Employers have been given an extra 12 months to prepare for mandatory payroll treatment of benefits in kind. This was originally planned to take place from 6th April 2026, but the new regime will now go live in April 2027. This announcement will be welcomed by many employers, including those that already payroll benefits in kind, as they will now be able to use the 2024/25 and 2025/26 benefit reporting cycles to identify and embed the changes required to transform historical data collection and reporting into real time events.
A benefit in kind is remuneration paid to an employee which is not paid to them in cash. Benefits in kind can be a tax effective way of incentivising and rewarding employees.
HMRC will introduce additional data fields to capture P11D and P11D(b) reporting fields. Whilst we expect payroll providers to be able to accommodate the new fields, gathering the data from providers and sources to support real time reporting is likely to challenge some employers. HMRC expect employers to add benefits during the tax year when they arise, and collect across remaining pay periods. The employer works out what the yearly value of the benefit is, divides this by the number of pay periods in the year and this amount is taxed each period. If there are any changes to the benefit amount throughout the year, the amount can be adjusted. With limited exceptions, form P11D and P11D(b) will no longer be required. Employers providing accommodation and beneficial (interest free or low interest) loans may still be reported via form P11D.
The introduction of mandatory payroll of benefits will not have any effect on benefits reported under a PAYE Settlement Agreement.
