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MANDATORY PAYROLLING BENEFITS IN KIND

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The government will make the reporting and paying of Income Tax and Class 1A National Insurance Contributions (NICs) on benefits in kind via payroll software mandatory from April 2026, building on the progress already made on the government’s ambition to fully digitalise the reporting of benefits in kind. Mandation will simplify the tax affairs of 3 million people and reduce the need for them to contact HMRC.

This measure will reduce administrative burdens for thousands of employers and HMRC by simplifying and digitising the process of reporting and paying tax on all employment benefits. It will remove the need for 4 million end of year returns to be submitted to HMRC. HMRC will engage with stakeholders to discuss our proposals to inform design and delivery decisions and draft legislation will be published later in the year as part of the usual tax legislation process. HMRC will also work with industry experts to produce guidance, which will be made available in advance of 2026. Further information will be published via usual communication routes, such as through employer bulletins.

Payrolling the Income Tax due on benefits in kind is currently available to employers on a voluntary basis, with those who do not wish to payroll still able to file form P11D at the end of the year. Class 1A National Insurance contributions cannot currently be payrolled so a P11D(b) form still needs to be submitted at the end of the year. In light of the recent announcement HMRC encourages anyone who is able to begin payrolling voluntarily to do so in preparation. Agents will also be able to payroll benefits on behalf of employers from the end of April 2024.

How this will affect employers
If you provide BiKs to your employees, Income Tax and Class 1A National Insurance contributions will have to be reported and paid in real time through payroll software from 6 April 2026. The 2025-2026 tax year will be the last year that we will accept P11Ds and P11D(b)s for annual reporting of BiKs in most cases.
HMRC will help businesses to prepare for the transition by providing guidance in advance of 2026. If you wish to start payroll benefits for 2025-26, you will need to tell HMRC before April 2025 which benefits you want payrolled.

New Employment Legislation from 6th April 2024

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National Minimum Wage Rates April 2024:
The age for the National Living Wage rate will reduce from 23 year olds to 21 year olds.
Under 18s and apprentice rates increase from £5.28 to £6.40 per hour
18 -20 year olds increase from £7.49 to £8.60 per hour
21 and overs increase from £10.18 or £10.42 to £11.44 per hour

Flexible Working:
From April 2024, all employees will be entitled to request flexible working arrangements from the first day of their employment rather than after 26 weeks as is currently. This includes requests for part-time, term-time, flexi-time, compressed hours and varied working locations. Before rejecting any request, employers need to be aware that they now have to explain the reasons behind their decision and are obliged to respond to flexible working requests within 2 months, compared to 3 months previously. Employees can also make 2 statutory requests for flexible working in any 12-month period, as opposed to one previously.

Carers Leave Act 2023:
The act makes provision for unpaid leave for employees with caring responsibilities. This leave is a day-one right. It applies to anyone caring for a spouse, civil partner, child, parent or other dependant who needs care because of a disability, old age or any illness or injury likely to require at least 3 months’ care. This leave is unpaid with a maximum duration of one week per year. Whilst employers can’t deny a request, they can postpone it if they reasonably consider that the operation of the business would be unduly disrupted if it were approved.

2024 Year End Preparations

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We are nearing the end of the 2023-24 tax year and to help us all through a smooth year end process, there are certain things you can do to assist with your 2024 year end preparations:

Data cleansing
Check your payroll reports, payslips or employee data on the MyEpaywindow portal. Are the employees’ titles correct? Do you have the correct name spellings? Are their home addresses up-to-date? Are there any missing National Insurance numbers? Are there employees that have left your employment during the year but are still on the payroll? Once the March payrolls are finalised and the P60s are created, we CANNOT amend any incorrect data on them.

Correct March payrolls
As March is the final payroll run of the 2023-24 tax year, it is vital it is correct first time. Please try and avoid any re-runs. Ensure all timesheets are included. Ensure all starters are included. If any payments are missed, those employees will lose their March free pay allowances and could pay more tax and National Insurance than necessary. There is a short window between finalising your March payroll, closing down the tax year, creating the P60s, updating new pay rates in time for the April pay run. Once the year end process starts, any re-runs for March will take longer and will hinder the year end process.

Changes To National Insurance Rates from 6th January 2024

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It was announced in the Chancellor’s Autumn Statement in November 2023 that National Insurance rates were to be cut for millions of workers.
The changes to National Insurance Rates from 6th January 2024 are as follows:
Class 1 National Insurance contributions will be cut by 2%, reducing from 12% to 10%.

There will be further changes in National Insurance from 6th April 2024:
Class 4 self-employed National Insurance cut by 1%, reducing from 9% to 8%
No one will be required to pay Class 2 self-employed National Insurance contributions. This means self-employed people with profits above £12,570 will no longer be required to pay Class 2 NIC but will continue to receive access to contributory benefits including the State Pension.
Those with profits between £6,725 and £12,570 will continue to have their contributions ‘treated as paid’ and get access to contributory benefits including the State Pension without paying Class 2 NIC as they do now.
Those with profits under £6,725 and others who pay Class 2 National Insurance contributions voluntarily to get access to contributory benefits including the State Pension will continue to do so.

An update on Fit Notes

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The government announced an update to the Fit Note or Med 3 form which was published on 6 October 2023.
The fit note should allow the employer and employee to discuss the employee’s health condition and consider ways to help them stay in, or return to, work on a phased or permanent basis.
Previous updates to the form included an extension to the healthcare professionals that could issue the form, in addition to doctors which included occupational therapists, pharmacists, and physiotherapists.
An updated version of the fit note replaced the signature in ink with the name and profession of the issuer, enabling the employee/employer to receive fit notes from GP practices through digital channels (where the local IT system support this).
The latest update to the fit notes will extend availability within secondary care settings (hospitals) from later this year. In the interim, employers may receive a pre-printed fit notes for employees discharged from hospital.
In the meantime, employers should be checking that the name of the issuer, the profession and the address of the medical practice correctly entered to make it a valid form. If you receive an old template (Med3 2017) it must be signed in ink by the healthcare professional.
The guidance, together with a checklist for employers can be found here