Understanding the changes to reporting benefits in kind

The Government’s budget in October 2024 confirmed it will be mandatory to payroll all benefits in kind as of 6 April 2026. Benefits in kind are perks provided by employers such as company cars or private healthcare.

What will these changes mean for businesses and how can you prepare? Liz Marker, Payroll Manager at Westcotts, explores.

Changes to reporting benefits in kind

Currently, benefits in kind are reported to HMRC via a P11D or P11D(b) form for tax purposes. Employees who are in receipt of these taxable benefits then pay the relevant income tax via a self-assessment. Alternatively, HMRC will collect the tax through a tax code adjustment through PAYE.

The new reporting system will see benefits in kind included on payroll. The service will work digitally and remove the need to fill in cumbersome P11D forms. All relevant benefits in kind, income tax and Class 1A NICs will need to be reported to HMRC via PAYE from April 2026. This will be done through Real Time Information (RTI) through the Full Payment Submission (FPS).

All benefits in kind must be payrolled from this date, except for employer provided loans and living accommodation. Payrolling for these two benefits will be introduced on a voluntary basis from April 2026. For those who do not want to payroll loans and accommodation, P11D and P11D(b) forms will still be available.

Employers can register with HMRC for voluntary payrolling of benefits-in-kind before it becomes mandatory. We recommend being proactive in the face of this change and suggest employers bring forward payrolling benefits in kind to 6 April 2025. Businesses will need to notify HMRC before the start of the next tax year if they would like to commence payrolling benefits as of then.

It’s important to note that employers will still need to submit a P11D for each of their employees’ receiving benefits in kind in the tax year to 6 April 2025. This needs to be completed by 6 July 2025. Employees may suffer tax for the previous year benefit as well as the monthly tax for the current tax year, however this double taxation is for one year only.

The Government has issued guidance on these changes to payrolling employees’ benefits for employers.

Communicating with employees

Once businesses have registered to payroll benefits, they must give their employees written notification either by payslip, email or letter. This must explain that you’re payrolling their benefits in kind and what it means for them.

Businesses must send the notification by 1 June after the end of each tax year. The notification should include information on the benefits in kind which have been payrolled, the amount payrolled for option remuneration and details of the benefits not payrolled. They will also need to know that their tax code will change to take out the adjustment for their benefits in kind.

Next steps

In the face of these changes, if you manage your payroll, you may be concerned by the additional burden this will bring. More time and resources will be needed to track and report benefits and the increased reporting requirements.

Employers should start assessing the potential impact of mandatory payrolling on their systems and processes now. What does your current payroll software support, will it need upgrading and testing? Will you provider pass on any costs for the upgrades?

Outsourcing your payroll to Westcott’s payroll department can not only ensure you avoid penalties and stay compliant, but it can also free up valuable administrative resources.

Westcotts’ Payroll team are primed to support through this change. Find out more about our payroll services via our website or get in touch with your local Westcotts representative for more information.