The government announced on 16 January 2024 that they intend to mandate the payrolling of benefits-in-kind from April 2026. While the government will further consult on these changes before implementation, this is a significant development in this area. Employers not already payrolling benefits will now need to familiarise themselves with the process, explore the advantages of payrolling benefits, and prepare for these changes before April 2026. 

Here, we broadly answer the most common questions about payrolling benefits. 

What is payrolling benefits? 
Payrolling benefits is a mechanism whereby the employer processes the cash equivalent of a taxable benefit through the payroll. 

Currently, the most common benefit provided to employees is private medical insurance. However, payrolling benefits can be applied to other benefits such as company cars, gym memberships, dental plans, etc. With the exception of living accommodation and loans, payrolling benefits can be applied to most benefits.  

Why payroll employee benefits? 
The key benefits of payrolling benefits can be summarised as follows: 

• Employers are not required to include payrolled benefits on a form P11D or P46(Car). The P11D year-end benefit reporting process can be administratively burdensome for employers and confusing for employees in equal measure. 
• Once registered, HMRC automatically identifies the employees with payrolled benefits and removes the benefits from their tax codes. Employees’ tax codes are therefore often simpler and pay-as-you-earn (PAYE) deductions more accurate.  
• Employers have fewer related administrative obligations when benefits are payrolled, potentially resulting in reduced professional fees or internal administrative work. 
• The payrolling of benefits is usually simpler for employees, which can result in HR teams receiving fewer P11D and payroll queries. 
• Where the benefit is withdrawn, this is immediately reflected in the employee’s monthly salary. 

While no P11D form is required where benefits are payrolled, the employer still needs to submit a P11D(b) form by 6 July after the end of the tax year. The P11D(b) is required to report the employer’s Class 1A national insurance contributions (NICs) due on the payrolled benefits. The employer’s liability is subsequently due to be paid by 22 July.
 
How does payrolling benefits work? 
The employer calculates the amount of the taxable benefit provided and divides that amount equally between the number of months in the tax year. The monthly amount will be treated as a notional payment, subject to tax only. 

For example, if an employee is paid monthly and the employer intends to payroll a benefit with a value of £1,500, an amount of £125 (£1,500/12 is put through payroll each month and taxed accordingly. 

Employers can decide which benefits to payroll and for which employee. Not all benefits have to be payrolled. 

Is it possible to payroll benefit before April 2026 and how do you register and what is the deadline? 
Payrolling benefits in kind is currently an option available to all employers, and many employers have payrolled benefits for several years. 

Where an employer has decided to payroll their benefits, they need to register online with HMRC using their Government Gateway and access PAYE online services.  

To operate payrolling benefits, registration must be made before the start of the relevant tax year (i.e. before 6 April 2024).   

How can Moore Kingston Smith help? 
At Moore Kingston Smith, our team of specialists are experienced in helping employers meet their tax and NIC obligations regarding employment taxes.  
If you would like to discuss any of the above or are already payrolling benefits and would like independent confirmation that you are operating it correctly, please contact us.