Benefits in Kind – Regulatory update

HMRC announced in January that as a measure to simplify and modernise the tax system, Benefits in Kind (BIKs) through Payroll will become mandatory from April 2026. 

What are Benefits in Kind?

BIKs are non-cash benefits provided by employers to employees or directors. Common examples include:

• Company cars
• Medical or dental insurance
• Gym memberships
• Use of company credit cards for non-business-related expenses

What does this mean for businesses?

This regulatory update aims to simplify and digitalise the reporting and payment of income tax and Class 1A National Insurance Contributions (NICs) on BIKs. These will now be reported to HMRC in real time through payroll, eliminating the need for annual reporting via P11D and P11D(b) forms.

It is worth noting that while the Payroll reporting aims to simplify the process, previously excluded benefits such as loans and accommodation are proposed to be included. Therefore, as with any fundamental and complex change employers should get expert advice and guidance to avoid reporting errors.

The changes are expected to bring positives to the reporting process, include:

• Increased transparency to employees of their income and taxes shown directly on their payslip, resulting in fewer queries to HMRC and employers.
• Saving time and reduce the administration burden for employers and HMRC by removing the need for employers to complete and submit Forms P11D and P11D(b).
• A simplified, real-time reporting approach will improve accuracy, reducing the risk of penalties and fines of missing the P11D filing deadline.

However, as with any fundamental change to reporting requirements business owners will need to consider available internal expertise to ensure the correct tax calculations are completed and reported.

Top tips for a smooth transition

• Keep up to date with changes and latest developments.
• Review your current procedures and Employee Benefits policies.
• Update Payroll Systems.
• Get expert advice and support.
• Register online with HMRC to start payrolling benefits.
• Communicate with your employees.

What’s next?

HMRC is engaging with stakeholders on the details of mandatory payrolling of benefits. Draft legislation will be published later this year as part of the usual tax legislation process. HMRC will also work with industry experts to produce guidance, which will be made available in advance of 2026. The Autumn Budget which will take place on Wednesday, 30^th October 2024 so we remain hopeful that we will be able provide additional clarity after this point.

Follow our updates on the Autumn Budget and potential clarity on these proposals via our social channels using the hashtag #AutumnBudget2024.

How can we help?

LB Group has a team of Payroll specialists who can assist you with your reporting obligations and provide timely advice. We offer a wide range of outsourcing and flexible payroll solutions. Our services help employers streamline processes improving efficiency, accuracy and performance to meet pressing deadlines.

If you have any questions about the subject raised in this update or require further details on how we can assist you with your reporting obligations, please email info@lbgroupltd.com or call 01206 867 551, and a member of the team will be pleased to help.

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