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payroll slip | accountingweb | HMRC tax simplification: Mandating the payrolling of benefits in kind
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Payrolling of benefits is to become mandatory

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The reporting and paying of income tax and Class 1A national insurance contributions on benefits in kind is to be made mandatory via payroll software from April 2026.

23rd Jan 2024
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Ahead of the policy paper published on 16 January 2024, I received a phone call from one of the heads of the individuals policy directorate team at HMRC, informing me that the government would be mandating the payrolling of benefits in kind (BiK) and expenses from April 2026. 

This big news story came as no surprise to me and my colleagues at The Chartered Institute of Payroll Professionals (CIPP) because of a couple of factors:

How it currently works 

Employers have two options when it comes to reporting their BiKs and taxable expenses – for now

The first option, often referred to as the legacy process, is to report via a P11D submission. This adjusts the employees’ tax codes the tax year after the benefits or expenses were received. This can cause problems with employees’ understanding of why tax codes change mid-tax year, as P11Ds don’t need to be reported to HMRC until 6 July following the tax year end in which the employee received the benefit. This means that an employee could wait over a year before seeing any tax related to benefits they’re receiving being deducted from their pay. P11D(b) submissions share the deadline of 6 July, and employer class 1A National Insurance contributions (NICs) must be paid by 22 July (if paying electronically). 

The second option for employers is to payroll benefits. This method allows the benefits and expenses to be taxed in real time through pay as you earn (PAYE), meaning there’s no mid-year tax code changes (not down to these benefits received anyway), and less confusion caused for employees. This is all promising, until we hit the stumbling block taking shape in the form of employer-provided living accommodation or interest-free and low-interest (beneficial) loans. These two benefits cannot be payrolled, and therefore, any employer providing these benefits must also complete P11Ds, even if they payroll other benefits, for example, company cars. Arguably, another stumbling block is the requirement to report P11D(b) submissions to HMRC, as currently class 1A NICs cannot be payrolled for taxable benefits and expenses. 

If you aren’t currently payrolling benefits but want to do so for the new tax year, you can register to do so up to 5 April 2024. There are guidance pages on gov.uk. 

Key considerations

The main considerations the CIPP will be seeking to address with HMRC teams working on this policy are:

  • ensuring the calculation methods for employer-provided living accommodation and beneficial loans are updated and can be processed via payroll software
  • ensuring working sheets are available for employers and agents to help with calculating the values to be payrolled when using HMRC’s basic PAYE tools 
  • being mindful of the changes needed to payroll systems, and the time taken to make those changes, should there be considerable legislative change required to bring the plans to fruition
  • pushing for real-time payments of class 1A NICs, to eliminate the P11D(b)
  • allowing for student loans to be calculated alongside payrolling – this currently doesn’t happen, and the workaround is for employees to complete a self assessment tax return.

Next steps 

The team at HMRC confirmed ministers have requested this change doesn’t go out to public consultation in the traditional way we’re all accustomed to. Instead, they’ve asked HMRC to liaise with key stakeholders to discuss this at length, ahead of implementation come April 2026. 

HMRC confirmed it will work with the CIPP and its members to seek their views on how benefits will be processed as a result of the changes, recognising that the input of payroll professionals will be key to successful implementation.

The CIPP will be supporting members and the wider profession with further updates in due course and has an online payrolling benefits eLearning course, which can further support those organisations who are payrolling for the first time.

Replies (26)

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By CJaneH
23rd Jan 2024 12:54

These changes seem to assume all businesses are large enough to have a payroll department or at least a full time accounts department. What about all those business's with say 1 to 10 employees?

Thanks (4)
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By FactChecker
23rd Jan 2024 13:21

First, can we please stop using the term 'payrolling' ... the fact that HMRC like it doesn't translate into clarity of understanding by the majority of employers.

More importantly:
* It has been over 6 years since an FPS had a data item for "Value of benefits taxed via the payroll in pay period", but with the caveat that "Completion of this box does not negate the need for completion of a form P11D(b) at the end of the tax year."
* It's been even longer since we were told that the registration 'cut-off' (whereby you need to register for 'benefits payrolling' prior to the beginning of the tax year in which you wish to start doing so) was only an interim measure - as part of the initial transition!

Neither of these are delivering best 'customer service' - let alone demonstrating the 'benefits of going digital'!

Also as CJaneH hints (above), difficulties in implementation are mostly to do with the administrative burden of needing to hold/maintain BiK data in time for each pay period (instead of a wash-up after YE) ... and this is particularly so for SMEs, especially those without in-house Finance/Payroll staff.

Thanks (4)
Replying to FactChecker:
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By FactChecker
23rd Jan 2024 13:23

BTW, can you explain what prevents student loans being calculated alongside the payrolling of BiKs? It's not something I've seen historically causing a problem.

