Payrolling benefits is becoming mandatory

The reporting and paying of income tax and Class 1A national insurance contributions on benefits in kind via payroll software is going to be mandatory from April 2026.

What happens currently

Most employers who haven’t entered into a PAYE settlement agreement currently report benefits in kind (BIKs) given to employees on the P11D form. Class 1A national insurance contributions (NIC) are calculated at the end of each tax year.

What’s changing

To simplify and digitise the process, from April 2026 the Government will make it mandatory for income tax and Class 1A NIC on BIKs to be reported and paid via payroll software.

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 benefits of these changes

There are several benefits to both employers and employees. It will:

• reduce the administrative burden for employers.

• remove the need for end of year returns to be submitted.

• simplify the tax affairs of individuals, reducing the need for them to contact HMRC.

HMRC will engage with stakeholders to discuss their proposals, which will inform its design and delivery decisions. Legislation will then be published later in the year. Guidance on the changes will be made available in advance of 2026.

You don’t have to wait until 2026 to take advantage of these changes to the way benefits are payrolled. If you’d like to discuss introducing this system sooner, get in touch with our experts.