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Finance (No. 2) Bill 2026 gives legislative effect to employment tax measures announced in Budget 2027. It extends the pension entitlements considered when calculating the Increased Exemption and SCSB for ex-gratia termination payments. Future tax-free lump sums from PRSAs, My Future Fund and other relevant pension arrangements may reduce the available exemption.
Enhanced Reporting Requirements (“ERR”)
With regard to the relaxation to the Enhanced Reporting Requirements (“ERR”) regime from 1 January 2027, employers may choose to report certain tax-free benefits and expense reimbursements by the 14th day of the month following the month in which they are provided, instead of on or before the payment date. This more closely aligns the reporting timetable with payroll processes and should ease administration for employers operating frequent expense reimbursement cycles without changing the underlying requirement to maintain accurate records.
Increased Exemption and Standard Capital Superannuation Benefit (“SCSB”)
An important provision in the Finance Bill concerns the calculation of the tax-free element of an ex-gratia termination payment under the Increased Exemption and Standard Capital Superannuation Benefit (“SCSB”). At present, an employee’s entitlement to a future tax-free lump sum from an occupational pension scheme linked to the employment is taken into account in these calculations, while lump sums arising from arrangements such as Personal Retirement Savings Accounts (“PRSAs”) and My Future Fund have not been included. The Bill extends the calculation to include entitlements to future tax-free lump sums from these and other relevant pension arrangements. This may reduce the tax-free amount available on an ex-gratia payment.
Personal income package
The Bill also legislates for the Budget 2027 personal income tax package, including the increases already announced to the standard-rate band and key personal tax credits. For employers, the immediate focus is implementation: payroll systems, tax-credit information and employee communications will need to reflect the revised amounts from the start of 2027.
RSM's view
Overall, the Finance Bill largely confirms the direction set on Budget Day for employment taxes, while adding technical provisions that merit separate attention. The revised ERR deadline is a welcome operational change, but it is not a reduction in employers’ compliance obligations. The wider pension rules may also make termination-payment calculations more complex, particularly where the employer does not operate the relevant arrangement. Employers should agree who will obtain the pension information, consider how future lump-sum entitlements will be valued and allow sufficient time to complete the Increased Exemption or SCSB calculation before a termination payment is finalised.
