It is no surprise the government is mandating the payrolling of benefits in kind (BIK) and expenses, with paper P11D submissions being abolished in April 2023. However, mandating payrolling of BIKs was introduced by a previous government; will Labour agree and pursue an implementation date of April 2026?
Employers need to communicate with their employees that pay-as-you-earn (PAYE) income tax will be collected on benefits once payrolling is mandated.
Currently, if benefits are reported via a P11D, the employee will pay the tax due on that benefit in kind, the tax year after they received the benefit. This typically looks like a tax code change in approximately September or October time.
In the future, once benefits are payrolled, the employee will pay the tax due on that benefit in kind, at the time they receive the benefit, directly through their payslip. This means there is no confusion caused by recovering tax the year after it was due.
The Chartered Institute of Payroll Professionals (CIPP) recommends employers register to payroll benefits from April 2025, to get ahead of the mandation date. They need to be mindful that they cannot payroll living accommodation and beneficial loans just yet, so would still need to report these two benefits on a P11D in 2025/2026 tax year.
The main considerations the CIPP will be seeking to address with HM Revenue and Customs (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; and working sheets are available for employers and agents to help with calculating the values to be payrolled when using HMRC's basic PAYE tools.
Samantha O’Sullivan is policy and advisory lead at the Chartered Institute of Payroll Professionals (CIPP)
