Reporting Benefits in Kind through Payroll

If you still complete P11D’s to report the value of taxable benefits and expenses provided to employees, you may want to spare five minutes to read about the upcoming changes.

Our Director of Payroll, Devila Rabadia explains the changes, raises practical points to help you decide whether to start payrolling benefits from the upcoming tax year 2025/26 or wait until it becomes mandatory.

When will payrolling benefits be made mandatory?

In January 2024, HMRC announced significant changes as to how taxable benefit in kind and expenses information will be reported and how tax and Class 1A National Insurance will be collected. From April 2026, it will become mandatory for employers to payroll benefits in kind and expenses through the payroll so that information is reported on the Full Payment Submission (FPS) with tax and Class 1A National Insurance collected and paid through the PAYE system each pay period.

Why is payrolling benefits being introduced?

This change is building on the government’s ambition to fully digitalise the reporting of benefits in kind to simplify the tax affairs of 4 million end of year returns submitted to HMRC.

What benefits can be payrolled?

All benefits and expenses can be payrolled with two exceptions; beneficial loans and accommodation. These will need to be reported via a P11D form at the moment.

Do I need to let HMRC know?

Yes, currently you need to register through the Government Gateway and choose which benefits and expenses you want to payroll. You can use the site to manage and exclude specific employees if required. This allows HMRC to remove the benefit from the tax code as the tax will be paid through the payroll in real time.

Is there a deadline to register to payroll benefits?

To start payrolling for tax year 2025/26 you need to register before 5^th April 2025. We recommend registering by end of January 2025 as HMRC start issuing tax codes for the upcoming year from mid-February so if you leave it too late, employees will receive multiple coding notices which can cause confusion.

What do I tell employees?

You need to provide written communication to existing employees which explains that you will start payrolling and what this means for them. Certain information should be included and guidance can be found here.

Additionally, new employees need to know how the payrolled benefits will be taxed too. You could include information within your onboarding process or policies/handbook.

When payrolling there is a requirement to send a notification to each employee which provides details of the type of benefits payrolled and value. The deadline is 1^st June after the end of each tax year.

Is there anything else to consider?

Yes, at the moment a P11D(b) will still need to be prepared to calculate the class 1A National Insurance and submitted to HMRC by 6^th July, following the end of tax year. The payment deadline for class 1A National Insurance is 22^nd July or 19^th July if paying by post.

With just over a year to plan, consider some of the below points to help you decide if you should start payrolling early:

• Does your payroll system accurately calculate and report benefits via RTI to HMRC? If not, start exploring options.
• Benefits can be complex with specialist tax teams currently preparing P11D’s. Do your payroll team have the knowledge and expertise to accurately calculate benefits and include on the payroll?
• If you outsource the payroll, will your provider support you with payrolling benefits as a service? Will there be a cost? If so, how much?
• Are you able to obtain the costs from your benefit provider on a pay period basis? Does the timing align with payroll processing and reporting timelines?

How can Rayner Essex LLP help?

• Our payroll team have been payrolling benefits for clients since 2016 when it was available on a voluntary basis.
• We have the knowledge to help guide you through the payrolling process.
• As your PAYE agent we can register for payrolling with HMRC.
• We can calculate the cash equivalent and include them on the payroll ensuring the information is correctly reported via RTI.
• We can complete an annual reconciliation to ensure the correct amounts have been captured.
• At year end we can provide you with information to prepare your P11D(b) or prepare and submit the P11D(b) on your behalf.
• We can support you with employee communication, annual statements and FAQ’s to promote additional awareness and support to employees.
• If you have a complex situation, our tax team can review and provide further guidance on calculating the cash equivalent and tax treatment.

Get in Touch

For further information about reporting payroll benefits in kind or any other queries relating to payroll, please contact our payroll services team who will be happy to assist you and help you plan and implement upcoming changes.

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