Category: Payroll and Outsourcing
Payroll & Employment Law Updates – April 2026
Payroll & Employment Law Updates – April 2026
Significant payroll and employment law changes are coming into effect on 6 April 2026. These updates will impact payroll processes, employee entitlements, and compliance obligations. The changes will require updates to employee contracts, handbooks and guidelines before 6 April 2026.
1. Statutory Sick Pay (SSP) Overhaul
- No more waiting days – SSP will be paid from day one of sickness, replacing the current system which starts from day four.
- Lower earnings threshold removed – All employees, including those earning below the previous £123/week limit, will now be eligible.
- Payment structure – SSP shall be the lower of 80% of average weekly earnings (AWE) or the flat statutory rate (about £123.25/week).
- Transitional protection – Employees already on SSP before April 2026 will continue at the flat rate until their entitlement ends.
Impacts & Actions:
- Expect increased costs due to broader eligibility and earlier pay start.
- Update absence policies to reflect the removal of waiting days and broadened eligibility.
2. Contracts & Handbooks: Must-Do Updates
- SSP updates – Remove references to waiting days & earnings thresholds; embed new calculation rules.
- Parental leave changes – Incorporate new day-one and bereavement entitlements (see Section 3 below).
- Fair Work Agency (FWA) – Introduce information about this new enforcement body and added compliance obligations.
Recommended steps:
- Run a full audit of handbooks, contracts, and policies.
- Update documents before April deployment.
- Train HR and line managers on the legal updates and new compliance approaches.
3. Paternity & Parental Leave Enhancements
- Immediate day-one entitlement – No 26-week service requirement for:
- Unpaid parental leave
- Paternity leave (formerly requiring two years’ service).
- Bereaved partner’s paternity leave – Up to 52 weeks of leave unpaid is available following the loss of a partner before the child’s first birthday.
- Notice periods – Day-one eligible parents can submit leave notices from 18 February 2026; unpaid parental leave remains at 21 days’ notice.
- Statutory Family leave payments – The weekly rate for Maternity, Paternity, Adoption, Shared Parental, Parental Bereavement, Neonatal care and Maternity allowance will increase from £187.18 to £194.32
Impacts & Actions:
- Extend eligibility criteria in employment systems to include new parents from day one.
- Update parental policy language and ensure clarity on notice procedures.
- Brief managers to support employees requesting these entitlements.
4. Fair Work Agency (FWA): New Enforcement Body
- Launch in April 2026 – The FWA consolidates powers across multiple enforcement bodies, including National Minimum Wage, SSP, and holiday pay enforcement.
- Key functions:
- Workplace inspections and documentary requests
- Issuing civil penalties for breaches (e.g. underpayment, non-payment of SSP/holiday pay etc)
- Powers to initiate tribunal proceedings and recover enforcement costs.
Impacts & Actions:
- Risk of audit and penalties increases- especially in pay & holiday calculations.
- Ensure accurate, accessible records for SSP, holiday pay, and payroll processes.
- Prepare teams for possible inspections and documented requests by FWA officers.
Summary of Immediate Next Steps
| Task | Detail |
|---|---|
| Revise Policies & Contracts | Reflect SSP, day-one leave, bereavement provisions, FWA expectations |
| Communicate Internally | Inform managers and employees about entitlements and notice processes |
| Review Compliance Records | SSP, holiday pay, payroll and absence documentation readiness |
| Provide Training | Equip HR and managers to handle sick leave, parental requests, and audits |
Closing note
These reforms reflect the Employment Rights Act 2025, effective 6 April 2026, and are aimed at promoting fairness for employees while raising employer obligations. Proactive preparation is key to maintaining compliance and smooth operations.
We are delighted to offer our clients access to employment and HR documents, policies and guidance materials, as well as expert advice.
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
Construction Industry Scheme (CIS) and the Domestic Reverse Charge
Under the Construction Industry Scheme (CIS), a contractor deducts money due to a subcontractor and instead pays it to HM Revenue and Customs (HMRC). This deduction counts as an advance payment towards the subcontractor’s tax. The amount deducted is a percentage of the labour services provided. The Domestic VAT Reverse Charge is in addition to but separate from CIS tax.
VAT – Domestic Reverse Charge
To ensure VAT is reported correctly by businesses in the construction sector, the domestic reverse charge has been added to the existing CIS since 1 March 2021. Prior to 1 March 2021 the supplier (subcontractor) would charge VAT to the customer (contractor), collect it and pay it to HMRC. The contractor would reclaim the VAT amount paid in their VAT return. From 1 March 2021, the subcontractor must not charge VAT but instead specify that the reverse charge applies. The subcontractor then accounts for the contractor’s output tax and reclaims the exact same amount as input tax on the VAT return. The subcontractor effectively accounts for the VAT directly to HMRC, as opposed to paying it over to the contractor.
The reverse charge must be used for most supplies of building and construction services. Normally if any of the services in a supply are subject to the reverse charge, all other services supplied will also be subject to it. The charge applies to standard VAT services for businesses who are registered for VAT in the UK and in the kinds of construction work listed here. Even if a customer enters into 2 separate labour and materials contracts with the same supplier for works within the scope of CIS and the works are to be provided at the same time on the same site, the reverse charge will apply to both contracts (subject to the 5% disregard) as they comprise a single supply for VAT purposes.
