Microsoft 365 licensing is one of those things most businesses only think about when something forces the issue, a licence review, an unexpected renewal bill, or a new starter who needs setting up and nobody’s quite sure which plan to put them on. The rest of the time, it sits quietly in the background.
That’s usually fine, until it isn’t. Getting a clear picture of how Microsoft licensing actually works now, and what’s changed for 2026, makes it far easier to stay compliant, avoid overpaying, and avoid any nasty surprises at renewal time.
What a Licensing Review Actually Involves
Microsoft periodically runs software asset management reviews, essentially an audit to check a business holds the correct licences for the Microsoft products it’s actually using. The word “audit” tends to alarm people, but there’s little to worry about if your licensing is genuinely up to date.
Even where a discrepancy is found, it’s usually straightforward to correct by purchasing the right agreement. The better approach is being proactive about it rather than waiting for a review to prompt the conversation, particularly if your team has grown or shrunk significantly since you first set up your licences, in either direction, it’s worth checking your agreement still matches your actual headcount.
How Microsoft 365 Licensing Works Today
Microsoft’s licensing landscape has been simplified considerably in recent years. Most businesses now buy through the Cloud Solution Provider programme, typically via an IT partner, under what Microsoft calls the New Commerce Experience. This replaced a fragmented set of older schemes and is designed to make purchasing more consistent across Microsoft 365, Dynamics 365, and the Power Platform.
If you’re still working from an older agreement type, or aren’t sure which model you’re on, that’s worth raising with your IT provider directly, since it affects what options are available to you at renewal.
Annual vs Monthly: The Trade-Off That Still Matters
One decision has stayed consistent through all these changes, and it’s still the one most worth understanding properly.
- Annual commitment: locks in your price for the term, protecting you from mid-term increases, but commits you to your current licence count. You can add licences as you bring on new starters, but you generally can’t reduce your count or downgrade until the term ends.
- Monthly commitment: gives you the flexibility to reduce licence numbers or downgrade products as your needs change, but your price isn’t protected, and you’re more exposed to the pricing changes Microsoft makes from time to time.
Which is right depends on how stable your headcount is and how much you value flexibility over price certainty. A business expecting steady or growing headcount often does well on an annual term, one expecting change is usually better served staying monthly.
What’s Changed for 2026: No More Free Grace Period
This is the detail most worth knowing about right now. Previously, if a subscription reached the end of its term without being renewed, Microsoft allowed a free grace period, typically around 30 days, during which service continued uninterrupted while a renewal decision was finalised.
From 4th May 2026, that free grace period has been removed. In its place, non-renewed subscriptions move into what Microsoft calls an Extended Service Term, a paid, monthly-billed continuation of service at an increased rate, rather than free continued access. Subscriptions can still be cancelled at any point during an Extended Service Term with prorated billing, but the safety net of a genuinely free pause has gone.
In practice, this makes staying on top of renewal dates considerably more important than it used to be. A renewal decision that used to have a comfortable 30-day buffer now needs resolving closer to the actual expiry date, or it starts costing money.
Avoiding Overpaying or Under-Licensing
Two mistakes come up repeatedly. The first is paying for more licences than a business actually needs, common after a period of redundancies or restructuring where licence counts were never revisited. The second is the opposite, growing without checking that licensing has kept pace, leaving new starters on the wrong plan or without access they should have.
A periodic review, checking actual usage against what’s being paid for, is worth building into a business’s routine rather than only happening when a renewal notice or an audit prompts it.
Getting Licensing Off Your Plate
For many businesses, the simplest path through all of this is letting an IT support provider manage licensing on their behalf. A good provider tracks renewal dates, understands which commitment model suits your situation, and can flag when your licence count no longer matches your team, well before it becomes a problem.
Not sure your Microsoft licensing is set up correctly, or worried about the 2026 renewal changes?
Techrelate manages Microsoft 365 licensing for growing businesses across London and the UK, so renewal dates and licence counts never become a last-minute scramble.
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Get in touch for a free, no-obligation conversation: techrelate.co.uk/contact
