What is the background?
Most employers use P11Ds to report taxable benefits to HMRC. From April 2016, voluntary payrolling of benefits was introduced to help reduce the number of P11Ds and speed up tax collection. Some employers use this voluntary process and payroll their benefits in kind rather than produce P11Ds, although most still use P11Ds.
What is the issue?
From 6 April 2026 Payrolling Benefits in Kind is to become compulsory, although it is not currently possible to include living accommodation or beneficial loans.
- For 2024/25 and 2025/26
P11Ds may still be used and tax liabilities will be collected via tax codes. - For 2026/27 onwards
Employers will need to collect the tax due through payroll adjustments.
What do employers need to consider?
This is a major change for employers. Any employers, that are not currently payrolling their benefits, will need to review their benefits to ensure they are ready for the change and have a plan of action for implementation of the change.
Communication will be key to a successful implementation. In particular, communication with employees, payroll teams/providers and any third party providers of benefits, such as medical insurance companies.
Other issues to consider include how to deal with:
- Calculations of the amounts to process through the payroll;
- Provision of internal data, for example car details/changes;
- Different pay periods:
- Joiners and leavers; and
- Internationally mobile employees.
The period from April 2026 to July 2026 will involve two simultaneous benefits reporting systems converging, a “benefits crush”, in a very short period of time. It is likely that:
- Employees will turn to their employer for assistance
They will want to understand the changes to their payslips and how their benefits are being reported. - Employers will require support and advice from us
To respond to any employee request and to ensure they are compliant with HMRC requirements.
Although the new rules do not apply until 6 April 2026 it is still possible to voluntarily payroll benefits for 2025/26. We have experienced a few employers who have done so, to test their processes earlier than the move toward mandatory payrolling.
For those employers who want to avoid the “benefits crush” we recommend that they look to voluntarily payroll their benefits from April 2025.
Employers will need to let HMRC know they wish to payroll benefits in good time before the 5 April deadline, to enable timely communications to be provided to employees and minimize tax code adjustments. We recommend that employers looking to payroll benefits for the 2025/26 tax year progress their changes between now and December 2024.
How can UNW help?
Preparation and implantation are key to a successful implementation. Our employment tax specialists have expertise in implementing voluntary Payrolling of Benefit In Kind arrangements.
When we advise and support our clients with their implementation, we typically proceed as follows:
- Obtain details of all benefits provided;
- Establish the process for obtaining the data to calculate each benefit;
- Meet with relevant stakeholders to clarify any points;
- Agree a plan of action and timetable for implementation; and
- Communicate the change to employees (often via in-house presentations).
If you would like to discuss how we can help you, or have any other employment taxes related queries, please get in touch with us at employmenttaxesteam@unw.co.uk
