P11D reporting is moving to payroll

In a move to simplify the tax system, HMRC has announced that from April 2026, the reporting and paying of Income Tax and Class 1A National Insurance on most benefits in kind (BiKs) will be mandatory via payroll.

This will effectively eliminate the need for the annual P11D and P11D(b) forms for most employers. While the change is still two years away, businesses should start considering how their payroll systems will need to adapt.

What is payrolling benefits?

Currently, payrolling benefits is a voluntary scheme. It involves calculating the cash equivalent of an employee's benefit (such as a company car or medical insurance) and adding a portion of that value to their taxable pay each month. This means the employee pays the tax due on the benefit in real-time through PAYE, rather than having their tax code adjusted the following year.

The end of the P11D

Under the current system, employers who do not payroll benefits must submit a P11D form for each relevant employee after the end of the tax year. Making payrolling mandatory will remove this annual administrative burden. However, it shifts the responsibility to ensuring that payroll software is correctly configured to handle complex benefit calculations on a monthly basis.

Preparing for the change

Employers should use the lead-up to April 2026 to review their current benefits packages and assess their payroll software's capabilities. Transitioning to voluntary payrolling before it becomes mandatory is highly recommended. It allows the payroll team to familiarise themselves with the process and provides an opportunity to communicate the changes to employees, explaining how it will affect their monthly payslips and tax codes.