The government has for some time sought to simplify the taxation and reporting procedure of all taxes. As it refines its plans to make the payrolling of benefits in kind (BIKs) mandatory from April 2026, we look at the current position and how employers can prepare for the changes.
The current method of reporting BIKs is on a form P11D, which is completed for each individual employee by the employer. A form P11D(b) is also submitted which summarises the total BIKs provided and the Class 1A National Insurance Contributions (NICs) due from the employer. Since the data is based on historical information, there is a delay in the benefit being provided and the tax being paid. Additionally, any changes to the value of benefits are not recorded and taxed until the following form is submitted.
From 6 April 2026, all employers will be required to payroll BIKs, rather than doing it voluntarily as they do now. The forthcoming legislation will seek to streamline the tax reporting process for employees who receive non-cash benefits from their employer. Under the new rules, designed to promote transparency and reduce the administrative burden for employers, employers will have to report the value of benefits provided to employees directly through the payroll, rather than having to submit a separate P11D form at the end of the tax year. This change ensures that employees are taxed on BIKs as they are received, rather than waiting until after the tax year ends.
The new system will apply to all BIKs, except for employer-related loans and accommodation, although these can be reported voluntarily.
Employers can take several steps to prepare for the mandatory payrolling of BIKs starting in April 2026:
1. Review software: Ensure your payroll software is capable of handling real-time reporting of BIKs. This may involve upgrading existing systems or integrating new software.
2. Early adoption: Consider voluntarily payrolling BIKs from April 2025. This will allow you to test and refine your processes before the mandatory rules come into effect.
3. Employee communication: Develop a clear communication plan to inform employees about the changes. This includes explaining how their benefits will be taxed and what it means for their pay.
4. Data management: Review and streamline your data management processes to ensure accurate and timely reporting. This is crucial for handling real-time reporting requirements.
5. Training and guidance: Provide training for your team to ensure they understand the new requirements and processes. Utilise guidance from HMRC and other resources as they become published.
To payroll BIKs, you’ll need to register with HMRC before the start of the next tax year with details of the benefits you wish to payroll. You can do this through your online PAYE account and select each of the benefits you wish to payroll.
To use this method for the 2025/26 tax year, you’ll therefore need to register online before 6 April 2025.
To discuss the changes or to get started with voluntary payrolling of BIKs, please speak to a member of our tax or payroll teams.
