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Payrolling of benefits in kind to become mandatory

Posted on 13th March 2024 - What's trending?

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By Mitchell Fee, Tax Assistant

HMRC has announced that from April 2026 the reporting and paying of Income Tax and National Insurance Contributions (NICs) arising on benefits in kind provided to employees, must be collected through the employers payroll.

What is the current position?

Currently, taxable benefits and expenses must be reported to HMRC via forms P11D and P11D(b), by 6 July following the end of the tax year.

The employee then pays the associated income tax through self-assessment or collection via their tax code.

The employer pays Class 1A NIC to HMRC by 19 July following the tax year, or 22 July if payment is made electronically.

With HMRC agreement, employers have been able to choose to operate the withholding of income tax on some benefits, through the payroll. This reduces the employers reporting requirements as forms P11D only need completing where benefits cannot be payrolled, however the employer is still required to submit a form P11D(b).

What is changing?

Building on the current option to payroll some benefits, the Government has decided to mandate payrolling of benefits from April 2026.

The details are still to be confirmed, with draft legislation published later on this year.

HMRC will seek to issue further detail through their Employer Bulletins as well as via HMRC employer bulletins - GOV.UK

In practice this will mean that employers will need to include the cash equivalent of the benefits they provide to their employees, within each individuals payroll calculations. This will ensure that the correct Income Tax and NICs are collected through the employee’s pay in real time, which will render the process for filing form P11Ds obsolete.

Forms P11D and P11D(b) will need to continue to be filed for tax years; 2023/24, 2024/25 and 2025/26. Employers can elect to move over to payrolling benefits in kind before the mandate takes effect if they wish to do so.

However, challenges may arise regarding benefits in kind that cannot currently be payrolled such as employer provided living accommodation and interest free or low interest loans. This is where we await further details to navigate such benefits.

Additionally, there would need to be consideration to how Class 1A NIC is paid.

As of yet, HMRC have not formally addressed these concerns.

We are monitoring the situation and any developments. We endeavour to keep our clients informed on the effect this may have on their position moving forward and action they may need to take.

If you have any questions or concerns regarding payrolling benefits in kind or filing P11Ds, please get in touch with your usual Streets contact.

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