On 16 January 2024 a policy paper was published outlining the Government’s intentions to mandate the reporting and paying of Income Tax and Class 1A National Insurance contributions (NICs) on benefits in kind (BIK) via payroll software from April 2026, rather than employers submitting P11D forms.
This change is unsurprising as the Government has been striving to fully digitalise the reporting of benefits in kind, and began digitising P11D submissions in April 2023.
How does reporting Benefits in Kind currently work?
Currently, reporting taxable benefits and expenses requires employers to either submit electronic P11Ds via HMRC, or alternatively they must register to payroll benefits, meaning the benefits will be taxed in real-time through PAYE. Payrolling benefits at present doesn’t allow for:
- Employer provided living accommodation.
- Interest free and low interest (beneficial) loans.
It still is a requirement to report the liability of the Class 1A NICs via a P11D(b) submission, even if the benefits are payrolled.
What will the proposed changes be?
HMRC have announced that reporting and paying income tax and Class 1A National Insurance contributions (NIC) on benefits in kind through payroll will become mandatory from April 2026.
Details of the announcement:
- Registration for payrolling benefits in kind (BIK) needs to be completed before 5 April for the relevant tax year. Although it is advised to do this as soon as possible to allow HMRC time to amend employee’s tax codes for the new tax year.
- The income tax due from employees on these benefits will be collected on a real-time basis every month via the payroll, as opposed to the following year via a tax code change.
- All benefits can be payrolled with the exception of living accommodation, loans and credit cards/vouchers. The main benefits we have seen being utilised are company cars, fuel and medical/healthcare.
- Payrolling company car benefits replaces the need to complete a P46 (Car).
- P11D(B) forms are still required and payments for Class 1A are due by the 22 July if paying online of the following tax year (and due by 19 July if paying by cheque).
The Government has stated that the aim is to ensure the tax system is simple, fair and supports growth. They believe this will simplify the tax affairs of 3 million people and reduce the need to contact HMRC. It is also anticipated that the measure will reduce administrative burdens for thousands of employers as well as HMRC, by digitising the reporting process and paying tax on all employment benefits. It will remove the need for 4 million end of year returns to be submitted to HMRC.
What must employers consider?
Employers need to be mindful of any changes to their payroll systems, should there be considerable legislative change. Detail of this shall follow once we have more information. HMRC has confirmed that they will consult with the Chartered Institute of Payroll Professionals (CIPP) and its members this year, with draft legislation proposed to follow later in the year.
Currently, if you are not payrolling benefits, and would like to do so for the next tax year (2024/25), ahead of the Government enforcement, you must register with HMRC by 5 April 2024 to apply changes for the tax year starting 6 April 2024. Guidance of how to do so can be found on the HMRC website.
If you should require any assistance with the proposed changes to payrolling benefits in kind, or advice on other payroll matters, please use the form below to contact one of our experts.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
Have a question about this post? Ask our team...
For more insight, events and webinars, sign up to the Price Bailey mailing list…