In their Autumn Budget 2024, the government confirmed that the use of payroll software to report and pay tax on benefits in kind for income tax and NICs will become mandatory, from April 2026.
Employers should familiarise themselves with the process before the change comes into effect and communicate these changes to employees. It is worth noting that for some employees, the introduction of mandatory payrolling and PAYE coding adjustments for prior years will overlap, potentially creating an additional tax charge in the first year.
Employers must ensure that they maintain accurate and current data relating to benefits and expenses, as this information must be reported to HMRC in real-time as part of the monthly payroll cycle.
The main advantages of payrolling benefits
These include:
- Employers will not be required to complete a P11D or P46(Car) for employees where all benefits are payrolled.
- Once registered, HMRC identifies employees with payrolled benefits and removes the benefits from their tax codes. Employees’ tax codes are, therefore, often more straightforward and pay-as-you-earn deductions more accurate.
- It’s potentially simpler for employees, which can mean HR teams receive fewer P11D and payroll queries.
- Where there is a change to the benefit mid-year, such as a company car change, the benefit will need to be recalculated, and the revised amount should be reflected in the payroll in real-time to ensure that the tax deductions are accurate.
An employer will still need to submit a P11D(b) form by 6 July after the end of the tax year to report the employer’s Class 1A national insurance contributions due on the payrolled benefits.
Employers that opt for payrolling benefits in kind must register online with HMRC before the start of the relevant tax year, through their Government Gateway account. More help is available at Payrolling: tax employees’ benefits and expenses through your payroll – GOV.UK
Benefits covered by the P11D
These comprise:
- company cars
- loans for rail season tickets
- other loans
- health insurance
- assets provided to an employee that have significant personal use
- self-assessment fees paid by the employer
- on-employment related travel expenses
- non-business entertainment expenses.
If you’d like to learn more about how the forthcoming change could impact your organisation, speak to your Shipleys contact or one of our specialists shown on this page.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.
Copyright © Shipleys LLP 2024
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