HMRC have announced that reporting and paying Income Tax and Class 1A National Insurance Contributions on benefits in kind via payroll software will be mandatory by April 2026 – so what does this mean for your current processes and procedures?

Payrolling benefits has advantages especially when an organisation is looking to streamline their payroll processes. Payrolling benefits can be beneficial for both the employer and the employee…

Efficiency for Employers:

Administrative tasks being simplified is the main gain for employers when it comes to payrolling benefits. With benefits being processed directly through the payroll system, employers can streamline processes, reducing the burden of managing separate systems for payroll and benefits. This approach also ensures compliance with ever-evolving tax regulations and reporting requirements, and the best bit, eliminating the requirement to complete P11D’s.

Efficiency for Employees:

Payrolling benefits bring tax advantages for employees, when benefits are run through on the payroll, employees are not required to pay tax on these benefits through self-assessment. This not only eases the tax filing process for individuals but also contributes to a more transparent and predictable income stream by reporting benefits and charges in real time.

Wider Benefits:

Payrolling benefits includes a wide array of offerings, ranging from healthcare and pension contributions to company cars and gym memberships. This allows employers to tailor their benefit packages to meet the preferences of their workforce. It allows employers to offer a comprehensive suite of benefits, organisations can enhance employee satisfaction, attract top talent, and embrace a positive work environment.

Company Cars and Commuting:

Some employers provide employees with company cars, and the associated costs for these can also be incorporated into the payroll system.

A few things to note from HMRC:

• You will not need to use form P11D
• You must still work out the Class 1A National Insurance contributions on benefits and complete form P11D(b)

Once the tax year has started, you will have to payroll the benefits for the whole of the tax year, or until you stop providing them.

You can register with HMRC to start payrolling benefits now from April 2024 for the 2024/25 tax year:

https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-through-your-payroll