Current position

At present, employers can choose whether to report their employees’ Benefits in Kind through the company’s payroll Full Payment Submission (FPS), or by completing form P11D for each employee at the end of the tax year. Subsequently, the employer pays the Class 1A NIC due on these taxable benefits to HMRC by 22 July following the tax year (or 19 July if paying by cheque).

However, HMRC aim to ‘modernise’ the system and collect the tax and employer national insurance due on the taxable benefits in a more accurate and timely manner. Therefore, HMRC are making it compulsory to payroll Benefits in Kind from 6 April 2027.

Mandatory – From April 2027

From 6 April 2027, employers will be required to report most Benefits in Kind through real time information reporting i.e. via the company’s payroll submissions. This is a significant change to the way benefits are currently taxed and reported.

What does this mean for employers?

• Taxable benefits will be processed through the payroll as they are provided to the employee. If the benefit value is not available, employers are expected to include an amount based on a reasonable estimate

• Employers will no longer submit P11Ds or form P11D(b) for most taxable benefits*

• Employers will pay Class 1A National Insurance monthly together with their PAYE/NI liability

*Employer-provided accommodation and beneficial loans are currently excluded from the new mandatory payrolling. Therefore, P11Ds and form P11D(b) will still need to be completed for these benefits in the usual way following the end of the tax year. However, employers can opt to voluntarily payroll these benefits alongside the other Benefits in Kind.

What does this mean for employees?

• Employees will be able to see the taxable value of the Benefits in Kind on their payslips

• Employees will pay the income tax due on their Benefits in Kind alongside their salary during the tax year, rather than through an adjustment to their tax code

• Employees’ tax codes will be simpler as most Benefits in Kind will no longer need to be included in PAYE coding notices.

• There will be fewer adjustments to employees’ tax codes after the tax year resulting from underpaid tax on Benefits in Kind

• Employees should be aware that the tax on their Benefits in Kind is not changing; only the method in which the tax is collected is changing

What do employers need to do before April 2027?

• Review all employee benefits and establish which of these will need to be payrolled

• Discuss the changes with their payroll administrator and put a system is in place to ensure that all relevant Benefits in Kind are included through the company’s payroll

• Ensure their payroll software can accommodate payrolling Benefits in Kind
  
  
• Inform employees of the new changes and how this will affect their payslips

How can England & Company help?