Background
Employers will generally already be aware of the current requirement to report to HM Revenue & Customs (HMRC) the benefits and expenses provided to employees and directors each tax year on forms P11D and P11D(b) unless a business has chosen to voluntarily adopt the payrolling of benefits in kind (‘BIK’). The deadline for submitting these forms for the 2025/26 tax year (and providing a copy to employees) is 6 July 2026. Failure to submit the forms by this date will potentially lead to a penalty.
The introduction of mandatory payrolling of BIKs will start from 6 April 2027 for those businesses who have not already voluntarily adopted to payroll benefits. There will be no penalties during the first year of operation, except for any gross abuse of the system.
For those who have not already adopted to payroll BIKs then forms P11D will need to be prepared for the last time next year for the 2026/27 tax year.
Detail
P11D and P11D(b) forms are required to be submitted for the year ended 5 April 2026 by the 6 July 2026 in order to avoid HMRC raising automatic late filing penalties.
Any Class 1A National Insurance contributions (NICs) payable will be due by 22 July 2026. Interest will be charged by HMRC on any late payments and potentially HMRC could also impose other late payment penalties.
Automatic Penalties
Any penalty for the late submission of form P11D(b) is charged with reference to the number of P11D’s due for the year – £100 per every 50 employees (or part of 50) per month or part month until the form is submitted.
In addition to late filing penalties, it is more important to be aware that penalties for completing an incorrect form P11D can be up to £3,000 per form, so it is essential they are right!
Plug In Hybrid electric cars
Following the 2025 Budget, the government has introduced a temporary easement on the BIK charge applicable for plug-in hybrid electric vehicles (PHEVs) registered between 1 January 2025 and 5 April 2025.
During the easement period, the CO2 emission figure for certain eligible PHEVs will be deemed to be a nominal figure of 1g/km for the purposes of the BIK charge rather than the CO2 figure on the registration document. This has the effect of reducing the value of the BIK charge that would otherwise apply. Once a car qualifies, the use of the easement can continue to apply until the earlier of the arrangement being varied/renewed or 5 April 2031.
Since the easement applies retrospectively, employers may have overpaid Class 1A NIC for 2024/25 and should make any necessary amendments to their PAYE returns for the appropriate tax year. Employees affected by the retrospective element of the easement will be able to claim any refunds of overpaid tax for 2024/25 via the usual methods.
Mandatory Payrolling of BIK
For those employers who have not already registered for the payrolling of benefits prior to 5 April 2026, they now have until April 2027 to prepare for mandatory reporting of income tax and Class 1A National Insurance contributions (NICs) on benefits in kind via payroll software, known as mandatory payrolling.
From April 2027, most benefits will need to be processed via a payroll on a real-time basis with pay as you earn (PAYE) and class 1A national insurance contributions (NICs) paid during the tax year.
The data fields on the full payment summary (FPS) will be expanded to match the current P11D reporting. Employees will need to be informed of the value of payrolled benefits by 1 June following the end of the tax year, although there will be no prescribed format for this reporting.
In regard to penalties in the first year of mandatory payrolling it has also been announced that there will be a soft landing during 2027/28, with penalties for BIK-related inaccuracies not expected to apply except in the case of deliberate non-compliance. The existing penalty regime will continue to apply to reporting under real-time information (RTI) and the current P11D process.
With less than 12 months now available before the payrolling of BIKs becomes mandatory it is important that employers use the time to plan for the change.
If you would like further information on any of the points raised above, assistance with preparing P11ds or more generally in relation to employment related benefit in kinds please contact our Tax Director, Jenny Marks.
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