Payrolling of benefits in kind to be mandated

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It has always been an intention of HMRC to simplify their employee benefit and expense process. It is therefore not a huge surprise that this week, HMRC released a tax simplification update which announced the end of the P11D form. From April 2026, all benefits in kind will be reported via payroll software with income tax and Class 1A National Insurance Contributions also being paid through payroll.

By processing benefits through payroll, the tax and National Insurance Contributions will be collected in real time. Employees are more likely to pay the correct tax due on their benefits during the year, which will hopefully reduce the PAYE tax code errors and underpaid liabilities associated with benefits that many employees and employers have scratched their heads at.

HMRC have indicated that their reasoning behind the scrapping of P11D forms is to reduce the administrative burden, but there will undoubtedly be hurdles along the way. We are already talking to our software providers about how the changeover can be managed.

There are a number of issues that still need to be clarified, including confirmation if there will be a simplification of certain benefit calculations such as beneficial loans and accommodation, and whether employee’s PAYE codes will be updated to remove any current benefit restrictions prior to April 2026.

As always, our employment tax and payroll team are on hand to assist with any queries you have. For further information about the topic raised in this article, please contact our Employment Tax Manager Aisling McCartan.