Mandatory Payrolling of Benefits from April 2026

The reporting of benefits in kind (BiK) has transformed over the past few years.  Gone are the days of paper based P11Ds, having been replaced by online reporting and the option of ‘payrolling’ BiKs through payroll systems.

On 16 January 2024, the government announced a package of measures to support its ambition to simplify and modernise the tax system, using the efficiencies of digital service to drive public sector productivity and to make the tax system simpler and fairer.

One of the measures announced was that the government will mandate the reporting and paying of Income Tax and Class 1A National Insurance Contributions (NICs) on benefits in kind, via payroll software from April 2026.

How it currently works

Currently, employers have two ways of reporting their BiKs:

  1. To report via P11D submission to HMRC, annually, before the deadline of 6 July following the tax year in which the employee received the benefit. Payment of Class 1A employer national insurance contributions (NICs) must be paid before 22 July (if paying electronically).  Using the information reported on the P11D, the employee pays the associated income tax through self-assessment, or it is collected by way of an adjustment to the employee’s tax code in the tax year after the benefits or expenses are received.

  1. To payroll benefits, allowing benefits to be reported in real time through pay as you earn (PAYE), meaning no mid-year changes to tax codes as tax is deducted throughout the year. Class 1A employer NICs still need to be reported on P11D(b) by 6 July after the end of the tax year.

One of the drawbacks of the traditional, or legacy, P11D submission is that an employee could wait over a year before seeing any tax related benefits they’re receiving being deducted from their pay.  Any change to an employee’s tax code being made so long after the benefit has been received often causes confusion.

Conversely, the payrolling of benefits allows for the tax on BiKs to be collected in real-time via the employee’s pay, reducing the confusion for the employee, however the system is currently not fool-proof and currently employer-provided living accommodation, and interest free/low interest (beneficial) loans cannot be payrolled.

What should employers consider now?

  • Less flexibility – employers will no longer have the option to payroll only certain BiKs or employees, with all benefits requiring to be reported.  This could have a direct cashflow impact on the employee.
  • Data management – employers will need to be able to easily access the reportable monthly data so they can provide it to the payroll department ahead of payroll processing cut-off dates. 
  • Increased PAYE risk – compulsory reporting of benefits increases the risk of monthly non-compliance and tax driven penalties.
  • Employee impact – the employee might experience a cashflow impact in 2026/27 when the mandatory payrolling of BiKs and PAYE code adjustments for the prior year overlap.
  • Employee communication – upcoming changes to the BiKs reporting system will need to be communicated to employees.
  • Payroll impact – can your current payroll software/outsources payroll provider cope with the change?  Will there be an increase in fees?
  • Process impact – it has yet to be determined how beneficial loans and employee-related accommodation benefits will be reported.  What will the impact be for leavers, if processed before payroll cut off?

Next steps

HMRC has confirmed that government ministers will not be putting the change out to public consultation, but instead will be liaise with key stakeholders such as the Chartered Institute of Payroll Professionals (CIPP), to discuss the forthcoming change at length, ahead of implementation come April 2026. 

CIPP are seeking to address the following key issues:

  • Ensuring 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 values to be used.
  • Being mindful of the changes required for payroll systems, and the time taken for software companies to implement the changes.
  • Pushing for real-time payments of Class 1A employer NICs, to eliminate the need for the P11D(b).

Let’s Talk

If you would like any further information on the changes and how they might affect you or your business, please do not hesitate to contact your usual Dixcart UK contact or enquire at

The information provided within this document is for general informational purposes only. While every effort has been made to ensure its accuracy, no responsibility can be accepted for inaccuracies. Readers are advised that laws and practices may change over time. This document is provided solely for informational purposes and does not constitute accounting, legal, or tax advice. Professional advice should be sought before making any decisions based on the contents of this document.