What is the issue?
With the end of the tax year behind us, many employers are now approaching one of the most important employment tax compliance deadlines of the year: P11D reporting and the preparation, agreement and submission of PAYE Settlement Agreement (PSA) calculations.
Where taxable expenses or benefits have been provided to employees or directors without being fully dealt with through payroll or an exemption, employers may need to complete a P11D for each relevant employee and a P11D(b) to report the related Class 1A National Insurance contributions (NIC). The P11D data is then used by HMRC to assess the tax that is payable by employees, normally by adjustment of their tax codes.
The statutory deadlines come around quickly. For the 2025/26 tax year, employers need to submit P11Ds and P11D(b)s by 6 July 2026, provide employees with copies by the same date, and pay any Class 1A NIC by 22 July 2026 if paying electronically.
Where an employer agrees to meet the employees’ tax under a PSA, the tax and Class 1B NIC must generally be paid by 22 October 2026 if paying electronically.
For many businesses, this is not just an administrative task, it is an annual risk point. Benefits and expenses data often sit across payroll, finance, HR and accounts payable, and if those records are incomplete or inconsistent, the result can be incorrect reporting, unnecessary tax costs, employee queries and avoidable HMRC exposure.
What is the background?
The rules around taxation of benefits in kind are generally well established, but they are rarely simple in practice, and they do change from time-to-time. Employers must report taxable expenses and benefits provided to employees unless those items have been properly exempted, payrolled or included within a valid PSA.
P11D forms
A P11D is used to report benefits and expenses for individual employees, while the P11D(b) is used to report the total Class 1A NIC due on those benefits. Even where benefits have been payrolled, a P11D(b) is still usually required.
PSA
A PSA offers an alternative route for certain benefits and expenses. It allows the employer to settle the tax and NIC liabilities on behalf of employees in relation to items that are minor, irregular or impracticable to allocate or deal with under the normal reporting rules. HMRC gives examples such as certain staff entertaining, small gifts and vouchers, some non-business overnight expenses, and items that are difficult to apportion between employees.
However, not everything can go into a PSA. HMRC’s guidance makes clear that items such as wages, cash payments, company cars and beneficial loans cannot be included. Those items must instead be reported and taxed through the correct alternative route. As a result, getting the classification right is crucial.
There is a cost involved, and employers are sometimes surprised at the extent of the grossed-up tax and associated NIC liabilities.
Payrolling Benefits in Kind
This area is also evolving. HMRC has confirmed that, from April 2027, most benefits in kind and taxable employment expenses will move to mandatory payrolling through RTI, giving employers additional time to prepare after the implementation date was deferred from April 2026. That means the current P11D and PSA cycle is not just about year-end compliance — it is also an opportunity to review systems and prepare for the future.
What should employers beware of?
- The first danger is assuming that a benefit or expense is too small, too informal or too unusual to matter. In reality, many employers only discover at year end that gifts, staff entertaining, reimbursed personal expenses, relocation costs or ad hoc employee perks have created a taxable reporting obligation. Where those items are overlooked, the business can find itself dealing with late corrections, employee relations issues and unnecessary HMRC scrutiny.
- The second risk is duplication or inconsistency. A benefit included in a PSA should not also appear on a P11D, and payrolled benefits should not generally be duplicated on a P11D either. At the same time, employers still need to ensure that the P11D(b) is filed and that the correct amount of Class 1A NIC is paid. That sounds straightforward, but in practice it often requires a careful reconciliation of payroll, finance and benefits data.
- The valuation of benefits in kind can be tricky with an added layer of complexity being the rules around Optional Remuneration Arrangements (OpRA) where employees have the option of a benefit in kind or cash pay.
- PSAs bring their own technical challenges. If an employer has a PSA, it still needs to tell HMRC what it owes each year. HMRC warns that if the employer does not do so, HMRC will calculate the amount instead, and the employer will usually pay more as a result. PSA calculations also involve grossing up the benefit values for tax and applying Class 1B NIC on both the value of the items and the tax paid by the employer. For 2025/26, the Class 1B NIC rate is now 15%.
- There is also a timing issue. If an employer wants to put a PSA in place for the first time, the application deadline is generally 5 July following the first tax year it applies to. Miss that window, and items that might otherwise have been covered by a PSA may need to be dealt with through separate employee reporting instead.
- And, of course, deadlines matter. HMRC states that a late P11D(b) can trigger a penalty of £100 per 50 employees for each month or part month it is late, with further interest and penalties possible for late payment of Class 1A NIC or PSA liabilities.
- But all is not bad news. There are a number of tax concessions that can help to reduce the liability but aren’t always utilized by employers.
What should employers do now?
Now is the time to review your position properly — not in late June, when the deadline is already looming. Employers should carry out a structured review of all benefits and expenses provided during 2025/26, identify what has already been payrolled, determine what is exempt, confirm what needs to be reported on P11D/P11D(b), and assess whether any items are suitable for inclusion in a PSA.
That review should not be limited to payroll records alone. The most robust process is one that brings together payroll, finance, HR and accounts payable data so that the full picture can be assessed. Done properly, that exercise can significantly reduce risk, avoid duplicate reporting and help employers make informed decisions about whether a PSA is appropriate.
How can UNW help?
At UNW, we understand that year-end employment tax compliance is rarely just about completing forms. It is about identifying risk, applying the rules correctly, protecting the business from avoidable cost and giving internal teams confidence that nothing has been missed.
We can help employers review benefits and expenses provided during the year, identify what is reportable and what is exempt, prepare and submit P11Ds and P11D(b)s, calculate Class 1A NIC accurately, review whether a PSA is appropriate, prepare and sense-check PSA calculations, support agreement and submission to HMRC, and help businesses prepare for mandatory payrolling from April 2027.
Because we work closely with employers on real-world employment tax issues, our advice is practical, commercially focused and designed to reduce the compliance burden on payroll, finance and HR teams alike.
If your business has provided benefits, reimbursed expenses, held staff events, given employee gifts or incurred ad hoc employee costs during the year, now is the time to act.
Do not wait until the filing deadline is only days away. A proactive review now can help you avoid errors, reduce the risk of HMRC penalties, and make sure your reporting position is dealt with efficiently and correctly.
UNW’s Employment Tax team is here to help. Whether you need support with P11D reporting, Class 1A NIC calculations, PSA agreement and submissions, or planning for the move to mandatory payrolling, we can help you navigate the rules with confidence.
If you would like to discuss your 2025/26 compliance obligations, please contact your usual UNW adviser or a member of our Employment Tax team today at employmenttaxesteam@unw.co.uk. The earlier we are involved, the more value we can add.
