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Payrolling of benefits in kind to become mandatory

Last month, HMRC announced that from April 2026, the reporting and paying of Income Tax and Class 1A National Insurance on benefits in kind (BIK) via payroll software will become mandatory.

 

What is the current system?

Employers currently have two options when it comes to reporting their BIKs and taxable expenses.

Option one is to report via a P11D submission which adjusts the employees’ tax codes the tax year after the benefits or expenses were received.

On occasion, this can cause problems with employees’ understanding of why tax codes change mid-tax year, as P11Ds don’t need to be reported to HMRC until 6 July following the tax year end when the employee received the BIK.

Option two is for employers is to payroll benefits which allows the benefits and expenses to be taxed in real time through pay as you earn (PAYE), meaning there’s no mid-year tax code changes due to BIK and so less confusion caused for employees.

At present, payrolling BIK is voluntary and employers are still required to quantify the Class 1A on a form P11D(b) by 6th July following the end of the tax year.

 

Why is payrolling BIKs becoming mandatory?

The aim of this is to reduce the administrative burden for employers and HMRC and will remove the need for P11D(b)s to be submitted.

 

When will these changes come into effect?

The changes will come into effect in April 2026, although moving to payrolling BIK beforehand could reduce the administrative burden before it becomes mandatory.

It is not yet clear if the date for paying 1A NIC will change and more information on this matter will follow.

Please contact the tax team for any further information at enquiries@cowgills.co.uk

Disclaimer

The information was correct at time of publishing but may now be out of date.

Tax
Posted by Cowgills
28th February, 2024
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