Payrolling benefits: How should employers prepare for mandatory reporting?
Payrolling Benefits in Kind (PBIK) has existed on a voluntary basis since April 2016 and has enabled the reporting of most employee benefits through payroll Real Time Information (RTI). However, in January 2024, HMRC published its plans to mandate the reporting from April 2026.
Whilst many of the finer details are yet to be published, some additional information was announced in the Autumn Budget of 2024. This included confirmation that the implementation date remains set for April 2026, which means employers who provide taxable benefits to their employees and directors have little over a year to prepare.
As an option to help with preparation, employers who provide employees and directors with reportable benefits, and do not already report these under the voluntary payrolling of benefits, could consider doing so now.
There is still time to register with HMRC to payroll benefits for the forthcoming 2025/26 tax year - the final opportunity before mandatory PBIK is introduced. The deadline to register for 2025/26 is 5 April 2025, although we recommend registering as soon as possible. Electing to voluntary PBIK provides employers with a safety net as any items that are missed or under reported during the year can still be reported on a P11D at the end of the year before the mandatory regime commences.
Just to highlight, employer-provided living accommodation and beneficial loans are currently excluded from voluntary payrolling and will continue to be exempt from the mandatory payroll reporting in April 2026, although businesses can choose to payroll nevertheless.
What are the key issues to consider?
- Communication - Employers should liaise with benefit providers and payroll departments or providers to ensure that there is a plan in place to correctly identify any taxable benefits and the reportable values in a timely manner. Timetables for the provision of information should be agreed between all parties.
- Review management information - Review existing management information to ensure it is accurate, well-maintained data that can be relied upon throughout the year to correctly identify the benefits provided and quantify the value on a weekly or monthly basis.
- Voluntary PBIKs for 2025/26 - Employers who wish to voluntarily payroll benefits in 2025/26 will need to register their intention with HMRC by 5th April 2025. Employers will need to confirm the benefits they wish to payroll and detail any employees or directors who they wish to exclude from PBIK. There is also a requirement to communicate the change to payrolling benefits to employees.
- Employee impact - Employees will pay the tax due on benefits in real time via payroll rather than the retrospective adjustments associated with P11D reporting. This improved visibility over their benefits and tax position allows for early identification of errors. However, the payrolling of benefits represents a significant change which may cause initial confusion for employees who are used to benefits being reported annually or being visible on their payslip. In addition to the written communications required as part of voluntary payrolling, employers could consider providing additional awareness and support sessions.
- PAYE Risk - Reporting and collecting the tax due on benefits via payroll RTI requires the employer to report in real time, reacting quickly to changes in the benefits provided, their cost or movement of employees. If employers fail to withhold the correct amount of tax from employees, they could find themselves exposed to additional liabilities, interest and penalties being sought from them by HMRC.
We are here to help
The Payroll Service team at Azets can help employers by:
- Reviewing the benefits currently provided to ensure all current reporting obligations are being met.
- Advising on the tax treatment of employer-provided benefits – not all benefits are taxable.
- Registering for voluntary payrolling of benefits on behalf of employers.
- Providing the written employee communications required for voluntary payrolling.
- Providing training and support to both employers and their employees.
- Assisting with implementing a process to ensure correct identification and reporting of benefits.
If you have any questions about PBIK, please get in touch with a member of our specialist Employment Tax team or speak to your usual Azets advisor.
The information contained within this insight is for guidance only and does not constitute advice which should be sought before taking any action or inaction.