Employment Tax Update – Payrolling of Benefits in Kind

Whilst we are in the throes of January and the self-assessment deadline is looming, a simplification measure was announced by HMRC earlier this week relating to P11Ds and benefits in kind. HMRC are proposing to mandate the payrolling of all benefits in kind from April 2026. Currently, most benefits can already be payrolled apart from the provision of living accommodation and beneficial loans. However, the shift to make it compulsory for all benefits in kind to be reported via payroll software is not expected to come without issues.

Despite HMRC stating that this will “simplify the tax affairs of 3 million people and reduce the need for them to contact HMRC”, the doubtful amongst us would question the extent to which this will take form in practice. We are still awaiting Making Tax Digital to be up and running, for personal tax and landlords, and the PAYE coding system as it currently stands is not without issues, for example HMRC do not always correctly identify those individuals who do not submit a tax return but have PAYE only income of £100,000 and have the need for the personal allowance to be restricted in real time via their PAYE code.

Similarly, there is some initial doubt over how this simplification measure would work for cross border workers whose tax and national insurance position is not always aligned, as well as employers needing to report the Class1A liability on benefits.

Although we may welcome a world without P11D forms, merely due to the administrative burden this currently poses for all involved, in particular employers, we would hope that in the next 2 years HMRC will seek relevant input from those in the industry and perhaps trial the extent to which this takes form in practice. In the meantime, preparations could be made to consider how current systems would support such a change and whether investment in further software, or professional advice is needed.

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Please contact our Employment Tax team on 01635 35255 if you have any queries.