From April 2026, mandatory payrolling of taxable benefits will change how employers manage and report employee benefits. Currently, payrolling is voluntary, but this upcoming shift will make it a requirement for most benefits. Here’s a breakdown of what the new system will look like and how you can prepare.
What Is Payrolling?
Under payrolling, taxable benefits provided to employees are treated as additional salary. Employers deduct tax on these benefits through the payroll, reducing the employee’s cash pay accordingly.
Currently, employers who choose to payroll benefits can skip the annual P11D reporting for those benefits. However, they must still calculate and report the employer’s Class 1A National Insurance contributions (NIC) on the P11D(b) form.
What’s Changing in April 2026?
From 6 April 2026, payrolling will become mandatory for almost all taxable benefits.
Excluded Benefits
Only two benefits will initially remain outside mandatory payrolling:
- Employment-Related Loans
- Employer-Provided Living Accommodation
- Employers will have the option to voluntarily payroll these benefits starting April 2026 or continue reporting them on P11Ds.
- Eventually, these excluded benefits will also come under mandatory payrolling, but the timeline for this has not yet been confirmed.
- For all other benefits, P11D reporting will no longer be an option from the 2026/27 tax year.
How Will Payrolling Work?
- Taxable Amount Calculation
- Employers must calculate the cash equivalent of each benefit.
- This value is divided by the number of pay periods in the tax year (e.g., 1/12th for monthly payrolls) to determine the taxable amount for each period.
- If the value of the benefit changes mid-year (e.g., an employee switches company cars), employers must recalculate and adjust the taxable amount for the remaining pay periods.
- End-of-Year Adjustments
- Employers are expected to ensure in-year accuracy, but an end-of-year process will be introduced to handle benefits whose taxable values can’t be finalised during the tax year.
- Further details on this process will be provided by HMRC in due course.
Class 1A NIC to Be Collected Through Payroll
From April 2026, employers will also start paying Class 1A NIC on benefits in kind via payroll instead of after the end of the tax year. To facilitate this, the reporting requirements will expand to include more detailed information about each payrolled benefit.
What Should Employers Do Now?
- Understand Your Benefits
- Review the benefits you currently offer to employees and determine how they will be impacted by mandatory payrolling.
- Prepare Your Payroll Systems
- Ensure your payroll software can handle payrolling taxable benefits and the associated NIC calculations.
- Plan for Accurate Reporting
- Put processes in place to monitor and update benefit values in real-time.
- Communicate with Employees
- Inform employees about how payrolling will affect their payslips and take-home pay.
How Can Jon Davies Accountants Help?
Mandatory payrolling is a significant shift for employers, but with the right preparation, it doesn’t have to be overwhelming. At Jon Davies Accountants, we can help you navigate these changes, ensure compliance, and streamline your payroll processes.
💡 Contact Jon and the team today to discuss how we can support your business in adapting to the new payrolling rules.
What’s your biggest question about mandatory payrolling? Let us know—we’re here to help!
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