HMRC will mandate payrolling of benefits from 2026

The government has announced a mandate for the reporting and payment of income tax and class 1A national insurance contributions (NIC) on benefits-in-kind (BIK) through payroll software starting in April 2026. HMRC’s objective is to streamline and digitize the process of reporting and paying tax on all employment benefits, eliminating the need for four million P11D returns and forms P11D(b) and thereby reducing administrative burdens.

While the ICAEW had previously advocated for the inclusion of beneficial loans and employer-provided accommodation in payrolling, it has also pointed out the complexities associated with payrolling BIK. For instance, even though payrolling BIK eliminates the requirement for employers to submit forms P11D, class 1A NIC still needs separate reporting and payment through form P11D(b). The recent announcement that class 1A NIC will be payable through payroll software is potentially beneficial administratively, though the change in the due date for paying class 1A NIC remains uncertain.

Currently, some employers opt to payroll certain benefits, excluding others due to the ease of calculating specific BIK on a pay period basis. ICAEW urges the government to engage in comprehensive consultations with stakeholders to determine how the underlying calculations for BIK, especially concerning beneficial loans, accommodation, and emergency vehicles, can be simplified before making payrolling all BIK mandatory.

Draft legislation is expected to be published later this year. With the implementation slated for April 2026, there is limited time for HMRC to develop and test a full software specification.

For information on how this affects your business, contact us directly.