Equity’s Social Security & Tax team break down what you need to know about the budget below.
Details of the full Budget 2026 can be found on the government website here. You can also find Equity General Secretary Paul W Fleming's statement on the budget on our website.
Tax and national insurance
Income tax and national insurance headline rates are not changing.
This confirms the government’s previous tax commitments.
No penalties for newcomers to Making Tax Digital (MTD) in 2027-28
A first-year grace period for late quarterly update penalty points was in place for newcomers to MTD during 2026-27. This first-year grace period will also be available to MTD newcomers during 2027-28. This means that if your turnover is £30,000 or more in tax year 2025-26, you will come within scope for MTD in April 2027 and from then you must submit quarterly updates about your 2027-28 income, and if any of the first four quarterly updates are late, no penalty points will be awarded. If you were already in scope for MTD during 2026-27, your first-year grace period will expire from April 2027.
See our Making Tax Digital pages for more information.
Payments on account for income tax self-assessment will go ahead from April 2029
Following consultation, the government will go ahead with its plan for self-employed people to make smaller, more regular contributions towards their tax bill throughout the year. However, as Equity and others proposed, there will be no mandated collection through PAYE for those with combined self-employed and PAYE income. The government noted the appetite for quarterly rather than monthly payments on account. However, the frequency and timing of in-year payments, and detail on transition to the new arrangements are not yet set and the government says it will continue to work with stakeholders on these and other issues. Equity’s consultation response is here.
The government’s response to the consultation is here.
Temporary 55p tax free mileage rate made permanent
For employees and self-employed people who use their own vehicle for work, the tax-free mileage rate is being fixed at 55p per mile for the first 10,000 business miles and 35p per mile for business miles above 10,000.
No income tax for pensioners with income below full new State Pension (£13,037 p.a)
A new Pension Tax Allowance will be introduced from April 2027. If a pensioner’s total income is up to the value of the full new State Pension (£13,037 per year), an automatic tax reduction is applied by HMRC to ensure no income tax is due, even though this amount is greater than the standard tax-free personal allowance of £12,570. There is a tapered tax relief for pensioners whose total income is £13,038 to £13,319. For pensioners with total income above £13,319, there is no new tax allowance.
The government have provided an explainer here.
Cost of living
£100 Household Energy Payments for council tax households in bands A to D
Households in council tax bands A to D will receive a direct £100 payment from January 2027 via the council tax system.
Cut to VAT on electricity extended
The existing cut to VAT on electricity is extended to July 2027.
Two-weeks’ parental pay following birth or adoption extended to the self-employed
Eligible self-employed fathers, partners and adopters will get up to two weeks’ paid leave following a baby’s birth or adoption from April 2029. This is akin to the Statutory Paternity Pay which employed fathers, partners and adopters already get and is currently £194.32 per week for either one or two weeks. Employed people who do not meet the eligibility criteria for Statutory Paternity Pay will also be included in the new scheme.
National Minimum Wage and National Living Wage increased
The National Living Wage (for those aged 21 and over) will rise from £12.71 to £13.21 an hour in April 2027. The National Minimum Wage for 18 to 20 year-olds will rise from £10.85 to £11.27 an hour and for 16 and 17 year-olds will rise to £8.31 an hour from April 2027.
This change will also increase the minimum income floor (MIF) in Universal Credit and other aspects of social security which are linked to NMW. See below.
Government loans for first-time home buyers
The Your First Home scheme will provide 20% equity loans to first-time buyers to help those who would not be able to afford to buy a home. The loan amount will be capped based on local house prices. The loan will be interest-free for five years.
The government’s information is here.
Social security
Further reform expected after Milburn and Timms reviews
The Timms review of Personal Independence Payment and the Milburn review of young people and work are expected to report soon and the government says it will set out its response before the end of 2026, followed by a White Paper in early 2027 and then legislation later in 2027.
- The Timms review interim report
- Equity’s most recent submission to the Timms review
- The Milburn review interim report
Funding confirmed for work support for young people
The Youth Employment and Skills Package was confirmed including a Youth Jobs Grant, an apprenticeship hiring payment and funding for tailored local support for apprenticeship opportunities.
Pension triple lock to be adjusted
The pension triple lock will remain until April 2030. After that, the annual rate of the new State Pension will be linked to earnings growth in a different way (“the amount required to maintain its value relative to earnings as reached in April 2029”) but will remain linked to inflation and have a minimum increase of 2.5%.
The government’s factsheet is here.
Carer’s Allowance to be tapered with earnings from 2030
The existing earnings cliff-edge for recipients of Carer’s Allowance is to be removed from 2030 in England and Wales and replaced with a pound-for-pound taper.
Lump sum payment disregard in Universal Credit to be continued
Universal Credit claimants who receive earnings in a large lump sum see some of their earnings rolled over to subsequent assessment periods via the surplus earnings rules. The current £2,500 disregard will continue for a further year until end of March 2028.
Impact of National Minimum & Living Wages increase on social security payments
Changes to the NMW and NLW are listed above under Cost of Living. These will increase the following from April 2027:
- Minimum Income Floor (MIF): for example, if you are over 21 and your MIF is based on 35 hours a week, this would mean a MIF of £1,735.99 after notional tax/NI. For most, 55% of this will be deducted from your UC, being £954.79.
- Administrative Earnings Threshold (AET): the amount you need to earn PAYE in order to not be required to work search or be available to take work. For a single person over 21 this is based on 18 hours = £1,030.38 per month; for a couple over 21 this is based on 29 hours = £1,660.06 per month.
- Permitted work threshold (higher limit): £211.36 per week.
