Further to our previous updates, this article considers where we are now and what employers need to be thinking about over the coming months.
We are still awaiting the draft legislation, but groundwork has already been put in place through the voluntary payrolling of benefits legislation which has been in place for some years now.
As we approach the start of the 2025/26 tax year, the last traditional year for reporting of benefits in kind on forms P11D, ask yourself the following questions:
- What steps have you taken so far?
For example, have you contacted your benefits or payroll provider to discuss how the information with be collated and passed on, or have you reviewed your benefits provision to assess what approach you intend to take?
- What else do you need to consider?
This is a significant change as taxable benefits in kind will form part of your payroll reporting as opposed to annual returns being submitted to HMRC. Are you ready for payrolling of benefits from April 2026?
- Have you reviewed your systems?
The process surrounding your benefits provision and lines of communication between you and them, internally (for example between Finance and HR), and how this will flow through to payroll?
- What information have you shared with your employees?
The changes will affect your employees as they will be paying tax not only on their salary but the benefits you provide them with. The awareness of this change will need to be explained to your employees.
Where are we now?
Although there are a number of employers who are voluntarily payrolling benefits in kind, the majority are reporting benefits provision through the standard forms P11D via electronically submission to HMRC. However, the 2025/26 tax year will be the last year using form P11D to report all benefits in kind with the exception of beneficial loans and living accommodation. Both benefits will still be reported on forms P11D and P11D(b).
HMRC have stated that under the mandatory arrangement employers can opt to voluntarily report the two exempt benefits through the payroll from the outset.
Generally, for all other benefits, should any errors, including the understatement in the value of benefit in kind values or the failure to report the benefit at all will need to be reported either as part of an amended Full Payment Submission (FPS) or under the end of year process, that HMRC has advised it will put in place, to amend benefit values. Full details are not yet available.
When will we know more?
We expect more information to be announced by HMRC in June 2025 when further details will be released on the consequences and technical changes required for mandatory reporting. Following which HMRC has advised that technical specifications for payroll providers and software developers will be released in mid to late 2025.
What can you do?
You should prepare for the changes and consider the following steps:
- Communicating with your payroll and benefit providers.
- Establish what information you need to gather and when.
- How will information be shared.
- What support and staff communications need to be provided.
As we have mentioned in previous articles it is recommended to prepare for the changes early and not to underestimate the impact of this change.
How HaysMac can help?
Our employment taxes team can help you manage the pre and post implementation processes, including preparing an implementation plan to help ensure each of the steps outlined above are successfully achieved.
We can assist you with comprehensive benefits review, to help you establish your position now and recommend how you can smoothly transition into Mandatory payrolling or benefits.
For further information please contact Joanne Hennessy, Kirsty Rose or any member of the Employment Taxes team on the details below.
