Mandatory payrolling
It is proposed that the payment of Class 1A National Insurance (NI) will be paid monthly, as opposed to annually by 19 July. The amount of Class 1A NI paid will be calculated based off the value of the benefits reported for that month.
Do you need to do anything now?
Employer registered with HMRC to payroll benefits – No
A number of employers are already processing the cost of providing benefits in kind through the payroll on a voluntary basis. Employers who already voluntarily payroll benefits do not need to take any action.
Not registered with HMRC to payroll benefits – Yes
Employers that wish to operate the voluntary payrolling of benefits before 2026 can only do so by registering with HMRC. Employers must register to do so with HMRC before 5 April 2025 to be effective for the 2025/26 tax year.
How can you prepare?
Whether you are currently registered with HMRC for payrolling of benefits or not, from April 2026 this will be a mandatory requirement and employers will need to plan for how this can be achieved. For example, reviewing how the benefit values are collated, through to producing forms P11D for annual reporting and how this can be amended to report the costs in real time.
This may be one process for medical insurance or company cars but could be a more complex issue for other benefits, such as relocation costs.
Establishing a process now to implement a system would be a good step forward. It may be worthwhile considering starting to payroll benefits in kind before April 2026, which will put you ahead of the game and reduce any issues with, for example, tax codes. This may reduce the impact of the change on your employees.
For further information please contact Jo Hennessy, Employment Tax Senior Manager.