The reporting and paying of income tax and Class 1A national insurance contributions on benefits in kind is to be made mandatory via payroll software from April 2026.
Ahead of the policy paper published on 16 January 2024, I received a phone call from one of the heads of the individuals policy directorate team at HMRC, informing me that the government would be mandating the payrolling of benefits in kind (BiK) and expenses from April 2026.
This big news story came as no surprise to me and my colleagues at The Chartered Institute of Payroll Professionals (CIPP) because of a couple of factors:
the abolition to paper P11D submissions to HM Revenue and Customs (HMRC), which came into effect from April 2023
Employers have two options when it comes to reporting their BiKs and taxable expenses – for now
The first option, often referred to as the legacy process, is to report via a P11D submission. This adjusts the employees’ tax codes the tax year after the benefits or expenses were received. This can cause problems with employees’ understanding of why tax codes change mid-tax year, as P11Ds don’t need to be reported to HMRC until 6 July following the tax year end in which the employee received the benefit. This means that an employee could wait over a year before seeing any tax related to benefits they’re receiving being deducted from their pay. P11D(b) submissions share the deadline of 6 July, and employer class 1A National Insurance contributions (NICs) must be paid by 22 July (if paying electronically).
The second option for employers is to payroll benefits. This method allows the benefits and expenses to be taxed in real time through pay as you earn (PAYE), meaning there’s no mid-year tax code changes (not down to these benefits received anyway), and less confusion caused for employees. This is all promising, until we hit the stumbling block taking shape in the form of employer-provided living accommodation or interest-free and low-interest (beneficial) loans. These two benefits cannot be payrolled, and therefore, any employer providing these benefits must also complete P11Ds, even if they payroll other benefits, for example, company cars. Arguably, another stumbling block is the requirement to report P11D(b) submissions to HMRC, as currently class 1A NICs cannot be payrolled for taxable benefits and expenses.
If you aren’t currently payrolling benefits but want to do so for the new tax year, you can register to do so up to 5 April 2024. There are guidance pages on gov.uk.
The main considerations the CIPP will be seeking to address with HMRC teams working on this policy are:
ensuring the calculation methods for employer-provided living accommodation and beneficial loans are updated and can be processed via payroll software
ensuring working sheets are available for employers and agents to help with calculating the values to be payrolled when using HMRC’s basic PAYE tools
being mindful of the changes needed to payroll systems, and the time taken to make those changes, should there be considerable legislative change required to bring the plans to fruition
pushing for real-time payments of class 1A NICs, to eliminate the P11D(b)
allowing for student loans to be calculated alongside payrolling – this currently doesn’t happen, and the workaround is for employees to complete a self assessment tax return.
The team at HMRC confirmed ministers have requested this change doesn’t go out to public consultation in the traditional way we’re all accustomed to. Instead, they’ve asked HMRC to liaise with key stakeholders to discuss this at length, ahead of implementation come April 2026.
HMRC confirmed it will work with the CIPP and its members to seek their views on how benefits will be processed as a result of the changes, recognising that the input of payroll professionals will be key to successful implementation.
The CIPP will be supporting members and the wider profession with further updates in due course and has an online payrolling benefits eLearning course, which can further support those organisations who are payrolling for the first time.