Thanks (2)
Replying to FactChecker:
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By richard thomas
23rd Jan 2024 16:43

Indeed - it is mandatory by reg 42 of the 2009 Student Loan Regs. And as well as outlawing the verb "to payroll", can we add the verb "to mandate" and replace it with the less mealy-mouthed "to make compulsory (on pain of penalty)".

I have to admit that when I saw the headlines that's what I thought it meant, ie to make it compulsory for all employers (except those who read in the bible that they must not) to include the current reg 61A specified benefits in payroll. I had not realised that it meant also extending the scheme to cover the currently non-specified benefits like cheap loans. If that is what the brief statement does mean, it would have been better for it to have explicitly said so.

So what is it about the circumstances of today that makes the decision in 2015 to exclude certain benefits no longer right? Material from 2015 is notably silent about why not all benefits were included in payroll.

I am sceptical about the administrative burden being eased. The 2015 changes advanced the need to calculate the taxable amount of benefits from end of year (on P11D) to beginning of year (or rather before) and add on the need to calculate the amount applying on each payday and dealing with changes in year (such in-year matters are currently confined to the provision of cars, I think). These changes, if that is what they do, will change, not ameliorate, the burdens for the remaining benefits.

One administrative easing is that HMRC will find it much easier to assess penalties.

Thanks (1)
Replying to richard thomas:
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By FactChecker
23rd Jan 2024 17:09

"Material from 2015 is notably silent about why not all benefits were included in payroll" ... indeed formal paperwork from that time has generally 'disappeared'.

But, without bothering to search my archives, I can remember two 'categories' being excluded initially:
- those where the actual figures cannot be known until YE (such as loans);
- cars & vans (because until I plonked a copy of the paper P11D on the desk at a beta-review session with HMRC developers, they hadn't 'realised' there were so many non-value data items required)!

It took quite a few years for them to recover their chutzpah and announce the additional RTI fields required (with so little warning that they had to suddenly make it optional for the first year); whereas, after countless consultations, there is still no definitive solution for the first category.

And, as mentioned above, it was way back in 2015 that I (and others) pointed out to them the most immediately obvious deficiencies ... only being allowed to register for a complete tax year, and not being able to get rid of the P11D(b).
So they've still got some progress to make!

Thanks (3)
Rob Swan
By Rob Swan
23rd Jan 2024 14:04

Excellent and well overdue I think.
Yes, a bit more routine admin. for small businesses - of which I've been one in the past - but nothing that shouldn't help keep the bookkeeping and finanical admin. in good order anyway. If it's too onerous, maybe that's an indication of something more serious amiss.
Surely there's no change for sole traders who don't have payroll and just present the standard two carrier bags of crumpled receipts at year end anyway - at least until full MTD?

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By petestar1969
23rd Jan 2024 14:51

This should be interesting for those clients with a 31 March year end who pay themselves random amounts each month and then a dividend goes in their accounts prepared in the summer......

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By Mallock
23rd Jan 2024 15:13

We do the payroll for nearly 100 clients and we don't payroll any of the benefits in kind. This is because clients often don't tell us they have started a private medical scheme or that the premium has changed or that they have paid someone's professional subscriptions etc etc. We only find out when we prepare the accounts or when we prepare the P11D. For SMEs this is going to be a nightmare. How exactly would we correct something mid year when, say the private medical premium has increased and we didn't find out till 6 months later? The problem with overdrawn Directors Loan accounts is also nearly impossible to correct during the year.
Keeping it simple doesn't seem to be part of HMRC's vocabulary and all the time the admin burden on SMEs becomes suffocating.

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Replying to Mallock:
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By mrshamilton
24th Jan 2024 13:00

Agreed, I did it once with medical benefits and it caused more problems than it solved.

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Ivor Windybottom
By Ivor Windybottom
23rd Jan 2024 16:45

Anyone see any parallels with the MTD farce, where HMRC do not understand the practical processes that business follow day-to-day?

Thanks (9)
Rob Swan
By Rob Swan
24th Jan 2024 05:22

Not a payroll expert. Should obviously withdraw my earlier comment. Ooops :/

Thanks (2)
Ivor Windybottom
By Ivor Windybottom
24th Jan 2024 08:54

Thinking further about this it seems a recipe for disaster to mandate it, but good take-up could be achieved if an incentive was offered. For example, if employer's Class 1A was waived it could encourage many businesses to adopt payrolling.

Payrolling is workable for many, indeed we use it for our staff medical benefits to avoid the P11Ds, but it is the difficult cases that will mess up the system. There needs to be a more gradual and incentivised proposal to employers to allow a phased uptake, before eventually mandating it for all.

At least compulsion will stop all the nonsense around obtaining HMRC permission to payroll benefits.

