The Benefits of Payrolling Benefits

With the HMRC announcing the mandating of reporting and paying of Income Tax and Class 1A National Insurance Contributions on benefits in kind via payroll software by April 2026 – what does this mean for your current processes and procedures?

Payrolling benefits can be seen as a strategic approach that organisations can (and will have to) adopt to streamline their payroll processes. So what are the advantages for both employers and employees in the UK?

Efficiency for Employers:

One of the primary benefits of payrolling in the UK lies in its ability to simplify administrative tasks associated with payroll management. By incorporating benefits directly into the payroll system, employers can streamline processes, reducing the burden of managing separate systems for payroll and benefits. This integrated approach not only enhances efficiency but also ensures compliance with ever-evolving tax regulations and reporting requirements, and the best bit, eliminating the requirement to complete P11D’s.

Efficiency for Employees:

For employees, payrolling benefits bring tax advantages. When benefits are included in the payroll, employees are not required to pay tax on these benefits through self-assessment. This not only eases the tax filing process for individuals but also contributes to a more transparent and predictable income stream by reporting benefits and charges in real time.

Broad Range of Benefits:

Payrolling benefits in the UK encompass a wide array of offerings, ranging from healthcare and pension contributions to company cars and gym memberships. This flexibility allows employers to tailor their benefit packages to meet the diverse needs and preferences of their workforce. By offering a comprehensive suite of benefits, organisations can enhance employee satisfaction, attract top talent, and foster a positive work environment.

Company Cars and Commuting:

The most common Benefit in Kind is likely the company car. Employers provide employees with company cars, and the associated costs can be incorporated into the payroll system.

So what do the HMRC say about payrolling benefits:

• You will not need to use form P11D
• You must still work out the Class 1A National Insurance contributions on benefits and complete form P11D(b)

You can exclude employees from payrolling once you’re registered, but you’ll need to use form P11D to declare the non-payrolled benefits.

Once the tax year has started you’ll have to payroll the benefits for the whole of the tax year, or until you stop providing them.

Next Steps:

Check with your payroll software provider to ensure your software can collect the correct tax due on benefits directly from your employees pay.

With the deadline looming why not get ahead of the game?? You can register with the HMRC to start payrolling benefits now, from April 2024 for the 2024/25 tax year.

https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-through-your-payroll

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