Streamlining Employee Benefits Reporting: A Guide to Payrolling Benefits in Kind
Streamlining Employee Benefits Reporting: A Guide to Payrolling Benefits in Kind
Payrolling benefits in kind is revolutionising the way employers handle reporting and taxation for employee benefits. With significant changes on the horizon, understanding how this system works is essential for every employer. Here’s a comprehensive guide to help you navigate the current rules and upcoming changes.
What Is Payrolling Benefits in Kind?
Payrolling benefits in kind involves reporting employee benefits, such as company cars or medical insurance, directly to HMRC through your payroll system. This approach allows employees to pay any income tax due on their benefits throughout the tax year, as their tax codes are adjusted accordingly.
The key advantage? If a benefit has been payrolled, it no longer needs to be included on the traditional P11D form, reducing administrative workload.
Benefits and Exclusions
While payrolling can simplify processes, it is important to note that not all benefits can be payrolled. Here’s what you need to know:
- Eligible Benefits: Most benefits in kind can be payrolled, such as company cars, private medical insurance, and gym memberships.
- Excluded Benefits: Employer-provided living accommodation and beneficial (interest-free or low-interest) loans cannot be payrolled and must still be reported on a P11D form.
Registering for Payrolling
To begin payrolling benefits, employers must register with HMRC before the start of the tax year in which they wish to adopt this system. Early preparation is crucial to ensure compliance and avoid any unnecessary delays.
Filing Requirements: P11D(b) and Class 1A NICs
Even when benefits are payrolled, employers must still:
- Include a summary of all benefits provided on form P11D(b).
- Pay Class 1A National Insurance Contributions (NICs) on the total taxable value of benefits across their workforce.
The deadline for filing the P11D(b) and paying the Class 1A NIC is 6 July following the end of the tax year.
Upcoming Mandatory Changes
To bring further clarity and simplicity, payrolling benefits in kind will become mandatory from 6 April 2026 for all employers and for all benefits, except:
- Beneficial loans
- Employer-provided living accommodation
These excluded benefits can still be included in the payroll voluntarily or reported on a P11D.
Voluntary Early Adoption
Employers eager to streamline their processes can voluntarily adopt payrolling one year early, starting from 6 April 2025, for the 2025/2026 tax year. This early adoption phase allows employers to familiarise themselves with the system ahead of the mandatory transition.
Why Switch to Payrolling?
Payrolling benefits offers multiple advantages:
- Simplified Reporting: Eliminates the need for P11Ds for most benefits.
- Improved Cash Flow for Employees: Spreads tax payments throughout the year, reducing the year-end tax burden.
- Enhanced Accuracy: Reduces discrepancies and potential errors in benefit reporting.
Preparing for the Transition
With mandatory payrolling just around the corner, now is the time to evaluate your processes and ensure readiness. Employers should:
- 1. Assess Current Benefits: Identify which benefits can be payrolled and which will need to remain on P11Ds.
- 2. Register with HMRC: Ensure timely registration to begin payrolling benefits.
- 3. Update Payroll Systems: Work with your payroll provider to ensure systems are equipped for payrolling.
- 4. Communicate with Employees: Keep employees informed about how these changes may affect their tax payments and benefits.
How Our Payroll Team Can Help
Navigating these changes can feel daunting, but our payroll team is here to help. From assessing your current benefits and registering with HMRC to ensuring your payroll systems are ready for the transition, we can guide you every step of the way. By partnering with us, you can focus on running your business while we handle the complexities of payrolling benefits.
The move toward mandatory payrolling of benefits in kind represents a significant step in simplifying the tax process for employers and employees alike. By planning ahead and taking advantage of the voluntary early adoption phase, employers can make the transition smoother and position themselves for success in the new era of benefits reporting.
Ready to make the switch? Contact our payroll team today and ensure your business is prepared for the future of benefits reporting.