Thanks (1)
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By Cathy Milligan
24th Jan 2024 12:58

Just to add a bit more confusion to the mix, aren't benefits taxed in the next year's tax code? So if this starts in April 2026, won't the employees be paying the tax on the 2025/26 benefits as well as paying the tax on the 2026/27 benefits at the same time? I can see it's a good idea for simple scenarios for new employees or newly provided benefits, but try and explain the extra tax to the employees...

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Replying to Cathy Milligan:
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By richard thomas
25th Jan 2024 16:54

Benefits for a tax year are (or should be) taxed in that year's code, not the next year's.

There was, and is, no problem with this when the currently payrolled benefits (sorry, FactChecker) begin to be moved to payrolling.

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By Karen whitehead
25th Jan 2024 06:36

What about overdrawn directors loan account s? We won't know about them until we complete the accounts.

Thanks (2)
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By Chris Pittock
25th Jan 2024 16:02

Is it a first step towards employees NIC on BIK?

Thanks (1)
Replying to Chris Pittock:
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By FactChecker
26th Jan 2024 00:10

sssssssh
- it's just possible that they read Aweb (even if they ignore all the constructive criticism)!

Thanks (3)
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By justsotax
19th Feb 2024 09:44

Not sure what all the fuss is about......the Revenue have got this process bang on so far....

What we had:
P11Db
P11D

What we have
register for payroll benefits
reflect benefits in payroll
P11D(b)
'statements' prepared for each employee stating benefit payrolled (think of it as a P11D presented in a different way)

ah yess simplified!

Thanks (1)
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By Nicola Sheath
05th Mar 2024 14:30

Payroll agent here. Are any agents out there payrolling benefits? Is there any way to register clients for payrolling benefits? HMRC have told us there is no facility for agents to register clients and the clients have to log into their own Government gateways and register themselves, which obviously they don't want to do. If this facility is not available does anyone know if it will be prior to the 2026 deadline. Thanks you.

Thanks (1)
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By Nicola Sheath
05th Mar 2024 14:30

Payroll agent here. Are any agents out there payrolling benefits? Is there any way to register clients for payrolling benefits? HMRC have told us there is no facility for agents to register clients and the clients have to log into their own Government gateways and register themselves, which obviously they don't want to do. If this facility is not available does anyone know if it will be prior to the 2026 deadline. Thanks you.

Thanks (0)
Replying to Nicola Sheath:
By coops456
28th Mar 2024 08:32

Good news - I've just read in the March Employer Bulletin that agents will be able to register for 2025-26.
https://www.gov.uk/government/publications/employer-bulletin-march-2024/...

"Expansion of PAYE benefits in kind to authorised agents

From May 2024, agents will be able to register to use the payrolling benefits and expenses online service.

Provided the agent has the correct permission, they can use the payrolling benefits in kind (BiK) service to register or remove benefits and expenses to be payrolled in the next tax year. The benefit and expenses covered include:
mileage and motoring
private medical
relocation expenses

Agents will be able to register ready for payrolling from the start of the 2025 to 2026 tax year."

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Replying to coops456:
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By richard thomas
28th Mar 2024 10:39

Good news when you read the text.

Baffling news if you just read the heading and pass on. I read it as saying that for authorised agents only there will be an extension of the categories of BiK that those agents can be taxed on.

The text is also slightly baffling, to me at least. There are apparently two bits of news:

1. Agents can register to use the payrolling service for 2024-25 from May 24.

2. Agents will be able to register ready for payrolling from 6 April 2025.

I have an idea what is going on here, but does everybody else?

There is a read across to Tom Herbert's article about AI or lack of it in HMRC letters. Someone also needs to check HMRC's publications for their grammaticality and literacy before they are issued.

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Replying to richard thomas:
By coops456
31st Mar 2024 18:56

richard thomas wrote:

1. Agents can register to use the payrolling service for 2024-25 from May 24.

2. Agents will be able to register ready for payrolling from 6 April 2025.

Your 1. is incorrect. Agents can register from May 2024, in order to start payrolling benefits in 2025-26.

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By K81
11th Mar 2024 14:50

I have two director only payrolls where payroll was set up just to declare the company car each year - no remuneration taken. how am i going to go about "payrolling" these cars?

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Replying to K81:
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By monksview
26th Mar 2024 16:24

Similarly I had to set up a payroll just for the loan benefit. Gonna be a nightmare if they don't get it set up in a sensible way. (I know, the chances of that are probably zero)

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Replying to monksview:
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By richard thomas
31st Mar 2024 20:23

Sorry - I misread your post, thinking it was referring to this in the EB:

"Payrolling the Income Tax due on benefits in kind is currently available to employers on a voluntary basis, with those who do not wish to payroll still able to file form P11D at the end of the year. Class 1A National Insurance contributions cannot currently be payrolled so a P11D(b) form still needs to be submitted at the end of the year. In light of the recent announcement HMRC encourages anyone who is able to begin payrolling voluntarily to do so in preparation. **Agents will also be able to payroll benefits on behalf of employers from the end of April 2024.**"

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