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Essential Insights to Benefits in Kind and Payroll Software Considerations

February 1, 2024

HMRC has revealed that starting April 2026, it will be obligatory for employers to report and remit income tax along with Class 1A National Insurance Contributions (NIC) on benefits in kind through payroll. Here, we outline the key points employers should keep in mind and why payroll software should be considered for the move forward.

Where do we currently stand with Benefits in Kind?

The standard procedure dictates that taxable benefits and expenses are to be reported to HMRC using Forms P11D and P11D(b) by the 6th of July following the tax year’s end.

Based on the information provided in the P11D, employees settle the corresponding income tax either via self-assessment or have HMRC adjust it through their PAYE code. Employers are responsible for remitting the associated Class 1A NIC to HMRC by the 19th of July after the tax year’s end, or by the 22nd of July if done electronically.

Presently, with HMRC’s approval, employers have the option to implement income tax withholding on most benefits through payroll. This method eases the employer’s reporting duties as only benefits ineligible for payroll processing (like accommodation and loans with interest rates below the official rate) necessitate P11D submissions, though employers must still file Form P11D(b).

What alterations are being implemented for Benefits in Kind?

In a move aimed at streamlining and updating the tax system, the Government has opted to enforce the payrolling of benefits in kind starting April 2026. HMRC has verified that they will engage stakeholders in consultations regarding the specifics of mandatory payrolling (reporting and paying via payroll), with draft legislation slated for publication later this year, aligning with the tax legislation cycle.

Additional details are anticipated to be disseminated through Employer Bulletins and various HMRC publications as concrete proposals for mandatory payrolling take shape. Employers can also anticipate receiving guidance ahead of the 2026 deadline.

Factors employers, HR and payroll departments should take into account with Benefit in Kind

While the intention to alleviate employers’ compliance burdens is generally positive, it’s crucial for your business to carefully inspect detailed proposals for the upcoming process shift and begin assessing the potential implications of mandatory payrolling. Here are some key considerations:

1. Reduced Flexibility:

Transitioning from voluntary to mandatory payrolling may result in consequences such as the loss of flexibility to exclude certain benefits or employees. This shift could impact data sourcing for relevant benefits and affect your employees’ cash flow.

2. Data Management:

Effective management of benefits and expense reporting will be critical. Employers must grasp and control real-time data flow and adhere to standard monthly payroll deadlines for processing.

Managing data across multiple systems will require meticulous oversight and stakeholder involvement to ensure compliance.

3. Increased PAYE Risk:

With a rise in income tax administered through PAYE, the potential for tax-related penalties due to compliance errors also increases.

4. Employee Impact:

Detailed examination of the proposals is essential to gauge the impact on employees. Some individuals could face cashflow challenges for the 2026/27 period, particularly when mandatory payrolling overlaps with PAYE code adjustments for previous years or when the taxable values of benefits are uncertain, such

as for internationally mobile employees. It’s up to your business to get on the front foot and ensure an as seamless as possible transition with payrolling and PAYE code adjustments, but starting now.

5. Employee Communication:

Clear communication with all your employees regarding the impending changes is crucial. It’s important, employers like yourself invest time in explaining how the changes will affect your team.

6. Payroll Impact:

Evaluate whether your current payroll software or processes support payrolling benefits and anticipate any associated costs for necessary upgrades from your provider or internally as an organisation. Adequate payroll testing will also be necessary to ensure a smooth transition.

7. Process Impact:

The processing of loans and accommodation benefits via payroll is yet to be determined. However, employers must devise procedures for handling last-minute benefit changes for departing employees before payroll deadlines, especially for benefits with significant tax implications like company cars. Leveraging payroll software can streamline these processes and ensure compliance with the new regulations.

How To Manage a Smooth Transitional Period to Benefits in Kind Via Payroll

HMRC plans to engage extensively with essential partners to discuss this matter before the April 2026 rollout thoroughly. They have affirmed their intention to collaborate with the Chartered Institute of Payroll Professionals (CIPP) and its affiliates to gather insights on the processing of benefits following the adjustments. This acknowledgement underscores the crucial role of payroll professionals in ensuring smooth implementation.

The CIPP PAS (Payroll Assurance Scheme) accreditation is recognised as the gold standard for payroll practices developed with HMRC, following the CIPP assessment. The accreditation showcases dedication to compliance and best payroll practices,  having suitable processes in place for preparing and delivering legislative changes, and being dedicated to life-long learning and development. Miracle is PAS accredited by CIPP meaning we’ll always be on the front foot with all your payroll needs.

The Chartered Institute of Payroll Professions (CIPP) commented, “Eque2 Miracle have again demonstrated high standards, not only within their payroll processes but within their teams.”

How can Miracle help?

 

 

 

Miracle Pay is the leading payroll solution for Microsoft Dynamics and helps hundreds of businesses complete their organisations’ payroll with total ease. This HMRC-approved software captures employee benefits and expense data required for year-end reporting. Simple, efficient and completely hassle-free.

Next step

If you’d like to learn more about the cloud, explore our dedicated page where you can access further information plus a range of online demonstrations to explore the benefits of cloud-based payroll software: https://www.miracle-dynamics.com/miracle-cloud-upgrade/

If you feel like you’re interested in the cloud and ready to learn more, get in touch today!

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