As part of a wider ambition of the UK Government, HMRC has been focused on fully digitising the reporting of benefits in kind.
In January 2024, HMRC provided a simplification update on the mandating of payrolling of benefits in kind from April 2026. This means reporting and paying income tax on benefits in kind through payroll will become mandatory, removing the requirement to submit individual form P11Ds. Based on the January simplification the employer obligation to report and pay Class 1A NIC separately using form P11D(b) remains, but this may develop as more guidance is published.
The current process
At present, it’s at the employer’s discretion whether to submit a P11D form to report an employee’s benefits or register to payroll benefits. With the P11D method, the employee pays income tax either through their own self-assessment tax return or via an adjusted tax code being applied the following tax year. From an employee perspective, one of the main benefits of the change to payrolling of benefits is a cash flow one, allowing them to pay a monthly amount of income tax in real time through PAYE instead a potential lump sum at the end of the year.
Currently, employers can process a range of benefits such as company cars, gym memberships & dental plans. However, benefits such as interest-free or low interest (beneficial) loans and employer-provided accommodation are not permitted.
If you’re planning to payroll benefits early
If you, as an employer, want to payroll benefits and expenses before April 2026, you’ll need to register with HMRC before the start of the tax year the benefits relate to – before 6 April 2024 for payrolled benefits provided in 2024/25.
How to prepare for payrolling of benefits
Ahead of the changes, employers may want to consider the impact this may have on how they operate their payroll and what this may look like in a practical sense. As well ensuring that your payroll software is enabled to process benefits in kind, it will be important to communicate to all employees the changes before they occur. These changes may also trigger considerations around the remuneration package you currently offer and any changes that may be required to align with the new reporting mechanism.
Next steps
Draft legislation is expected to be published later this year with further specifics, including how tax arising from beneficial loans and employer-provided accommodation will be collected and the fate of the form P11D(b) – a clarification which will be most welcome by all employers nationwide.
For more information around the implementation of the mandatory payrolling of benefits or support and advice around employer planning ahead of the change, including remuneration package implications, please contact Chantelle Martinez: chantelle.martinez@ct.me
