Payrolling benefits in kind – get ahead of the changes

As businesses across the UK prepare for the upcoming changes to employee benefits reporting, now is the perfect time to take proactive steps to future-proof your processes and start payrolling benefits in kind.

HMRC have announced that from April 2026, reporting and paying income tax and Class 1A National Insurance Contributions (NIC) on benefits in kind through payroll will become mandatory.

While this may seem like a big change for some, the advantages of seeing assistance acting early make it an opportunity rather than a challenge.

What does it mean to payroll benefits?

Payrolling benefits is a method of reporting taxable employee benefits, such as company cars, private medical insurance, and gym memberships, through your payroll system.

Instead of submitting these annually via a P11D form, the taxable value of the benefits are processed through monthly payroll, allowing employees to pay the tax in real-time rather than through an adjustment in their tax code the following year.

Upcoming changes to payrolling benefits in kind for 2026

From April 2026, all businesses will be required to payroll their employees’ benefits as part of the government’s efforts to streamline reporting and improve tax transparency. This change is designed to simplify the process for both employers and employees, but it also requires businesses to adapt their payroll systems to ensure compliance

Draft legislation will be published later in 2025 with further information expected through Employer Bulletins and other HMRC publications as specific proposals for mandatory payrolling develop. Employer guidance is also expected prior to 2026.

Advantages of payrolling employee benefits

1. Simplified administration

• Payrolling benefits in kind removes the need to file P11D forms at the end of the tax year, significantly reducing the administrative burden on businesses. All benefit tax is calculated and collected monthly, ensuring a smoother, more predictable process.

2. Improved employee experience

• Employees can see the tax impact of their benefits in real-time on their payslips, avoiding surprises or confusion from underpaid taxes later. This transparency fosters trust and makes it easier for employees to manage their finances.

3. Efficient tax handling

• By payrolling benefits, businesses ensure that taxes are calculated accurately throughout the year, reducing the risk of errors or delays that can occur with annual reporting.

4. Enhanced cash flow management

• For both employers and employees, spreading the cost of benefit-related taxes over the year can ease cash flow pressures.

How easy is it to make the switch?

Switching to payrolling benefits in kind is straightforward, especially if you work with an experienced payroll team. With RMT Accountants, we handle the transition for you, ensuring your payroll system is updated and compliant with HMRC guidelines.

Our outsourced payroll services take the stress out of managing employee benefits, allowing you to focus on running your business.

Key steps include:

• Registering with HMRC to payroll benefits.
• Updating payroll software to include taxable benefits.
• Communicating changes to employees to ensure they understand the new process.

Why you should act now

Although the mandatory deadline is April 2026, waiting until the last minute could create unnecessary challenges. By implementing payrolling now, you’ll avoid the inevitable rush closer to the deadline, giving your business time to adapt smoothly.

If you want to make the switch sooner, you must register by the end of this tax year, before 5^th April 2025.  If you do, you’ll start enjoying the administrative and financial benefits immediately. Plus, it ensures your employees are comfortable with the changes well ahead of time.

Let RMT Accountants help

Our expert payroll team is here to guide you every step of the way. With years of experience helping businesses across the North East, we can manage the entire process for you—from registration with HMRC to employee communication.

Contact us today to discuss how payrolling benefits can work for your business and to get started as soon as possible. Email advice@r-m-t.co.uk or call us on 0191 256 9500 to future-proof your payroll!