This regulatory update aims to simplify the reporting process, reduce administrative burdens, increase accuracy, and provide real-time reporting capabilities.
The UK’s HM Revenue and Customs (HMRC) has recently announced a significant change in the way benefits in kind (BIK) are reported and taxed.
From April 2026, the payrolling of benefits in kind will become mandatory, a move that is set to impact corporate accountants across the country. This regulatory update aims to simplify and digitise the reporting and payment of income tax and Class 1A National Insurance Contributions (NICs) on BIK, eliminating the need for annual P11D forms.
The current system allows employers to either submit P11D forms to report employee benefits for taxation purposes or register to payroll benefits, allowing the benefits to be taxed in real time through PAYE.
However, from April 2026, all benefits, with the exception of employer-provided living accommodation and beneficial loans, will need to be reported and taxed via payroll software. This means that corporate accountants will need to adapt to new processes and ensure their payroll software is equipped to handle these changes.
“The mandating of the payrolling benefits in kind (PBIK) aims to reduce the administration burden for employers and HMRC, and is estimated to remove the need for 4 million P11D(b)s to be submitted each year,” says Rohit Ghai, Assistant Manager at Azets.
For many years, UK employers have been required to report the benefits provided to their employees on an annual basis using Forms P11D. The current process involves submitting these forms to HMRC by July 6 the following the tax year in which the benefits were provided. This has been a time-consuming and paperwork-intensive task for both employers and HMRC, generating millions of returns that often report simple benefits, such as employer-provided medical insurance.
The collection of income tax on these benefits is typically done through an adjustment to the employee’s tax code, creating a time lag between the provision of the benefit and the tax collection.
Recognising the need for modernisation and simplification, HMRC introduced voluntary payrolling of benefits-in-kind (PBIK) in 2016. This voluntary scheme allowed employers to report certain benefits in real-time through their payroll systems, eliminating the need for Forms P11D. However, Class 1A NICs still needed to be reported separately using Form P11D(b).
The success of this voluntary scheme paved the way for the government’s decision to make payrolling of benefits mandatory from April 2026.
The mandatory payrolling of benefits-in-kind is expected to bring several advantages to both employers and HMRC.
First, it will reduce administrative burdens by eliminating the need for employers to complete and submit Forms P11D and P11D(b), saving businesses significant time and effort.
Second, digitalizing the reporting and payment process through payroll software will increase accuracy and minimize errors, reducing the risk of penalties and fines.
Additionally, payrolling benefits-in-kind will enable real-time reporting, allowing tax liabilities to be more accurately reflected throughout the year for better financial planning and forecasting.
Finally, the new reporting process promises a more simplified and efficient approach to managing employee benefits that will make it easier for businesses to stay compliant with tax regulations by integrating reporting into existing payroll systems.
This regulatory update will have significant implications for corporate accountants. “If you are an employer and you are not already payrolling benefits, you will need to prepare for these changes before April 2026,” says Matthew Grief from Moore.
Here are some steps you can take to ensure a smooth transition:
Stay Informed: Keep yourself updated with the latest developments and guidance from HMRC regarding the mandatory payrolling of benefits-in-kind. Stay connected with professional organizations and attend relevant webinars or seminars to gain insights from industry experts.
Evaluate Current Systems: Evaluate your clients’ current payroll systems and processes to determine their readiness for the upcoming changes. Identify any potential gaps or areas for improvement and work with your clients to address them in a timely manner.
Engage with Clients: Reach out to your clients and explain the implications of the mandatory payrolling of benefits-in-kind. Discuss the benefits of implementing this reporting method and help them understand the steps they need to take to comply with the new regulations.
Review Employee Benefit Policies: Review your clients’ employee benefit policies and identify any benefits that are currently excluded from the voluntary payrolling scheme. Assess the potential impact of including these benefits in the mandatory payrolling regime and recommend adjustments, if necessary.
Update Payroll Systems: Ensure that your clients’ payroll systems are capable of handling the mandatory payrolling of benefits-in-kind. Work with software providers or IT departments to implement any necessary updates or modifications to accommodate the new reporting requirements.
Training and Education: Provide training and education to your clients’ payroll teams to ensure they understand the changes and can effectively manage the reporting process. This will help minimize errors and ensure compliance with the new regulations.
Monitor HMRC Guidance: Keep a close eye on any guidance or updates provided by HMRC regarding the mandatory payrolling of benefits-in-kind. Stay proactive in adapting your clients’ processes and systems to align with any new requirements or recommendations.
While the changes may seem daunting, they represent a significant step towards modernising and simplifying the tax administration framework. Corporate accountants should view this as an opportunity to streamline their processes and reduce administrative burdens.
By preparing early, evaluating current systems, engaging with clients, and staying updated with HMRC guidance, you can ensure a seamless transition and help your clients navigate the new reporting requirements with ease.
