Mandatory payrolling of benefits
The reporting and paying of income tax and Class 1A national insurance contributions on benefits in kind is to be made mandatory via payroll software from April 2026.
Most employers who have not entered into a PAYE settlement agreement currently report benefits in kind (BIKs) provided to employees on the P11D form and calculate Class 1A national insurance contributions (NIC) at the end of each tax year.
To simplify and digitise the process, from April 2026 the Government will mandate the reporting and paying of income tax and Class 1A NIC on BIKs via payroll software. The taxable BIKs will be calculated for the year and the monthly amount (ie one twelfth of the annual amount) will be added to the employee's monthly payslips, with tax deducted accordingly.
This will lessen the administrative burden for employers; remove the need for end of year returns to be submitted; and simplify the tax affairs of individuals, reducing the need for them to contact HMRC.
HMRC will engage with stakeholders to discuss their proposals to inform design and delivery decisions, and draft legislation will be published later in the year. Guidance will be made available in advance of 2026.
The payrolling of benefits and the associated advantages to employers don’t have to wait until 2026. If you’d like to discuss introducing this system sooner, contact us.
