8 min read
Overview
Businesses across Scotland face a period of significant regulatory change between 2026 and 2027, driven by major UK-wide reforms to employment law and to the tax reporting system. Two key developments, the Employment Rights Bill (now the Employment Rights Act 2025) and Making Tax Digital for Income Tax (MTD for ITSA), will bring new requirements that impact staffing, payroll, record-keeping, and compliance practices.
Below is an overview of the key changes, timelines, and recommended actions.
1. The Employment Rights Bill/Employment Rights Act 2025
The Employment Rights Bill, introduced in October 2024, gained Royal Assent on 18 December 2025, becoming the Employment Rights Act 2025. It represents the most significant overhaul of employment law in a generation, with phased changes rolling out from early 2026 to and throughout 2027.
Day-One Rights and Family Leave
From April 2026, employees will gain several new day-one rights, including:
- Paternity Leave and Unpaid Parental Leave available from day one in a new job.
- Bereaved partner’s paternity leave for those experiencing loss of a child's mother/adopter.
These reforms require employers to revise family leave policies and train line managers on compliance.
Statutory Sick Pay (SSP)
From 6th April 2026:
- SSP will be payable from day one, with no lower earnings limit.
- SSP will be available to all eligible employees regardless of their earnings (the Lower Earnings Limit is being removed).
- SSP will be payable from the first full day of sickness absence (the three-day waiting period is being removed).
- Flat rate for SSP increases to £123.25 per week
- SSP for eligible employees will be calculated at the flat rate or 80% of their average weekly earnings, whichever is lower.
Sexual Harassment Protections
The Employment Rights Act 2025 amends the whistleblowing provisions so that complaints of sexual harassment will be treated as protected disclosures.
Sexual harassment is also being tightened under the Employment Rights Act 2025 and will place an obligation on employers to take all reasonable steps to prevent sexual harassment and introduces employer liability for third-party harassment.
From October 2026 harassment laws will be tightened further and the third-party liability will be not limited to sexual harassment and extends to harassment on grounds of age, disability, religion or belief, sex and sexual orientation.
Employers should check that their current policies and procedures are compliant and think about training of their employees to ensure awareness.
Fair Work Agency
The Employment Rights Act 2025 will establish a single consolidated body to monitor and enforce core employment rights including national minimum wage, statutory sick pay and holiday pay.
The Fair Work Agency will provide support to both employers and employees.
This means better and easier access to information and support. This doesn’t create any new legal obligations but means inspections may operate differently and where you go for advice will change.
You can get more information here.
Changes to Unfair Dismissal Rules
From 1 January 2027, the qualifying period for ‘ordinary’ unfair dismissal claims reduces from two years to six months, this is for all employees.
The cap on compensatory awards will be removed from January 2027. This increases the legal risk profile for employers and requires more robust probation and performance documentation. Employers should look at probationary periods and the length of these, robust processes as well as ensuring those responsible for onboarding/induction of new employees are aware what is required.
In addition to the above changes the below will also come in affect from April 2026:
Other Measures that take effect
- Collective redundancy protective award – doubling the maximum period of the protective award
- Actions plans on gender quality and supporting employees through the menopause (voluntary 250+ employees)
- Menopause guidance
- Simplifying trade union recognition process
What you need to do now:
- Read up and familiarise yourself with Employment Law Changes
- Audit employment contracts, policies, and handbooks
- Update all your affected policies including SSP, family leave, flexible working, and whistleblowing procedures.
- Train managers on day‑one rights, dismissal rules, and fire‑and‑rehire restrictions.
- Assess risks for early dismissal claims due to the six‑month qualifying period.
For more information on these upcoming Employment Rights Bill changes, visit here.
2. Making Tax Digital (MTD) for Income Tax (ITSA)
From 6 April 2026, HMRC will begin mandating digital record‑keeping and quarterly tax reporting for many self‑employed individuals and landlords.
Who must comply and when:
MTD rolls out in stages:
From April 2026:
Self‑employed individuals with qualifying income over £50,000
Landlords with property income over £50,000
From April 2027:
Threshold drops to £30,000
From April 2028:
Planned extension to those earning over £20,000
What will actually change:
Under MTD, affected businesses must:
- Keep digital records of all income and expenses.
- Submit quarterly updates to HMRC through approved software.
- Submit a final end‑of‑year declaration.
This means at least five submissions per year, replacing the single annual Self Assessment return.
Software Requirements
HMRC will not provide its own software. Businesses must use:
- Commercial MTD‑compatible accounting software (eg. Xero, QuickBooks, Sage, FreeAgent)
- Or spreadsheets linked with HMRC‑approved “bridging” tools
What you need to do now:
- Determine whether your income threshold triggers MTD in 2026 or 2027.
- Select and implement MTD‑compatible software early.
- Digitise bookkeeping and record‑keeping processes.
- Prepare for quarterly reporting workflows with your accountant or internal team.
For more information on Making tax Digital, visit here.
All information contained in this article is accurate as of the date created (30th March 2026) and is provided for general guidance only. UK Employment Law, Compliance and Best Practice are subject to change. Business Gateway accepts no responsibility for actions taken based on this content. Always consult legal or professional advice before making employment related decisions.