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Mandatory Payrolling on Benefits In Kind

Employers will be required to Payroll Benefits In Kind from April 2026

As part of its wider plans to digitalise the tax system, HM Revenue and Customs (HMRC) has announced that from April 2026, the reporting and paying of income tax and class 1A national insurance contributions on any Benefits In Kind (such as company cars or fuel benefits) is to be mandatory via payroll software.

What are the benefits of payrolling Benefits In Kind (BIK)?

Payrolling BIK will lessen the administrative burden for many employers by eliminating the requirements to file P11Ds and P11D(b)s. Around 4 million P11D returns and forms P11D(b) are currently filed annually.

Instead, the taxable BIKs will be calculated for the year and the monthly amount (ie one twelfth of the annual amount) will be added to the employee’s monthly payslips, with tax deducted accordingly.

The tax year ending 5 April 2026 (2025/26) will be the last year employers will be required to file P11Ds and P11D(b)s.

Considerations for employers

HMRC has confirmed that it will engage with stakeholders to discuss their proposals, and that draft legislation will be published later in the year. Guidance will be made available in advance of 2026.

In the meantime, as an employer, you should;

1. Discuss these changes with your employees. Employees who receive BIK should be made aware of the potential impact that these changes may have on their net income.

2. Check whether your current payroll software meets the functionality requirements to allow you to payroll BIK.

3. Consider developing new processes to ensure that all relevant benefit data is available in ample time for the payroll reporting to be processed in a timely fashion.

4. Review your overall benefit offerings before the changes are brought in to ensure that your available BIK is up to date.

The payrolling of benefits and the associated advantages to employers don’t have to wait until 2026. If you’d like to discuss introducing this system sooner, please contact us.