Earlier this year, HMRC announced that from April 2026, it will become mandatory to report and pay income tax and Class 1A National Insurance Contributions (NIC) on benefits in kind through payroll. The move comes as part of the Government’s efforts to simplify and modernise the tax system, reducing the burden of compliance on taxpayers through automated systems. In this article, we’ll explain what these changes mean and how they might impact you.
Mandatory Payrolling Of Benefits: What Does It Mean?
Benefits in kind are any benefits that employees or directors receive from their company that aren’t included in their salary or wages. Some aren’t taxed, but others are, so figuring out where you stand can often be difficult. This latest move from HMRC is designed to make it easier for employers and taxpayers to comply with the rules regarding payrolling of benefits. Keep reading to understand the new rules better, and get in touch with our expert team of accountants at Digital Tax Matters if you need any extra support.
What’s The Current Position?
Currently, taxable benefits and expenses must be reported to HMRC via Forms P11D and P11D(b) by the 6th of July following the end of the tax year. HMRC or the employee (if conducting self-assessment) will use the information in these forms to determine the correct amount of income tax they should be paying. The employer must pay the associated Class 1A NIC to HMRC by the 19th of July following the end of the tax year or the 22nd of July if payment is made electronically.
Employers can currently operate income tax withholding on most benefits through payroll. This method reduces the employer’s reporting burden, as their P11Ds only need to be submitted for benefits that can’t be ‘payrolled’. In HMRC’s announcement, this method of reporting benefits in kind has become mandatory.
What’s Changing?
From April 2026, all employers must payroll their benefits in kind. Draft legislation regarding the changes will be published later this year for consultation. In the meantime, HMRC has said they will consult stakeholders on the details of mandatory payrolling. Employer guidance is expected before 2026, and further information should be published through Employer Bulletins and other HMRC publications as the proposals develop.
What Do Employers Need To Consider?
These new measures, in principle, should positively impact employers as they reduce their compliance burden. However, all employers should keep an eye on the development of these proposals and start considering what mandatory payrolling might mean for their business. Here are a few of the ways it might impact you:
- Data Management: There will be an increased emphasis on reporting benefits and expenses. Employers will need to provide monthly reports within the standard payroll cut-off dates. If data is held on multiple systems, extra care will need to be taken to ensure compliance.
- Increased PAYE Risk: As income tax administered through PAYE increases, so do the sums involved in potential tax-driven penalties for compliance errors.
- Payroll Impact: Many payrolling systems don’t support payrolling benefits, so employers may need to establish the costs involved in upgrading.
- Employee Communication: Employers will be responsible for explaining the upcoming changes to employees and how they will impact them.
Support With The Transition
If you’re an employer looking for support in managing the transition or an employee concerned about how the changes might impact you, don’t hesitate to get in touch with Digital Tax Matters. Our highly experienced team of accountants are expertly placed to support you through this transitional period of tax reforms.