In a significant move to modernise the payroll tax system, the government has confirmed that starting April 2026, employers will be required to report and pay income tax and Class 1A National Insurance Contributions (NICs) on most benefits in kind (BiKs) through payroll.
This mandate, announced following the recent Budget, aims to simplify tax and national insurance payments, ensuring employees are taxed more accurately and in real-time.
Currently, benefits such as company cars and private medical insurance are reported annually to HMRC using Forms P11D and P11D(b). However, with the new requirement, these benefits will be reported via payroll software, aligning tax deductions with the actual value of benefits received by employees. This change is expected to reduce administrative burdens for employers and prevent errors that could lead to unexpected tax liabilities or refund delays.
Tracy Gill, Payroll Manager at Whitley Stimpson Accountants and Business Advisors, emphasises the importance of early preparation for employers:
“If you provide taxable benefits to your employees, transitioning to payrolling these benefits is essential. While awareness is key at this stage, employers should start considering the implications on their systems and processes, including data management, increased PAYE risk, employee impact, communication, payroll software support, and process impact.”
Whitley Stimpson, with its dedicated payroll team, is ready to assist businesses in navigating these changes. The firm supports a wide range of payroll clients, from small businesses to larger enterprises, and is committed to improving efficiencies and suggesting system upgrades to limit payroll costs.
The government has also announced that employment-related loans and accommodation will be included in this mandate at a later date, with voluntary payroll options available from April 2026.
The reporting process will utilise Full Payment Submission (FPS), the same system currently used for reporting salaries to HMRC.
This initiative is expected to prevent four million people from having their Income Tax collected in arrears, ensuring they pay the right tax at the right time. For HMRC, it will eliminate the need for four million end-of-year returns, easing service pressures and improving the customer journey for thousands of employers.
As the April 2026 deadline approaches, employers are encouraged to seek expert advice and support to ensure a smooth transition to this new payrolling mandate. If your business requires help with its payroll process, contact our payroll team.