Background
HM Revenue and Customs (HMRC) have recently announced that the reporting and payment of income tax and Class 1A National Insurance Contributions (NICs) via payroll software will become mandatory from April 2026.
Currently employers are required to report benefits and expenses provided to employees and directors electronically on form P11D to HMRC by 6 July each year following the end of the tax year. Class 1a National Insurance Contributions are then payable on these taxable benefits by 22 July if paying electronically.
Detail
The reporting change to employment benefits will become mandatory from April 2026 and is part of HMRC’s plans to move to a digital first tax authority. The aim is to reduce administrative burdens for HMRC and thousands of employers by simplifying and digitising the process of reporting and paying tax on all employment benefits, removing the need to submit end of year P11D returns and forms P11D(b).
However, many observers have noted the timescale for implementation is relatively short given there is only two years to ensure that software is developed and tested before the reporting rules come into force.
At present employers can choose to report some benefits via their payroll software. In some instances employers have found doing so makes it easier to calculate the benefit in kind (BIK) on a pay period basis rather than an annual basis. However, at present it is not possible to payroll benefits relating to employer provided living accommodation or interest free and low interest (beneficial) loans.
It is understood that draft legislation will be published later this year on the reporting changes to BIKs. HMRC have also stated that further information will be published via its usual communication routes, such as employer bulletins.
If you would like more information on the points raised above, or more generally in relation to employment related benefit in kinds and reporting them to HMRC please speak to out Tax Director, Jenny Marks.
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