From April 2026, it’s expected that employers will be required to report and pay Income Tax and Class 1A National Insurance contributions on benefits in kind in real time, via payroll software.
It’s anticipated that 2025/26 will be the last tax year for which HMRC will accept P11Ds and P11D(b)s, but there are still points to clarify. At present, for example, there’s no detail on what will happen to benefits that currently can’t be payrolled: employer-provided living accommodation and interest-free or low interest (beneficial) loans. This is presumably something HMRC will work on before 2026.
Draft legislation is expected later in the year, but there is a lot of work to be done to bring the change into reality, and it remains to be seen how the upheaval of the general election will impact timetabling.
What the change means in practice is that employees receiving a taxable benefit — a company car, for example — will have the taxable value of the benefit added to taxable pay. Tax is then paid through payroll in real time, instead of via an adjustment to the PAYE tax code, or paying under self assessment, as at present.
It’s all part of the push to increase digital interaction with HMRC, and HMRC is majoring on the fact that by eliminating the need to file some four million end of year returns, it will reduce the administrative burden on employers.
But this isn’t quite the whole story, and in the short run, employers have a lot of work to do. Even employers who already payroll benefits will need to gear up to make sure their systems can handle a shift into real-time reporting for all employees. And for employers who don’t currently payroll, there is obviously more preparation to do — not least making sure that they have appropriate payroll software in place.
Wherever on the scale your business sits, there’s also a considerable communications exercise ahead. Staff will need to adapt too, as tax is collected in real time. This is likely to be a particular issue in 2026/27 when, as well as adjusting to the new system, some employees may also still be catching up on PAYE code adjustments from previous years.
If you don’t already payroll benefits, do talk to us about how to get ready. One option is to register to payroll ahead of the planned implementation date, to give time to get used to the new system. To do this, advance registration with HMRC is needed.
Registration is required before the start of the tax year in which you want to payroll benefits. So to payroll benefits for the tax year 2025/26 — the earliest this can now be done — means registering before 5 April 2025. It is now possible for us to register to use HMRC’s payrolling service as your authorised agents with HMRC, and we are happy to discuss this with you. Please don’t hesitate to get in touch.
