Putting Benefits-In-Kind Through the Payroll From 2026 – Simples!

Putting Benefits-In-Kind Through the Payroll From 2026 – Simples!

When HMRC talks of payrolling benefits and expenses (‘payrolling’), it refers to putting the taxable value through the payroll when the employee is paid, thereby avoiding declaring items on form P11D. The benefit is removed from the tax code, but a taxable non-payable value is processed in the payroll. It really could not be easier.

 

Example: Payrolling Medical Benefit

The payroll department knows at the start of the tax year that Jane’s single-person medical benefit is £1,200 per annum. On a monthly payroll, this is processed as a notional item of £100 per payday (£1,200/12).

Payrolling has been on a voluntary basis for some time, courtesy of provisions in Finance Act 2015. HMRC made regulations allowing this from tax year 2016/17, extending it in 2017/18. Perhaps, the voluntary take-up was not as great as HMRC envisaged, and a ‘simplification update’ on 16 January 2024 announced voluntary will become mandatory from tax year 2026/27. When HMRC makes something voluntary, it will generally become mandatory one day! But what’s the problem with mandation?

 

An Income Stream?

Many professional firms make an income from P11D completion and expertise, so two points spring to mind:

  1. Final P11Ds will apply for tax year 2025/26, after which time they can be accurately called legacy forms. If this is an income stream for you, this is going; but
  2. P11D specialism knowledge is still required. However, this expertise is required throughout the tax year, not just in the weeks between 6 April and 6 July.

 

Case Study: Jane Marries!

Congratulations, Jane! However, she wants her single cover extended to cover her spouse. This means a change to the taxable benefit and a change to the notional value we are payrolling. For those undertaking payroll work, we cope with changes in payroll. But do we get this information in real time to allow us to accurately process the married cover benefit? If we don’t get it, we will need to get it.

 

Jane Leaves!

Payroll processing means we process final payments all the time (pro-rated salary, holiday pay, etc.). From April 2026, add to the mix the fact we will have to pro-rate taxable benefit changes – and maybe, Jane’s cover extends after the termination date.

 

Anything Else?

I could write a huge list of things that employers and payroll processors need to consider given the mandation from April 2026. However, space only permits me to highlight four:

  1. Class 1A National Insurance contributions will be payable monthly rather than annually. Does this mean cash flow issues – especially in 2026?
  2. What about the benefits we cannot payroll now (accommodation and beneficial loans)? Of course, legislation will allow this in time for April 2026.
  3. Some benefits can be ‘made good’, currently with deadlines after the end of the tax year. Does this mean backdated payroll submissions?
  4. We can only deduct 50% in tax when compared to taxable pay. For an employee, say on statutory sick pay, where payroll cannot collect the tax due on the benefit, does this mean tax code adjustments next year?

 

Primarily, Though

Returning to Jane, taxing a notional value is easy enough – if we get information when we process the payroll. This does not happen now, and we don’t have long to ensure the likes of taxable relocation expenses, medical benefits and company car information are advised as and when the payroll is processed. Payrolling means real-time provision of taxable benefits and expenses, a massive administration hurdle to be jumped. Just imagine if Jane also has a company car and changes it every three months!

 

Practical Tip

We know ‘prior planning prevents poor performance’. Now, change these five ‘Ps’ for payrolling benefits-in-kind and expenses from 2026/27 – preparation, planning, processes and policies. Neglecting any P and we end up with the fifth – palaver!

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