With the end of the tax year just around the corner, it’s time for employers to consider how they’ll be reporting employment benefits.
We’ve set out the options to report and pay the income tax and National Insurance (“NI”) arising from benefits in kind and due to HM Revenue & Customs (“HMRC”).
What are employment benefits?
Employers can provide their employees and office holders with a variety of benefits to incentivise new talent and give them that extra sweetener on top of basic salary. Common examples are medical insurance, gym memberships, company cars and interest-free loans. We’ve prepared a checklist that summarises common benefits provided to employees that may need to be reported to HMRC – if you’re unsure if you have taxable benefits to report, see the checklist here.
P11D forms
P11D forms are the most common way to report non-cash benefits provided to employees. Separate P11D forms for each employee receiving benefits and a P11D(B) form to declare the total Class 1A NI due by the employer must be submitted to HMRC by 6 July 2026 for the tax year ended 5 April 2026.
The employees will be subject to income tax at their marginal tax rate on the “cash equivalent” value of the taxable benefit. The income tax due will either be collected via the employee’s PAYE tax code or their self-assessment tax return (if they submit one). The employer will be due to pay Class 1A NI at 13.8% by 19 July 2025 (or 22 July if paid electronically).
PAYE settlement agreement (PSA)
An employer can also enter into a PAYE Settlement Agreement (PSA) with HMRC to report certain types of benefits. These allow the employer to settle the tax liability on ‘minor or irregular’ benefits on behalf of the employee. Under the PSA, the income tax liability is payable by the employer on behalf of the employee, and it is calculated on a ‘grossed up’ basis. This can prove to be expensive because the total of the income tax and NI due (Class 1B NI at 15% for 2025/26) can be as much as the cost of the benefit itself (in the case of higher rate and additional rate taxpayers). However, this is the recommended method for reporting minor benefits like staff entertaining, where an employer does not wish to burden their employees with the tax due.
HMRC must be notified before 6 July after the tax year end for which you first wish the PSA to be in place. The PSA calculations detailing the income tax and NI due should be submitted by this date. The income tax and Class 1B NI liability is then payable by 19 October (or 22 October if paid electronically).
Mandatory payrolling of benefits from April 2027
Mandatory payrolling of benefits from April 2027 It will be mandatory for all benefits in kind to be payrolled from April 2027 except for beneficial loans, accommodation and those reported via a PSA. Please find more information here.
If you require any assistance with regard to the reporting of taxable employee benefits, bearing in mind the 6 July deadline, please contact us at CT as soon as possible.