COMPLIIANCE
essentially ask for much more granular data on all benefits for all employees, in some way replicating the P11D form. This represents a fundamental change in how data is expected from employers and how it’s provided to HMRC. In addition, this would require a significant change in how data is given to employers from benefits providers, not to mention the lead time and complexity that software implementations would require. Employers who’ve already gone through the trouble of implementing payrolling in the voluntary fashion would need to brace for big changes again, negating the planning and preparation they’ve already carried out. This raises the questions: ‘What’s wrong with the voluntary process?’ and ‘Can this method just be made mandatory with slight modifications?’ This would allow for a simplification of the benefits process. Changes could still be introduced later when everyone has had time to settle into ‘the new normal’. The answer may be that retaining the current process could pose a risk to the Exchequer’s funds, something that Government policy is inflexible on as it needs to preserve its revenue. Another concern with the proposals is the fact that Class 1A National Insurance contributions (NICs) are currently calculated once at an employer level, whereas the proposals create multiple calculation points where rounding would apply. This would be for each benefit, for each employee, and could mean the final total of Class 1A NICs due would be wildly different under the new requirements. This also places an additional burden on employers and software providers. This potentially takes the proposals away from the fundamentals of the National Insurance legislation, which could cause further issues with reconciliation and systems. A final note on mandatory payrolling is the potential for confusion with universal credit (UC). Some individuals on the call noted that clear indications of how certain fields will be used for UC assessment will be critical to ensuring entitlements aren’t impacted. Clarification on some particulars has been sought from the policy team at HMRC. So, what do the pay communities need from the Government? Here are some very high level (and somewhat unfiltered) thoughts on what HMRC needs to consider:
April 2027 (the ‘go live’ date), as employers and payroll teams need a clear and full understanding of how to process before the start of the tax year (think about how we received the statutory neonatal care leave and pay guidance). Engagement The benefits providers are the beginning, not payroll. HMRC needs to engage with stakeholders in the benefit provider space to ensure they can provide correct and timely data to payroll teams, to make the mandating of payrolling benefits a success. Practicalities How payroll teams actually work must be considered. This means all the practicalities and any issues that may arise. Software developers Final guidance or technical specifications for software developers are needed well in advance of the ‘go live’ date – months ideally. Neonatal specifications required a change, but this can’t happen with benefits in kind as more education is required on how to use the systems and transfer to new processes. What it all boils down to is what the data is used for, as with the more granular detail on hours worked scenario. If we’re to get a better understanding of how the data is used and what insights HMRC expects to get from it, then we’ll have a better understanding of whether the request is proportional and necessary. Reporting of hours As previously noted, the central element of this policy involved increased data demands on businesses yet offered little clarity on how that data would ultimately be used. On a more positive note, particularly for payroll professionals, the policy was eventually withdrawn. This is a perfect example of what a collective and consistent voice can do. The CIPP and other stakeholders voiced our concerns and pushed back on plans that would have seen payroll teams lumbered with considerable amounts of additional administrative burden. We asked for clarification as to why the data was needed and, when no satisfactory answer was given, asked for the plans to be put on hold. The lessons are clear, if HMRC or any Government department asks for
additional data or anything that may place extra administrative burden on payroll teams, they must explain clearly why this request is necessary. Pay transparency As a matter of additional business, the upcoming changes to pay gap reporting for disability and ethnicity, and pay transparency in the European Union (EU) were raised. These new areas are bound to stretch the policy and reporting functions of any business. Human resources and payroll teams will need to communicate effectively to satisfy the requirements once they’re introduced. One major area which needs to be considered carefully for pay gap reporting is the quality and quantity of data available in organisations. Employees won’t be legally required to disclose their ethnicity or disability status and so this information can be difficult for employers to obtain accurately and confidentially. If a company doesn’t hold a large enough bank of data, will the results be satisfactory enough to draw conclusions from? For pay transparency, we need to look to the EU, where the EU Pay Transparency Directive stands to completely change the pay and reward markets. It would mean companies: l must disclose pay for roles to applicants and employees l will be banned from asking about previous or current pay l will need to introduce pay gap reporting. While we already have pay gap reporting here, it will be interesting to see if the changes over the channel impact practices within the UK. At their core, these two areas seek to address the same issue – pay inequality. Such initiatives are commendable but can be complex to implement effectively. While they’re beneficial to the wider population, we must be wary that they don’t become box ticking exercises which businesses perform simply to comply. We must ensure they do drive actual change within organisations. n The technical panel intends to next meet later in the year. This will more than likely be following the Budget in the autumn, so that we can discuss any upcoming changes for the payroll industry.
Guidance This needs to be published well before 6
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| Professional in Payroll, Pensions and Reward |
Issue 113 | September 2025
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