26 January 2024

Upcoming deadline

To start payrolling benefits in kind, employers must register with HMRC before the start of the tax year from which they want to begin payrolling.

This is a reminder that you will need to register by the deadline of 5 April 2024 if you wish to payroll benefits for the upcoming 2024/25 tax year, and have not previously registered with HMRC to do so. 

What is ‘payrolling’ a benefit?

When an employee’s taxable benefit (such as private medical insurance or a company car) is payrolled, the taxable value of that benefit for the pay period is added to their taxable pay in the payroll. The income tax due is deducted from their gross pay in real time and paid to HMRC.

Payrolling acts as an alternative to using forms P11D, which are usually filed annually for reporting employee benefits following the end of the tax year.

Three advantages of payrolling benefits

  1. Payrolling benefits is currently voluntary but it will be mandatory from April 2026. Payrolling benefits sooner than April 2026 could help employers get ahead of the curve.
  2. Tax is deducted from the employee’s pay in real time, so it smooths the tax impact on the employee. This is particularly important in the first year of providing the benefit when HMRC will not have included the benefit in the employee’s PAYE code. 
  3. Payrolled benefits do not need to be reported on forms P11D, which reduces the burden of P11D compliance. At the end of the tax year you will have to issue the employee with written details of the benefits. In addition, you will need to submit a form P11D(b) to facilitate payment of any Class 1A National Insurance contribution due.

Payrolling benefits will require changes to current procedures. Consideration should be given to these before registering with HMRC.

Can all benefits be payrolled?

All benefits except beneficial loans and living accommodation can be payrolled. HMRC may adjust the current rules to allow these in the future. 

These benefits cannot currently be payrolled because the method of calculating the value of the benefit is backward-looking, limiting the scope to tax them in real time during the tax year. 

To bring these benefits into payrolling, HMRC will need to allow estimates to be made at the beginning of the tax year. For example, an estimate of a loan balance which can be adjusted at tax year-end.

HMRC will also need to fix the Official Rate of Interest (ORI) for the year ahead at the beginning of the tax year. This is used in the calculation of beneficial loans and living accommodation benefits and can currently be adjusted part-way through the year. 

For more information, please get in touch with Lee Knight, Susan Ball, Steve Sweetlove or your usual RSM contact.