers' Relief; those above the threshold recover 92% [5]. SPBP and SNCP are subject to the same recovery rules. SSP is not recoverable.
Payroll bureaux managing multiple schemes can track statutory pay recovery across clients using a multi-client payroll dashboard, which calculates recovery amounts per EPS cycle automatically.
Student loan thresholds
Student loan deductions are collected through PAYE payroll. The 2026-27 annual thresholds are as follows [10]:
| Plan | Annual threshold | Rate | Who it applies to |
|---|---|---|---|
| Plan 1 | £26,900 | 9% | English/Welsh pre-2012, Scottish, Northern Irish borrowers |
| Plan 2 | £29,385 | 9% | English/Welsh post-2012 borrowers |
| Plan 4 | £33,795 | 9% | Scottish post-2021 borrowers |
| Plan 5 | TBC (new from 6 April 2026, English students from 2023-24 intake) | 9% | English borrowers from 2023-24 intake onwards [[10]](https://www.gov.uk/guidance/special-rules-for-student-loans) |
| Postgraduate Loan (PGL) | Separate threshold | 9% | Masters/Doctorate borrowers; deducted before student loan when both are present |
Employers have no discretion over timing. Deductions begin when HMRC issues an SL1 or PGL1 notice and stop only on SL2 or PGL2. When an employee holds both a student loan and a postgraduate loan, the PGL deduction is calculated first [10]. There is no Plan 3.
Workplace pension auto-enrolment thresholds
Every employer with at least one eligible worker has duties under the Pensions Act 2008 to automatically enrol certain staff into a qualifying workplace pension scheme and make minimum contributions on their behalf [12]. The contribution thresholds and earnings trigger have remained unchanged since 2025-26, giving employers a stable compliance baseline for the 2026-27 tax year [13].
Earnings thresholds
| Threshold | Annual | Monthly | Weekly |
|---|---|---|---|
| Earnings trigger (auto-enrolment threshold) | £10,000 | £833 | £192 |
| Lower Earnings Limit (LEL) | £6,240 | £520 | £120 |
| Upper Earnings Limit (UEL) | £50,270 | £4,189 | £967 |
Minimum contributions apply only to qualifying earnings: the band of pay between the LEL and the UEL. Earnings below the LEL and above the UEL are excluded from the contribution calculation.
Minimum contribution rates
| Contributor | Rate on qualifying earnings |
|---|---|
| Employer | 3% |
| Employee | 5% |
| Total | 8% |
Worker categories
Each pay period, payroll must categorise every worker for auto-enrolment purposes. An eligible jobholder is aged 22 or over and under State Pension age, with earnings above the £10,000 trigger: this group must be auto-enrolled with no option for the employer to withhold. A non-eligible jobholder is either aged 16-21 or State Pension age to 74 with earnings above the trigger, or aged 16-74 with earnings between the LEL and the trigger: this group is not auto-enrolled but has the right to opt in, and the employer must make contributions if they do. An entitled worker is aged 16-74 with earnings below the LEL: this group can request to join a pension scheme, but the employer is not required to contribute [12].
Employers must re-enrol any workers who previously opted out every three years, and must submit a declaration of compliance to The Pensions Regulator within five months of their duties start date [13]. Accountancy practices using a multi-client payroll platform can monitor re-enrolment dates and declaration deadlines across all clients from a single dashboard.
National Living Wage and National Minimum Wage
Minimum wage rates affect PAYE payroll directly, as any underpayment represents both an employment law breach and a potential payroll error. The rates effective from 1 April 2026 are as follows [1]:
| Age or category | Hourly rate |
|---|---|
| 21 and over (National Living Wage) | £12.71 |
| 18 to 20 | £10.85 |
| 16 to 17 | £8.00 |
| Apprentice (under 19 or in first year) | £8.00 |
Note that minimum wage rates take effect on 1 April, not 6 April with the rest of the PAYE thresholds. Employers must increase pay for affected workers at the April payrun.
Apprenticeship Levy
The Apprenticeship Levy applies to employers with a pay bill above £3,000,000 per year [11]. It is charged at 0.5% of the total pay bill, with a £15,000 annual allowance (£1,250 per month) offsetting the liability. The levy is reported on the Employer Payment Summary each month, even in months when the liability is zero [11].
Connected companies in the same group share a single £15,000 allowance that must be allocated at the start of the tax year and cannot be changed mid-year.
Conclusion
The 2026-27 PAYE thresholds combine a frozen income tax landscape with structurally higher employer National Insurance costs. The Personal Allowance and the Primary Threshold both remain at £12,570, while the employer Secondary Threshold stays at £5,000, keeping employer NI exposure materially higher than the pre-April 2025 position. For employers managing payroll costs, the Employment Allowance of £10,500 and the NI reliefs for under-21s and apprentices remain the most accessible offsets.
A full explanation of how these thresholds interact in a live payrun is covered in the companion articles how PAYE works and PAYE vs self assessment. Employers running payroll through HMRC-recognised software have these thresholds applied automatically at each payrun, with updates distributed through the software when HMRC publishes changes.
Frequently asked questions
What is the PAYE income tax threshold for the 2026-27 tax year?
The standard tax-free Personal Allowance is £12,570 per year for the 2026-27 tax year, represented by the tax code 1257L. Income tax at 20% applies to earnings above £12,570 up to £50,270, with 40% on earnings between £50,270 and £125,140, and 45% above that. Scottish taxpayers have different rates, with a top rate of 48% on earnings above £125,140. The Personal Allowance is legislated to remain at £12,570 until 5 April 2031.
What is the employer National Insurance threshold for the 2026-27 tax year?
The employer Secondary Threshold is £5,000 per year (£417 per month, £96 per week) for the 2026-27 tax year. Employer National Insurance is charged at 15% on earnings above this threshold. The threshold is frozen at £5,000 until at least April 2030. It is lower than the employee Primary Threshold of £12,570, meaning employers pay National Insurance on the band between £5,000 and £12,570 even though employees pay none on those earnings.
What is the SSP rate for the 2026-27 tax year, and when does it start?
Statutory Sick Pay is £123.25 per week or 80% of the employee's average weekly earnings, whichever is lower. From 6 April 2026, SSP is payable from the first day of sickness, with no waiting days. Every employee now qualifies regardless of earnings level, following the Employment Rights Act 2025. Employers absorb the full cost of SSP and cannot recover it from HMRC.
How much is the Employment Allowance for the 2026-27 tax year?
The Employment Allowance is £10,500 per tax year for eligible employers. It reduces the employer's Class 1 National Insurance liability and is claimed by submitting an Employer Payment Summary at the start of the tax year. It is not available to companies where the sole employee is also a director, or to domestic employers. It is applied against monthly PAYE payments and any unused balance carries forward each month until the allowance is exhausted.
