Mandatory Payrolling of Benefits in Kind

Do you currently provide benefits and expenses to your employees and report these via annual P11Ds? Whether you handle payroll and P11Ds in-house or outsource them, the system is about to change dramatically.

From 6th April 2026, HMRC will require all employers to payroll benefits in kind (PBIKS). This means real-time reporting of employee benefits and paying Class 1A NIC and income tax through payroll—every payday, not annually.

Hosted by Richard McPhee, Employment Tax Specialist, and Avril Craig, Payroll Director at Henderson Loggie, this webinar recording provides essential insights into:

• Aligning payroll and benefits systems to comply with real-time reporting requirements.
• Managing the transition for benefits that remain on annual P11D reporting.
• Communicating the changes to employees effectively.
• Preparing for potential double taxation issues in the first year.
• Handling special cases, including sole directors and employees on long-term absence.
• The advantages of voluntary early adoption from April 2025.

Recorded on Thursday 23rd January 2025

Summary & Key Takeaways

Avril Craig and Richy McPhee led a presentation on the upcoming changes to the legislation on reporting benefits in kind, specifically the move to mandatory payrolling of benefits. Key points include:

Introduction:

• Richy outlined the agenda, which covered the history and mechanics of benefits in kind, the shift from P11D forms to real-time payrolling, and implications for employers and employees.

Background:

• Benefits in kind, such as company cars, medical insurance, and gym memberships, are traditionally reported annually via P11D forms, with associated Class 1A NIC payments.

Changes Introduced:

• Voluntary payrolling of benefits began in 2016; from April 2026, all employers must payroll most benefits, with some exceptions (e.g., accommodation and low-interest loans).
• Mandatory payrolling will eliminate P11D forms for most benefits, streamline reporting, and collect taxes in real time.
• Employers must register their intent to payroll benefits before the tax year starts.

Implications:

• Real-time taxation avoids large tax bills for employees and reduces coding notice adjustments.
• However, it introduces an administrative burden as benefits must be calculated and reported with each payroll cycle (e.g., weekly or monthly).
• Transition challenges include complex benefit valuations, system upgrades, and ensuring data accuracy.

Employer Considerations:

• Accurate systems and processes are critical to manage the additional reporting workload and maintain compliance.
• Communication with employees is key to address resistance and clarify the changes.
• Employers should prepare for a transitional period, ensuring systems are ready by mid-to-late 2025 when further guidance is expected.

Administrative Challenges:

• Frequent calculations, data gathering, and coordination are required to meet payroll deadlines.
• Scenarios such as mid-month changes to benefits or new hires highlight the need for efficient workflows.

Importance of Systems and Processes:

• Organisations need robust systems for data capture and communication, especially aligned with payroll processes.
• Special allowances are required for situations like December payroll due to early deadlines.
• Collaboration between benefits teams and data contributors is critical.

Integration of Payroll and Benefits:

• Payroll and P11D reporting must be merged into a single, monthly process.
• Benefit calculations should be revisited monthly, transitioning from an annual to a monthly system starting in April 2026.
• While 2025 is voluntary, early adoption is encouraged to ease the transition.

Planning and Outsourcing:

• A clear plan for integrating payroll and benefits systems is essential, whether managed in-house, outsourced, or a combination.
• Service providers may face capacity issues closer to the mandatory deadline, emphasising the need for early action.

Software Readiness:

• Organisations should confirm their payroll software can handle the new requirements.
• HMRC calculators may have limitations, so organisations need adequate knowledge to validate calculations.

Employee Communication:

• Transparent communication is crucial to explain changes to employees, especially the potential for a double tax hit during the transition year.
• Educational materials, examples of new payslips, and Q&A sessions are recommended to reduce confusion and build trust.

Specific Considerations and Deadlines:

• Registration for payroll benefits must be completed by April 2025 for early adopters.
• Benefits provided to employees must be reported monthly starting April 2026, with no exceptions for company size or benefit type.
• Certain benefits, such as PSAs, are unaffected by these changes.
• Unknowns remain, such as tax handling during maternity leave with zero pay.

Q&A Highlights:

• Benefits previously reported via P11D will now require payroll registration.
• Mid-year benefit renewals will be prorated across the tax year.
• Registration is company-wide, not per employee.
• Taxable allowances, such as clothing, should already go through payroll unless exempt by industry.

Final Recommendations:

• Organisations should plan, align systems, train staff, and establish clear communication channels.
• Henderson Loggie can provide support, updates, and guidance through the transition.

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