Recently, HMRC have announced that the reporting and paying of income tax and class 1A National Insurance Contributions (NIC) on employee benefits in kind through payroll will become mandatory from the start of the April 26-27 tax year.
As a result, from this date, the generation and submission of P11Ds and P11D (B) forms will become redundant.
How does this change affect me as an employer?
If you are a UK employer who provides employees with taxable benefits in kind, then you will need to complete the following tasks in preparation of the upcoming mandatory change.
1. Register any Benefits in kind you wish to payroll
Ahead of the April 26 start date, you will need to ensure that you have applied for an online gateway account with HMRC in order to be able to register for the benefits in kind that you wish to payroll.
This registration is completed by logging into your online employer gateway account and selecting the desired benefits then sending an online submission directly to HMRC.
HMRC will then be prepared to receive any income tax due on the selected benefits through your payroll software.
If you haven’t already registered for an online employer gateway account, you can do so in advance by using the below link:
HMRC online services: sign in or set up an account: Set up an account for HMRC online services - GOV.UK (www.gov.uk)
2. Calculate the cash equivalent value of all benefits in kind
Ahead of the April 26 start date, you will need to calculate the cash equivalent value of any taxable benefits you provide employees. This will need to be a notional monthly figure that adds to the employee’s taxable pay.
The process of calculating cash equivalent values will remain the same as calculating these benefits for P11D forms in previous tax years.
You will need to take into consideration any `made good amounts` that employees have paid towards the cost of the benefits.
3. Ensure your payroll software is up to date
Ahead of the April 26 start date, you will need to ensure that your payroll software has the correct components required to calculate income tax on benefits in kind.
To do this you will first need to speak to your payroll software provider who will be able to help you further.
4. Inform your employees of the upcoming changes.
Ahead of the April 26 start date, you will need to write to your workforce and inform them of the changes.
Employees need to be informed that any income tax due on any taxable benefits will now be collected in real time through the payroll as opposed to through their tax code at the end of the tax year when they receive a P11D.
5. Review current processes/policies
Lastly, ahead of the April 26 start date, you will need to review and rewrite any company policies that will affect the process.
For example, you may need to create a companywide policy for the process of calculating and reporting cash equivalent values or a process of how these are communicated to the payroll department etc.
Are there any benefits which cannot be payrolled?
Yes, currently, accommodation and beneficial loans provided to employees cannot be registered to payroll.
However, further HMRC legislation giving more details will follow shortly in the next tax year.
Why is this change becoming mandatory?
HMRC have announced that the mandatory payrolling of benefits will significantly reduce the administrative burden placed upon the revenue.
Payrolling benefits in this way will simplify and digitalize the reporting of income tax due on all taxable benefits, removing the need for the generation of four million P11D returns and P11D (B) forms.
The upcoming change will also reduce the admin burden that has been imposed upon UK employers by removing the need to submit and distribute P11Ds.
Can I register to payroll benefits before the start of 6th April 2026?
Yes, should you wish to payroll benefits before the mandatory 26-27 tax year start date, then you can do so by following the same process and registering through your online employer gateway account before the start date of the tax year in question.
For example, if you wished to payroll benefits from the start of the 25-26 tax year, then you would need to register your benefits with HMRC before 5th April 2025.
Who do I speak to at Critchleys to undertake this for me?
The Critchleys payroll department are ready to undertake this new process for you as part of our managed payroll services.
Therefore, should you wish to talk through your options please call the payroll team on 01865 261184. Alternatively, please visit our payroll website page Payroll Outsourcing - Critchleys and submit an online enquiry.
A member of the payroll team will get back to you as soon as possible.