The HM Revenue and Customs (HMRC) has issued a tax simplification update, affirming the mandatory implementation of payrolling benefits starting 6 April 2026. Presently, employers can choose between submitting P11D forms to report employee benefits for tax purposes or opting for benefit payrolling, which facilitates real-time taxation through PAYE.

As of now, all benefits, except employer-provided living accommodation and interest-free or low-interest (beneficial) loans, can be included in payrolling. However, further clarification is needed on the tax treatment of these specific benefits considering the upcoming changes.

Despite the shift to payrolling benefits, the submission of P11D(b) remains a requirement to report the liability of Class 1A National Insurance contributions (NICs). Even when benefits are taxed through payroll, the HMRC update clarifies that the reporting and payment of Class 1A NICs will also transition to processing via payroll software.

This initiative aims to streamline and digitise the reporting and taxation of employment benefits, alleviating administrative complexities for numerous employers and HMRC. By implementing this measure, the requirement for submitting 4 million end-of-year returns to HMRC will be eliminated.

HMRC intends to collaborate with stakeholders to seek input on our proposals, guiding the design and delivery decisions. The draft legislation, a standard part of the tax legislation process, will be published later in the year. Additionally, HMRC will partner with industry experts, including Johnston Carmichael, to create informative guidance, which will be accessible well before the year 2026.

If you would like to consider moving to benefit payrolling earlier than 2026, please do not hesitate to contact me or your usual contact.