Payrolling Benefits

In January 2024, it was announced that Payrolling Benefits in Kind (“PBIK”) will become mandatory from 6 April 2026.

HMRC are to issue further details, which are expected to be included in the Chancellor’s October Budget.

Before this change takes effect, employers can voluntarily register to join the scheme and payroll benefits. Agreement with HMRC needs to be in place before the beginning of the tax year the employer wishes to payroll benefits. In effect this means there is only one tax year left (2025/26), in which employers can voluntarily transition to payrolling benefits.

According to the Government’s latest statistics, there are c.1.4m employers in the UK. Whilst there is no data issued identifying how many are currently payrolling benefits, it is likely a significant number of employers will look to payroll benefits for the first time when it becomes mandatory.

Payrolling benefits in the 2025/26 tax year could help employers get ahead of the curve (and the rush) prior to when the scheme becomes mandatory. It also provides the opportunity to ‘test out’ the scheme and internal processes on a small number of employees and/or benefits.

Key points to consider

  • Are your benefits and payroll teams aligned? Who will be responsible for capturing and reporting the benefits through payroll?
  • Is your benefit data robust and up to date; are your benefit providers prepared for the changes – can they provide real-time benefit data?
  • Are your payroll/benefits systems capable of reporting and calculating benefits in real-time?
  • If payroll is outsourced how will the new scheme be managed; will there be additional costs/fees?
  • In the first year of payrolling, employees may experience an overlap in respect of the income tax payable on the previous year’s benefits (reported via a P11D) and the current year income tax on payrolled benefits.
  • Class 1A National Insurance payment date is to be brought forward and will be payable in ‘real-time’; how will businesses absorb this cashflow impact?
    How will you communicate the changes, and potential reduced net pay, to employees?
  • How will new joiners and leavers be impacted?

Points yet to be clarified by HMRC

  • Are P11Ds and P11D(b)s to be abolished?
  • Currently the provision of living accommodation and beneficial loans are excluded from the scheme – is this to change?
  • Will there be a ‘soft’ landing, penalty amnesty, should errors occur in the initial period?

How A&M can help

  • Don’t underestimate the complexities and significance of the upcoming changes.
  • Whether it’s an early adoption of the scheme or preparation for 2026, we have an experienced team of employment tax specialists who can advise and support you, as you navigate this significant change.