Changes are coming to the way businesses handle employee benefits.
From April 2026, HMRC will make payrolling of benefits mandatory, replacing the traditional P11D submission process for most employers. This shift means that taxable benefits will be taxed in real-time through PAYE tax deduction, rather than being reported at the end of the tax year.
What is a taxable benefit?
Taxable benefits – also known as benefits-in-kind (BIK) – are extras or expenses provided to employees that aren’t part of their salary but still hold monetary value. Common examples include company cars, private medical insurance, gym memberships, and interest-free loans from employers. Historically, these benefits were reported via a P11D submission at the end of the tax year, and employees would settle any tax due through their tax code adjustments.
Under payrolling of benefits, the tax on these perks will instead be collected through the monthly PAYE tax deduction, meaning employees pay tax on their benefits as they receive them, rather than through a delayed adjustment. This change brings tax collection in line with how salaries and bonuses are already taxed, offering a more predictable approach for both employers and employees.
How does payrolling of benefits work?
Employers who payroll benefits will include the taxable value of these perks in employees’ regular payroll calculations. This means that rather than waiting for a P11D at year-end, employees will see the tax deducted from their wages in real time. The advantage? Less admin for businesses, fewer surprises for employees, and a smoother overall tax process.
To start payrolling benefits, employers need to register with HMRC before the beginning of the tax year in which they want to apply it. Once registered, benefits must be processed correctly in payroll software, ensuring that tax is deducted accurately each pay period. Employers will still need to submit a P11D(b) form annually to report the total Class 1A National Insurance contributions due, but the individual P11D forms will largely be eliminated.
Take a look at the HMRC guide on payrolling expenses and benefits.
What changes in April 2026?
Currently, payrolling benefits is an optional system, but from April 2026, it will become mandatory for most employers. The full details are yet to be finalised, but HMRC’s goal is clear: simplify the way benefits are taxed and reduce the administrative burden of separate year-end reporting.
For employers who have yet to adopt payrolling of benefits, the next two years offer a crucial window to get systems in place, test processes, and ensure payroll software is up to date. Businesses that don’t prepare in advance risk facing compliance issues and potential fines.