As an employer who offers employee benefits in kind you may be aware of the requirement to submit forms P11d and P11D(b) to determine how much income tax and employer Class 1A National Insurance is payable on the benefits received. H M Revenue & Customs (‘HMRC’) announced in January 2024 that form P11d is being phased out and payrolling benefits in kind will become mandatory, effective from 6 April 2026.
This means benefits in kind will need to be reported via an HMRC registered payroll scheme alongside your normal salary, including the monetary equivalent in the employee’s pay. For example, a monthly paid employee with an annual benefit value of £1,200 will have an additional £100 put through their payroll each month (£1,200/12).
Payrolling benefits in kind will have a positive impact, with employees being taxed in real time rather than retrospectively, and employers being relieved of the obligation to prepare and file P11Ds at the end of the tax year. This will also reduce the risk of employees being incorrectly taxed.
To set up payrolling benefits, the company will need to register with HMRC. Employers must notify employees in writing that they are payrolling benefits. The following information should be included:
- Details of the benefits that have been payrolled (for example health insurance, car benefits, mobile phone benefits etc), along with their value, the cash equivalent and which ones have been subject to PAYE tax.
- The amount that has been payrolled for optional remuneration.
- Details of any benefits that have not been payrolled.
Employees should also be advised what will happen after payrolling benefits:
- There will be a double tax hit in the first year of payrolling benefits. This is because they will be paying the tax on P11D benefits from the previous tax year at the same
time as payrolled benefits in the current tax year. From the second tax year of payrolling benefits their tax code will change to take out the adjustment for their benefits in kind. - An adjusted amount will be processed through the payroll each pay period, and tax will be applied to that amount.
- At the end of each tax year of payrolling benefits they will be told how much taxable benefit they have had in the year and what it was for.
Would you like to find out more? Get in touch
Our payroll team stand ready to support you in implementing the above changes. We are encouraging employers to move across to payrolling benefits from 6 April 2025 in preparation for a mandatory move just 12 months later.
If you have any questions at this stage, please contact payrolls@pkgroup.co.uk and a dedicated member of PK Group’s payroll team will be able to provide assistance. You can also contact us via +44 (0)20 8334 9953