If you supply building and construction services as a sub-contractor
You must use the reverse charge from 1 March 2021, if you’re VAT registered in the UK, supply building and construction industry services and:
- your customer is registered for VAT in the UK (check if your customer has a valid VAT number)
- payment for the supply is reported within the CIS (use the CIS online service to check your customer’s registration)
- the services you supply are standard or reduced rated
- your customer has not given written confirmation that they are an end user or intermediary supplier (an end user is someone who does not make onward supplies of the CIS services supplied to them)
If the above applies, you will not charge VAT to your customer, and they will account for the VAT themselves. You should not charge VAT on the invoice but specify that the reverse charge rule applies. Page 8 of this guidance shows an invoice template.
If you buy building and construction services as a contractor
You must use the reverse charge from 1 March 2021 if you’re VAT registered in the UK, buy building and construction industry services and:
- payment for the supply is reported within the CIS
- the supply is standard or reduced rated (check if your supplier has a valid VAT number)
- you’re not using the end user or intermediary exclusions
If the above applies, you must ensure that your supplier does not charge you VAT (and you do not pay VAT to your supplier), as you should instead account for VAT using the domestic reverse charge procedure.
Settling with HMRC
A contractor must register for the scheme. CIS deductions made will be added to PAYE liabilities.
A registered subcontractor will have 20% deducted from its payments, whereas an unregistered subcontractor will suffer a 30% deduction. A contractor and subcontractor must register as both. Each time tax is withheld from payment to a subcontractor, the subcontractor must be presented with a CIS Payment and Deduction Statement from the contractor. This is used to reclaim tax from HMRC.
A sole trader or partners subtract CIS deductions suffered against income tax and national insurance on the Self-Assessment Tax Return. A limited company subcontractor offsets CIS deductions suffered against PAYE payroll liability. Unrelieved CIS tax deductions at the end of the tax year can be refunded into a bank account or offset against other outstanding tax liabilities, in which case an online form needs to be submitted. A subcontractor who meets the revenue thresholds and has a record of timely tax payments can apply for gross payment status, meaning that they will be paid in full by contractors, without deductions.
Our tech-enabled CIS and payroll service will help:
- Advise on your optimal business structure
- Ensure that you remain compliant and avoid the many pitfalls
- Onboard you to a cloud invoicing facility, with customised invoice templates for each customer or supplier
- Email deduction statements directly to your subcontractors
- Pay your subcontractors directly using our highly secure cloud payroll + payment integration
Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.
Automate Salary Payments
You may be all-too-familiar with the process and time spent dealing with payroll and HR: emails, telephone calls, attachments, more emails to employees, setting up bank payments…the list goes on. Large businesses will have segregated duties, with an HR lead responsible for managing joiners and leavers and holiday requests, an Operations Manager for coordinating and communicating shifts, a Payroll Manager and a Financial Controller. For small-to-medium sized businesses, the responsibility often lies with the managing director. In this regard, there are some fantastic tools to make managing your team more pleasant and more efficient, including the new way to automate salary payments.
Paying salaries
The latest integration to the cloud payroll ecosystem automates the payment of staff salaries. Currently, we prepare a BACS payment file which many employers upload to their online banking facility for processing onwards payments. The latest payments platform goes a significant step further and allows us as your accountants to make payroll payments, linked to your payroll information, shortly after the payroll is approved, saving you precious time, removing manual processes, and eliminating costly errors. The seamless workflow is protected by two factor authentication and payments are processed through a highly secure and compliant network. This solution benefits all employers with a high headcount and who pay their staff via bank transfer.
Employer and Employee Portal
By integrating with our payroll software in the cloud, we can streamline the way you communicate payroll information to us, including hours worked, holiday days taken, bonuses or new starters. A browser- or app-based Employer Portal allows you to enter relevant information, store and organise documentation (including payroll reports which we prepare) and make final approvals. We can email your employees their payslips directly, or even grant them access to the Employee Portal, where they can retrieve payslips (including past payslips), submit holiday requests, enter starter data…etc. This functionality benefits businesses in all sectors, as it is centred around improving the information flow between the employer, the employees and the accountant.
Rota Management
If your business requires organising shift patterns for your staff, we can help you implement software which helps you schedule rotas, optimise wage spend, record attendance and approve timesheets for payroll. Your employees would receive pop-up notifications and would log their check-in and check-out times in the app. The app can then produce weekly reports showing hours worked and wages due. There are also built in features such as overtime pay and GPS, which would ensure that employees can only log in when actually present. We have found this software to be particularly helpfuly for hospitality businesses and beauty salons.
How much does it all cost?
The payment integration and cloud hosting is priced based on the number of active employees, and the efficiency saving will tend to outweigh the fee for a payroll with at least 4 employees.
Our Information Sheet sets out a full list of our integrated Payroll and Pensions services.
Whether you’re an existing client or don’t yet use our services, we would be pleased to help you. Contact Mouktaris & Co Chartered Accountants for expert advice or click here to subscribe to our Newsletter.