Payrolling of benefits to be mandated from 2026

18 January 2024 - Jon Lee

Is this farewell to Form P11D? HMRC has recently made a significant announcement that will reshape the landscape of payroll management. From April 2026 onwards, reporting and paying income tax and Class 1A National Insurance Contributions (NIC) on benefits-in-kind (BIK) will become mandatory through payroll software. This move is set to revolutionise the way employers handle employee benefits, simplifying the process and reducing the administrative burden.

In this article, Jon Lee, Payroll Manager, delves into the details of these changes and offers a solution for those seeking seamless compliance.

The Road to 2026: Why the Change?

The government’s decision to mandate the payrolling of benefits and Class 1A NIC on BIK via payroll software stems from the desire to modernise and streamline the tax and NIC reporting process. Historically, employers have been required to submit millions of P11D returns and P11D(b) forms annually. These forms, though necessary, have been a source of considerable paperwork and manual effort for both employers and HMRC.

By making this process digital and mandatory through payroll software, the government aims to achieve several key objectives:

  1. Reduction in Administrative Burden: The shift will eliminate the need for the extensive paperwork associated with P11D returns and P11D(b) forms, resulting in substantial time and cost savings for businesses.
  2. Increased Accuracy: Digitisation and automation can help minimise errors in reporting, reducing the risk of penalties and fines for non-compliance.
  3. Real-time Reporting: Employers will have the capability to report BIK and Class 1A NIC in real-time, providing a more accurate picture of tax liabilities throughout the year.
  4. Simplicity and Efficiency: The new reporting process promises a simplified and efficient approach to managing employee benefits, making it easier for businesses to stay compliant.

The government’s decision to mandate the reporting and paying of income tax and Class 1A NIC on benefits-in-kind via payroll software from April 2026 represents a significant shift in payroll management. While these changes aim to simplify and digitise the process, many businesses may find it challenging to adapt. More detail and draft legislation will be published later this year.

Outsourcing your payroll duties to Scrutton Bland offers a practical and efficient solution to navigate these changes. With our expertise, tailored solutions, streamlined processes, and cost-effective services, we can help your business stay compliant while reducing the administrative burden associated with payroll management.

To get in touch to find out more about our Payroll services, please get in touch with Jon by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk

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