Payrolling Benefits Postponed for a Year
After listening to feedback, the government has delayed the introduction of mandatory payrolling benefits and taxable employment expenses until 6 April 2027.
Currently, taxable benefits in kind, (BiKs) and expenses are administered through the submission of annual forms P11D, for the tax, and form P11D(b) for Class 1A NICs. These forms are submitted after the end of the tax year.
However, since 2017, employers have had the choice to voluntarily payroll most BiKs, (loans and accommodation have been excluded), and as part of the tax simplification project, HMRC intends to get rid of P11Ds entirely. This was meant to be from 6 April 2026 but has now been pushed back for a year, to allow software designers and employers more time to prepare. Given the significant number of extra information fields that will be introduced on the FPS report, this is understandable.
The extra fields are similar to those on P11Ds and the P11D(b) and will include information on the benefits being provided and BiK values for the tax year. There will also be fields to show the benefit value and Class 1A NIC for the pay period, and cumulative values for the year to date.
The effect of these new data fields on the FPS will be to merge the forms P11D into payroll, so that tax on BiKs and salary can be collected in real time. The additional details will also help HMRC to check compliance.
What else is new in payrolling benefits?
- HMRC will not charge penalties for payrolling benefit errors but only for the first year.
- Registration to voluntarily payroll loans and accommodation for 2027-28 will open from November 2026.
- Where the information to determine tax and Class 1A NICs is not available during the tax year, an Update Process (UP) will be introduced. Employers are expected to use a reasonable estimate for the value to be payrolled then use the UP to record any over-or-underpayments of tax by 6 July following the end of the tax year.
- Employees experiencing financial difficulties, because of more than one tax year’s BiK liability being collected at the same time, can ask HMRC to spread the tax due over more than one tax year.
HMRC has clarified instances where they will collect underpaid tax through other systems available to them, i.e. P800’s, (the end-of-year reconciliation process for PAYE), Simple Assessment and Self-Assessment. They are –
- when the tax due is over 50% of the employee’s gross salary,
- if employees have not received income, and
- where BiKs have been provided after an employee has left
Draft legislation, guidance and technical information will be provided from this autumn, and initial software technical information will be made available to software developers for feedback in December 2025.