HMRC have announced that the implementation of mandatory payrolling of benefits has been delayed until 2027.
Whilst this delay is welcome it provides employers with more time to review how they are going to implement the payrolling of benefits legislation. Employers must make the most of the opportunities provided as a result of the extension and work closely with their benefits and payroll providers. The changes which need to be introduced should not be underestimated.
Along with this announcement HMRC also released a technical note which needs to be carefully considered by employers, benefit and payroll providers as well as software developers
What is included in the technical note
The technical note provides a timeline for implementing the mandatory basis, including the proposed date for the publication of the draft legislation and guidance for consultation which is intended to be published in autumn 2025.
Some of the specific areas mentioned in HMRC’s publication include the following:
- The FPS submissions for RTI will be amended to allow full reporting of benefiting kind values and taxable expenses. These values will determine the amounts that will be subject to income tax and Class 1A NI in the relevant pay period.
- HMRC expects reasonable estimates of the benefit in kind values to be reported.
- The employer will be required to adjust any value where this has previously been understated during the year.
- HMRC has confirmed that penalties and interest will not be charged for the 2027/28 for any inaccuracies. However, late filing penalties will still apply.
- Interest and penalties will be applied from 2028/29.
- There is no requirement to register for the mandatory payrolling of benefits, registration is required if employers wish to voluntarily payroll benefits prior to the 2027/28 tax year.
- Mandatory payrolling of benefits will not apply to beneficial loans or taxable living accommodations.
- Once the mandatory payrolling of benefits comes into effect if an employer wants to payroll the benefit in kind due on beneficial loans and taxable living accommodation, this can be done on a voluntary basis. This can be done via a separate registration service which is expected to open from November 2026.
- The impact of mandatory payrolling and the maximum amount of tax which can be deducted from an employee’s salary. Currently, this is limited to 50% of their earnings and there has been a concern as to how the 50% limit will be maintained under the payrolling of benefits legislation. The note states the 50% limit will continue to apply and any benefit values that cannot be included in the pay period should be carried forward to future pay periods in the same tax year.
- HMRC will then carry out a reconciliation via the P800 process or Simple Assessment at the end of each tax year.
- HMRC have confirmed that the forms P11D and P11DB will be retained for a temporary period for the reporting of beneficial loans (including DLAs) and the provision of living accommodation.
- The use of both forms will continue for reporting the benefits provided to globally mobile employees whose reporting falls under one of the specific arrangements the employer will have in place with HMRC.
- There will be no mandatory requirement on detailing how the benefit in kind should be reported on employee payslips and do not need to be specifically identified on the payslip.
- Employers will need to furnish employees with an annual statement of the benefits provided by 1 June following the end of each tax year.
What does this mean for you?
Whilst HMRC have acknowledged the technical changes and its expectation of what should be reported it does not take account of the implications for each employer and what this means for their staff. Further guidance will be introduced towards the end of 2025 which may provide more details of what HMRC expect but does not address what each employer will need to do to meet these expectations.
What do you need to do?
You need to focus on the three Cs:-
Collaboration – talking to your payroll and benefits providers now to discuss your needs and what information will need to be exchanged.
Communication – talking to your employees to make them aware of the change and letting them know what it means for them.
Collating the data – putting the processes in place internally and externally to exchange the details that you need to make your benefit reporting as accurate as possible.
How can we help?
- Our employment taxes team can help you manage the pre and post implementation processes, including the following:
- Preparing an implementation plan to help ensure the mandatory basis is implemented as smoothly and successfully.
- We can assist you with comprehensive benefits review, to help you establish your position now and recommend and changes that you may need to make.
- Consider the benefits that you are providing now and whether that needs to change.
- Providing bespoke documents to support you in communicating with your employees.
For further information please contact Jo Hennessy, Kirsty Rose or any member of the Employment Tax team.
