A well-designed compensation and benefits strategy should support and align with an organisation's broader vision, values, and goals. Offering employee benefits can enhance engagement but also carries tax implications that employers must manage effectively.

Understanding Taxable Benefits

Common employee benefits such as Group Private Medical Insurance, Corporate Cash Plans, Group Critical Illness, and Gym Memberships are considered taxable benefits or Benefits-in-Kind (BiK). Employers must report these annually, traditionally through a P11D form submitted to HMRC by July 7.

This process is often cumbersome, creating administrative challenges for employers and confusion for employees. Once submitted, HMRC issues a revised tax code, and employees repay the tax owed the following year. Income Tax is collected in arrears, leading to delayed adjustments in employees’ pay.

The Benefits of Payrolling

Payrolling Benefits offers a more efficient solution. By deducting tax on benefits through regular payroll, employers streamline reporting and eliminate the need for P11D forms. This real-time tax collection simplifies financial management for employees and ensures accurate deductions throughout the year.

HMRC’s Mandatory Changes

Starting April 2026, HMRC will require most BiKs to be reported through payroll software. The tax and Class 1A National Insurance Contributions (NIC) on all BiKs—except for employment-related loans and accommodation—will need to be included in the payroll Full Payment Submissions (FPS) each pay period.

This change will affect approximately 4 million employees, reducing the reliance on tax code changes and enabling real-time tax payments. For employers, the shift means the end of P11Ds and the administrative burdens they bring, especially in cases where bonuses are paid in April or May.

Preparing for the Transition

Employers can voluntarily adopt payrolling from April 2025. Here’s what to keep in mind:

• Registration Deadline: Employers must register before the end of the 2024/25 tax year to begin voluntary payrolling in April 2025.
  
  
• Class 1A NIC Reporting: For the 2025/26 tax year, Class 1A NIC will still need to be reported on a P11D(b) and paid by July 22, 2026.
  
  
• Ongoing P11D Requirements: The standard P11D process will still apply for the 2024/25 tax year and for certain benefits until further notice.
  
  
• Future Changes: From the 2026/27 tax year, an end-of-year process will allow adjustments to taxable BiK values that cannot be determined in real time. However, HMRC expects in-year reporting to be as accurate as possible.
  
  
• Monthly NIC Payments: Starting April 2026, Class 1A NIC liabilities will be paid monthly with the regular payroll PAYE payments.

Taking the Next Steps

Employers should start reviewing their payroll processes now to prepare for these changes. Early adoption of payrolling can ease the transition and reduce administrative burden.

If you need support navigating the complexities of payrolling benefits, or need professional guidance you can learn more about how we can help here - Payrolling Benefits | Black Mountain Blog (blackmountainhr.com)