Revolutionising Payroll Compliance

Beginning in April 2026, the government has introduced a significant change mandating the inclusion of employer-provided benefits in payroll processing. This entails the obligatory reporting and payment of income tax and class 1A National Insurance Contributions (NIC) on benefits-in-kind (BIK) through payroll software.

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HMRC’s recent announcement underscores the requirement to process class 1A NIC on BIK and include it in payroll systems. The primary objective is to modernize and digitize the reporting and taxation procedures for all employment benefits. This initiative aims to simplify the process by eliminating the need for four million P11D returns and forms P11D(b), thereby reducing administrative burdens.

While the suggestion to incorporate beneficial loans and employer-provided accommodation in the payroll system has been previously discussed, challenges associated with payrolling BIK have been highlighted. Although this shift eliminates the necessity for employers to submit P11D forms for specific BIK, the reporting and payment of class 1A NIC must still be carried out separately using form P11D(b). The inclusion of class 1A NIC in payroll software is seen as a potential administrative advantage, but uncertainties persist regarding the alteration of the due date for paying class 1A NIC.

Currently, some employers choose to include certain benefits in their payroll system, while others are left out for easier calculation on a pay period basis. Anticipated draft legislation is expected to be revealed later this year. However, given the implementation date set for April 2026, HMRC faces a tight timeline to develop and test a comprehensive software specification.

 

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