Changes to Taxation on Benefits in Kind and P11D: A Guide for Employers

The UK's HMRC has announced that starting from April 2026, the way Income Tax and Class 1A National Insurance Contributions (NICs) on benefits are reported and paid will undergo a significant shift. Read more to learn about how to navigate this change, and what it might mean for your benefits.

HR Tech

Mar 27, 2024 ⋅ 3 min read

The UK's HM Revenue & Customs (HMRC) has announced significant changes regarding the reporting and taxation of Benefits in Kind (BiK) that will impact both employers and employees. Starting from April 2026, the way Income Tax and Class 1A National Insurance Contributions (NICs) on benefits are reported and paid will undergo a significant shift. Employers will need to prepare their payroll systems to handle these contributions directly, moving away from the traditional P11D forms.

Benefits in Kind (BiK)

Benefits in Kind (sometimes known simply as ‘benefits’ or ‘fringe benefits’) are an integral part of many compensation packages, offering value beyond the basic salary. These can range from workplace nursery schemes to private medical insurance, and are often main factors in attracting and retaining talent. But their tax treatment has historically required additional reporting, specifically through the P11D forms for each tax year.

How payrolling benefits works

Payrolling benefits simplifies the taxation process by including the cash equivalent of non-salary benefits directly in the employee’s payroll. This streamlines the admin process and also ensures transparency and efficiency in how these benefits are taxed. This way, benefits such as company cars, health insurance, gym memberships, and mobile phone plans are taxed through payroll in real-time, so no need for end-of-year adjustments!

What do these changes mean for employers?

This will be a big change for employers. By April 2026, the requirement to report benefits on P11D forms will be eliminated. Employers will instead need to ensure their payroll software is equipped to handle integrating benefits directly into the process. This transition means employers will need to use HMRC-approved PAYE payroll software capable of payrolling benefits – which means a proactive approach from employers to update or upgrade their systems accordingly.

Implementing Payrolling for Benefits in Kind

Payrolling benefits involve calculating the taxable value of each benefit and spreading that amount across each payroll period within the tax year. This method simplifies the tax process, making it more straightforward for both employers and employees to understand and manage their tax liabilities.

Although the new rules will not come into effect until April 2026, the option to payroll benefits is already available and can be implemented by employers who want to streamline their tax reporting processes sooner. To transition to this system, employers need to register to use HMRC's payrolling benefits and expenses online service before the beginning of the tax year in which they intend to start payrolling.

Final thoughts

The shift toward payrolling benefits is a shift toward modernisation of payroll practices. Employers are encouraged to start preparing as soon as possible to make the transition to the new system smoothly.

Need help navigating payrolling your benefits?

Speak with one of our Benefits & Rewards Specialists to see how Ben can help.
Get started
No items found.
Copy link