It has recently been announced that payrolling benefits will be mandatory for all employers, who provide benefits to employees, to payroll these benefits from 6 April 2026.
If you wish to get processes in place before they become mandatory and would like to start payrolling benefits for the 2024/25 tax year, action is required by 5 April 2024.
What are payrolling benefits?
Payrolling benefits include the taxable value of the P11D benefits in the PAYE calculation, so the income tax is paid at source, through PAYE and spread throughout the tax year. Adjustments can be made during the year by increasing/decreasing the monthly benefit being payrolled, taking into account what has already been included.
What are the benefits of payrolling?
- The benefit amount is included as taxable pay and the income tax is paid through RTI so the tax is being paid at the right time rather than relying on HMRC issuing the correct PAYE code, which can lead to underpayments/overpayments if the amount is incorrect.
- If car benefits are taxed via payroll, it removes the requirement to complete forms P46(car) to notify HMRC of changes to company cars made in the year.
- Information held is more up to date.
- There would be less queries with PAYE codes as they won’t need adjusting for benefits.
- There is no need to report payrolled benefits on the form P11D, however, there is still a requirement to complete the annual form P11D(b) to calculate and pay the employers Class 1A National Insurance and this would continue to be payable by 19 July, following the end of the tax year.
What benefits can be included?
The majority of benefits can be payrolled, currently the only benefits that can’t be payrolled are accommodation benefits and low or interest-free loans.
How can I register?
Employers need to register before 5 April 2024 to get it in place for 2024/25 and the registration will continue until cancelled.
The registration is completed online through the employer's PAYE account, using the Government Gateway user ID and password.
When registering, the employer selects which specific benefits are being payrolled and which employees will be included – HMRC will automatically change the employee's tax code to remove the relevant benefits.
What are the employer's obligations?
Employers are required to inform the employees of what payrolling the benefits mean for them, explaining the pay adjustment, how the tax will be collected and how it will affect their codes.
Employers will still need to provide statements to employees giving details of the benefits annually.
Any benefits not payrolled need to be reported on forms P11D as usual.
