Back in January 2024, HMRC – of the UK government – announced a series of new measures it intends to bring in to help ‘simplify and modernise the tax system’ of the country. While many of these measures are still in respective consultation phases, a notable part of this package of updates of measures was ‘mandating the payrolling of benefits in kind’ – which it has specified must be via payroll software from April 2026.
Here we’ve taken a closer look at this, considering what it could mean for UK businesses and what steps you may need to take with your firm to get up to speed with these impending regulatory changes.
The changes at a glance
The existing process involves businesses having to report employee benefits annually using Forms P11D. These are submitted manually to HMRC by July 6 of the following tax year said employee benefits were given. Those familiar with the process will be able to confirm this can require a great deal of paperwork, even for typical benefits such as medical insurance.
In simple terms, the changes here will require UK businesses to instead handle this process digitally via payroll software.
The benefits of the changes
As alluded to above, the main benefit of this will be making the overall tax system easier to manage. However, from the official statement by the government, the wider benefits should be felt by both businesses and HMRC in terms of an overall smoother and more time-efficient filing and reporting process:
“Mandation will simplify the tax affairs of 3 million people and reduce the need for them to contact HMRC…This measure will reduce administrative burdens for thousands of employers and HMRC by simplifying and digitising the process of reporting and paying tax on all employment benefits. It will remove the need for 4 million end of year returns to be submitted to HMRC”.
Considerations for the transition
While 2026 may seem like a long enough timeframe in which to manage this transition, there are still many considerations you can have as a business owner, especially if you’ve yet to use any form of payroll software, like PayCaptain..
Here are a few areas you may wish to investigate before the 2026 deadline:
- Payroll software itself
Whether you use payroll software or not, you need to make sure you have something in place that can handle these new tax requirements.
- Your current employee benefit policies
You may need to update your employee benefit policies to legally reflect these new requirements, or at least make it clear which benefits are affected by the new regulations.
- Training for the new tax processes
As with any process digitisation, you may need to provide additional training for your payroll and/or finance teams so they are prepared for the changes and will be in a position to handle them.
- Additional updates from HMRC
As the months go on and the full requirements become clearer, it’s likely that HMRC will release more information about what businesses are required to do to be compliant. So you should do your best to be up-to-date here to avoid missing any important details.
Final thoughts
While this might seem like more admin for you, the way to look at this is that the sooner you can ensure you have what you need in place, the better the position your company will be in for 2026.
However, if you find yourself unsure of all of this, or you feel you need additional guidance on what you need to have in place, the best approach is to seek support from financial experts.
