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Ward Williams Chartered Accountants
04/03/2024
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Payrolling employer-provided benefits to become mandatory from April 2026
HM Revenue and Customs (HMRC) has released a “tax simplification” update confirming that the reporting and paying of income tax and class 1A national insurance contributions (NIC) on benefits-in-kind (BIK) via payroll software will become mandatory from April 2026. This follows the changes made during the 2022/23 reporting season whereby amendments to P11Ds had to be completed electronically, as opposed to the traditional paper route.
The aim of HMRC’s new “simplification” is to reduce the administrative burden by simplifying and digitising reporting and paying tax on all employment benefits, removing the need for four million P11D returns and forms P11D(b).
The current process allows employers to either submit the forms P11D to report the employees benefits for taxation purposes or register to payroll benefits, allowing the benefits to be taxed in real time through PAYE.
Currently the submission of the P11D(b) is still a requirement to report the liability of the Class 1A National Insurance contributions (NICs), even if the benefits are taxed through the payroll. HMRC’s recent update outlines that the reporting and paying of Class 1A NICs will also move to be processed via the payroll software.
Some employers currently choose to payroll some, but not all, benefits. This is because some BIK are easier to calculate on a pay period basis.
This does leave the question open as to how HMRC intend to resolve the issues of reporting the underlying BIK calculations in real time, in particular regarding beneficial loans, accommodation, emergency vehicles and payments by employees, (eg. for private use, etc).
If you provide your employees/directors with reportable benefits, which are not reported under the current voluntary payrolling system, you may wish to consider changing to a voluntary payrolling system before the mandatory regime commences. You have until 5 April 2024 to apply to HMRC in order to payroll benefits for the forthcoming 2024/25 tax year.
It is understood that draft legislation will be published later this year.
A start date of April 2026 does not leave much time for HMRC to draft a full specification for software development and testing before implementation.
Further details can be found on the HMRC website here.
For further information on the above or advice on Ward Williams services, please do not hesitate to contact Tom Kirk on 01895 236 335 or Tom.Kirk@wardwilliams.co.uk
