Mandatory payrolling of employment benefits from 2026

HMRC have announced that from April 2026, the reporting and payment of income tax and Class 1A National Insurance Contributions (NIC) on benefits in kind will be required to be made through payroll software. This is a significant development and will affect all employers currently using the traditional method of providing benefits in kind separately via the traditional P11D forms.

Why has HMRC decided to make this a requirement?

HMRC is planning to become a digital-first tax authority. However, a deadline of just over two years away is very tight to complete the required software development, testing and implementation – and will also have to deal with concerns over variable benefits in kind such as director loan account balances, etc. which are not fixed for the tax year.

Reducing administrative burden

HMRC has stated that by enforcing the use of payroll software when it comes to the reporting and payment of income tax and Class 1A NIC on benefits in kind will simplify administrative procedures for employers. This is because digitising this process will remove the need for companies to submit separate end-of-year returns.

Challenges to consider

Enforced payrolling of benefits in kind will create some challenges that need to be considered. Firstly, a deadline of just over two years does not leave HMRC or software providers long for software development and testing before implementation. During this period they also need to draft legislation and guidance, which will need to be available in advance of April 2026, for companies to review and ensure of compliance.

Secondly, some companies will need to time to evaluate their current payroll software to ensure that it has the capability to report the payment of income tax and Class 1A NIC on benefits in kind. If not, it may become a challenge for them to implement payroll software that can before the April 2026 deadline.

Conclusion

To conclude, whilst this may reduce the administrative burden for companies and HMRC in the longer term, there will be significant initial challenges for HMRC and companies across the UK to overcome to ensure that they are prepared and ready for this change.

How can we help?

Hawsons has a dedicated team of payroll experts who provide payroll services in Sheffield, Doncaster and Northampton.

At Hawsons our aim is to provide our companies with a friendly and personal payroll service that is accurate and will save your company time and money. We have a team of experienced payroll staff who will liaise with your company to ensure that your payroll is completed by the deadline and is compliant with the ever-increasing HMRC rules and regulations.

Our team provides managed payroll services for a large number of clients, ranging from small businesses with only 1 or 2 employees up to large business with more than 200 employees.