Budget 2026: four changes charities need to plan for

The red Budget box held outside Downing Street on Budget Day

The Budget on 28 October 2026 was a steady one. There was no rise to the headline rates of income tax, National Insurance or VAT, and Corporation Tax stays capped at 25%.

The Treasury’s Budget summary contains nothing aimed at charities. There’s no change to Gift Aid and no new charity relief. Four changes in Budget 2026 will still affect charities and their 2027/28 budgets, and this guide takes each in turn.

1. The National Living Wage rises to £13.21

From 1 April 2027, the National Living Wage rises by 3.9% to £13.21 an hour, and the rate for 18 to 20 year olds rises to £11.27. For a full-time worker on the National Living Wage, that’s £910 a year more in gross pay (HM Treasury, Budget 2026).

If your charity has frontline, care or support staff, this will be the biggest Budget figure in next year’s budget. Check three areas.

Grants agreed at fixed sums

A multi-year grant costed on earlier salaries won’t rise because the wage floor does. Restricted funds cover what the funder agreed to cover. Anything above that comes out of unrestricted reserves unless you renegotiate the grant.

Fixed-price contracts

If you deliver services under a contract with a local authority or health body, check how and when the price gets reviewed. With no uplift mechanism, you carry the cost until the contract is repriced.

Pay differentials

When the floor rises, the roles just above it get squeezed. Lift only the lowest-paid roles and the gap between frontline staff and supervisors narrows, which creates recruitment and retention problems of its own. The full cost of the rise is usually more than the uplift to the lowest grade.

If you’re an accredited Real Living Wage employer, your benchmark is the voluntary rate set by the Living Wage Foundation, which is separate from the statutory National Living Wage. Plan against whichever rate you’ve committed to.

2. The 55p mileage rate is now permanent

The 55p tax-free mileage rate for the first 10,000 business miles a year, introduced in April 2026, is now permanent. Above 10,000 miles, the rate rises from 25p to 35p from April 2027 (HM Treasury; CIPP).

These are the maximum amounts you can pay tax-free. You don’t have to pay them, and many charities reimburse at a lower rate.

With the higher rate now fixed, expect more staff to ask whether your expenses policy will follow. Matching it costs money, particularly where staff drive long distances for work. Not matching it can cost goodwill.

Neither choice is mandatory, but the choice should be documented. Cost the change using your actual business miles, weigh it against the risk of staff dissatisfaction, and record the decision your trustees make. If volunteers claim mileage too, decide whether the same rate applies to them.

3. Benefits in kind move onto payroll from April 2027

Mandatory payrolling of benefits in kind starts in April 2027 for company cars, car fuel, vans, van fuel and employer-provided medical benefits. Most other benefits follow from April 2028 (CIOT). Tax on these benefits will be collected through payroll during the year, rather than reported on a P11D after it ends.

Your payroll provider can only process what it knows about. If you outsource payroll, don’t assume your provider knows which benefits you provide. Health cover, a van someone takes home or fuel for private use all need to be reported to them.

Before April 2027, list every benefit you provide, confirm it in writing with your payroll provider, and check their software is ready.

4. Online marketplaces will collect VAT

From October 2027, online marketplaces will take responsibility for collecting VAT on qualifying sales by UK businesses using their platforms (HM Treasury). The measure targets sellers who don’t account for VAT properly. The detailed rules, including which sales count, are still to be published.

If your charity or trading subsidiary sells through online platforms, watch how this is implemented. Charity VAT has its own rules. Sales of donated goods, for example, can be zero-rated when the conditions are met. A marketplace applying one approach to every seller may not get that right, and the cost would fall on you.

For now, list the platforms you sell through, which entity makes the sales, and how you currently treat them for VAT. When the detail arrives, check how each platform plans to apply it.

A note for charities in Wales

Much of the Budget coverage is written for England. The business rates package and the £100 Household Energy Payment apply in England. Business rates are devolved, so Wales receives Barnett funding and the Welsh Government decides whether to offer anything similar (HM Treasury). The four changes above apply across the UK, Wales included.

Enaid Accountancy infographic: four Budget 2026 changes charities need to plan for

What to do before your 2027/28 budget

  1. Model the wage rise against every funded project, not just the payroll total.
  2. Find where restricted income won’t cover it, and raise the gap with funders early.
  3. Check contracts with commissioners for uplift clauses.
  4. Make and record a decision on your mileage rate.
  5. Give your payroll provider a full list of the benefits you provide.
  6. If you sell online, map which sales go through which platform and how they’re treated for VAT.

Talk to Enaid

If you’d like help working out what Budget 2026 means for your 2027/28 budget, speak to the Enaid team. We work with charities across Wales on budgeting, funding and financial planning.