Mandatory Payrolling of Benefits from April 2026

Starting from 6 April 2026, employers in the UK will be required to enforce mandatory payrolling of benefits except for accommodation benefits and beneficial loans.

This change aims to simplify the tax reporting process and reduce administrative burdens by digitising the way benefits are reported and taxed as well as ensuring the employees are taxed correctly at source on their benefits through PAYE.

Key Changes

• Mandatory Payrolling: Employers must payroll all benefits in kind except for accommodation benefits and beneficial loans. This includes benefits like gym memberships, company cars, and private medical insurance.
• Voluntary Payrolling for Accommodation and Loans: Employers can choose to payroll BIKs for accommodation benefits and beneficial loans voluntarily from 6 April 2026, but this will not be mandatory until later. If these benefits are not payrolled then P11d’s will still need to be filed to declare these benefits by the normal deadline (the first 6 July after the tax year end).
• Early Opt-In: Employers can opt in to payrolling benefits early for the 2025-26 tax year by registering through their PAYE account before 6 April 2025. However, Class 1A National Insurance Contributions (NIC’s) will not be collected through the payroll and therefore a form P11d(b) will still need to be completed to pay these.

Impact on Class 1A NICs and P11D Forms

• Class 1A NICs: From 6 April 2026, Class 1A NICs will be collected through payroll, eliminating the need for P11D(b) forms.
• P11D Forms: Employers will no longer need to submit P11D forms unless they have not payrolled accommodation benefits and beneficial loans.

Preparations and Flexibility

• Payroll Software: Employers must ensure their payroll software can handle the integration of benefits in kind.
• Penalties: HMRC have indicated that they will be lenient with penalties during the transition period from 6 April 2026 to April 2027 to allow employers to adjust to the new process. However, this does not guarantee that penalties will not apply.
• BIK Calculations: Employers must divide the cash equivalent of BIKs across pay periods and update this calculation if the BIKs change throughout the year.
• End of Year Process: An end-of-year process will be introduced to amend taxable values of BIKs that cannot be determined during the year, however HMRC are yet to provide details of this new process.
• Amendments: It is currently possible for employers that are voluntarily payrolling benefits to amend incorrect benefits in kind through a Full Payment Submission (FPS) at the end of the year. No advice has been received from HMRC about if this will change from 6 April 2026.

Overall, the mandatory payrolling of benefits changes are designed to streamline tax reporting and provide employees with clearer, more immediate information about their tax liabilities. However, employers face challenges in preparing for these changes, particularly in ensuring their payroll systems are adequately equipped.

If you would like to discuss mandatory payrolling of benefits, please contact George Vass on 023 8046 1250 or email George Vass.