Policy paper

Confirming plans to mandate the reporting of benefits in kind via payroll software from April 2026

Published 30 October 2024

Introduction

At Autumn Budget 2024, the government announced that it will proceed to mandate the reporting of Income Tax and Class 1A National Insurance Contributions (NICs) for most benefits in kind (BiKs) in real time. This will mean that for most BiKs, Income Tax and Class 1A NICs will need to be reported to HMRC via PAYE through Real Time Information (RTI) from April 2026. Employment related loans and accommodation will be mandated to be reported in this way at a later date, however, employers will be given the opportunity to be able to voluntary payroll the BiKs from April 2026.

The reporting process for BiKs will be through the Full Payment Submission (FPS). This is the same process employers currently use to report salary and other employee details to HMRC.  

This change will stop 4 million people from having their Income Tax collected in arrears which means that they will be paying the right tax at the right time. It will make it simpler for employees to understand what they are paying tax on as the information relating to this will be more accurate and clearer to understand. For HMRC it will mean we will no longer receive 4 million end-of-year returns which will ease the pressure on our services.

This change will also improve the customer journey for thousands of employers and HMRC by modernising and simplifying the process of reporting and paying tax on all employment benefits. 

This technical note details how the policy will work when it comes into force in April 2026, including changes to the policy announced by the Chancellor at Autumn Budget. These decisions were made in response to feedback received via informal stakeholder engagement carried out in early 2024.

Who should read this?

This technical note describes the main changes that will apply to the reporting requirements of employment related BiKs from 6 April 2026.  From this date the reporting of most BiKs for Income Tax and Class 1A NICs purposes must be done through payroll software. This note is aimed at employers, payroll professionals, software providers and tax agents to help businesses and stakeholders prepare for the introduction of this change.

This note does not describe the detailed consequential and technical changes that will be required of moving from a retrospective tax collection process to a real-time process for BiKs.  These will be covered in further updates and draft legislation that will be published in 2025 for technical comments.

Mandatory payrolling of BiKs

In January 2024 the government announced that from 6 April 2026 employers will be required to report and pay Income Tax and Class 1A NICs on most BiKs in real-time on the Full Payment Submission. Following the announcement officials met with trusted stakeholder groups such as the Institute of Chartered Accountants in England and Wales (ICAEW), the Chartered Institute of Tax (CIOT), amongst many others, to discuss the government’s plans. They gave us a lot of useful feedback which mainly centred around the potential for increases in employer administrative burdens in relation to reporting all BiKs in real-time.

They also informed us that, due to delays in receiving invoice details of BiKs provided by third parties, real-time reporting would be difficult if invoices are received after the end of the relevant tax year.

As a result of the valuable feedback we have received from stakeholders we have made amendments as to how mandatory payrolling of BiKs will be taken forward. 

The main changes are: 

• the delivery of the work to mandate the real time reporting of and payment of tax on BiKs will be phased in from April 2026 – this will mean that all BiKs, with the exception of employment related loans and accommodation, will be mandated to be reported via payroll from April 2026
• voluntary payrolling will be introduced for employment related loans and accommodation from April 2026. The P11D and P11D(b) process will still be available for those that do not want to payroll these BiKs. The government intends to mandate these BiKs and will set out a timeline in due course
• an end of year process will be introduced to amend the taxable values of any BiKs that cannot be determined during the tax year. However, we expect the taxable values of most BiKs to be reported as accurately as possible during the tax year
• we will continue to monitor the penalty position, from April 2026 to April 2027, whilst customers get used to the new process of reporting BiKs to HMRC. We recognise that there will inevitably be a period of adjustment in the first year

Employment related loans and accommodation

Stakeholders told us that employment related loans and accommodation would still be burdensome to payroll even with amendments made to the calculation process to determine the taxable value of these BiKs.

For this reason, forms P11D and P11D(b) for Income Tax and Class 1A NICs respectively will remain available to those who do not wish to use the voluntary payrolling option to report these BiKs. These forms will not be available to report any other BiKs.

Employers who are able to payroll these BiKs will need to register to payroll them in a similar way to how they would register to voluntarily payroll BiKs currently. A timeline for mandatory payrolling of these BiKs will be set out in due course.

Payrolling the cash equivalent value for a BiK

Employers will need to divide the cash equivalent of the BIKs they will be providing across the number of relevant pay periods for each employee. The resulting figure can then be reported alongside employee earnings in each pay period so that Income Tax due on the benefit is deducted from the employee’s pay on their payslip.

If a change to the cash equivalent occurs in year, the employer must work out the revised taxable amount to payroll for the remaining pay periods for that tax year.

End of year process

For all payrolled BiKs, employers must ensure that reported taxable values for BiKs are as accurate as possible. Any corrections must be made during the year as soon as information about the taxable value of a BiK is known. If a discrepancy is found in-year, the employer must rectify their payrolled figures using the remaining Full Payment Submissions for the tax year.

An end of year process will be introduced to amend the taxable values of BiKs that cannot be determined during the tax year. We will provide further details on what corrections will be in and out of scope and how they should be reflected in any end of year update process in due course.  

Reporting requirements

We are expecting to require more data to be reported than is currently required through the voluntary system, both to reflect the introduction of Class 1A NICs on BiKs reporting in the payroll system and to provide a more granular breakdown of the BiKs being reported through payroll.

This policy will:

• enable a more accurate assessment of tax liability
• support compliance activity with a substantially larger population reporting BiKs through payroll
• enable employers to better communicate with their employees, about their total remuneration package

We will publish technical specifications for software developers and providers during mid to late 2025 which will detail precisely which additional data items will be added to RTI.

Other customer groups

We are still developing solutions to ensure that mandatory payrolling of BiKs works for certain specific parts of the population such as globally mobile employees. We will provide updates on this as plans are being developed.

The legislation and processes that are currently in place to exempt digitally excluded customers from reporting through RTI will apply as it does now. This will mean that whilst they will need to continue reporting and paying tax on the benefits they provide, they will not be required to report them in real time using payroll software.

We will aim to provide initial communications to third party developers in June 2025.  This will enable employers, agents and our other customers to help us shape these products and to prepare for the changes in time for April 2026.

What to do if you have questions or concerns

Further updates and draft legislation will be published in 2025 for technical comments.

We are very grateful to all the stakeholders that took part in our informal feedback sessions and hope we can continue to work with affected stakeholders to ensure that mandating the payrolling of BiKs delivers benefits for our customers as well as HMRC.

If you have any queries or comments about any of the points raised in this Technical Note, then please email policyemploymentbenefitsexpenses@hmrc.gov.uk

During the development of this policy, we will not be able to respond to emails directly. Instead, we will use those comments when considering future updates to the Technical Note and other releases. This will help ensure that the same information is made available to all interested parties at the same time. 

Customers with questions about their own tax affairs should contact HMRC in the usual way.