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Considerations for the mandatory payrolling of benefits in kind
Justine Riccomini MSc FFTA AIPA Chartered MCIPD ChFCIPP, head of tax (employment and devolved taxes), the Institute of Chartered Accountants of Scotland (ICAS), explains some of the important steps employers can take to prepare for the mandatory payrolling of all benefits in kind (BiKs) from April 2026
The clock is ticking Payrolling all BiKs will become mandatory from 6 April 2026, giving employers much to think about and prepare over the coming months. Two years is a very short period in which to: ● create and implement the legislative provisions ● change HM Revenue and Customs’ (HMRC’s) real time information systems ● train staff ● inform all employees and get their buy-in ● successfully submit the first set of returns. The areas that agents will need to discuss with clients can be broken down into main headings as outlined below. All BiKs Currently, the employment taxes legislative provisions within Income Tax (Earnings and Pensions) Act (ITEPA) 2003 don’t facilitate the payrolling of living accommodation benefit and beneficial loans. All other BiKs can be payrolled voluntarily. Many employers do this already, by declaring the class 1A National Insurance contributions (NICs) on the P11D(b) and submitting P11Ds for the living accommodation and beneficial loans separately as part of their tax year filings.
However, many employers still prefer to submit online P11Ds in the traditional way, either by preparing them themselves or asking their agent to do this for them. From 6 April 2026, P11Ds will be abolished, resulting in the mandatory online payrolling of BiKs. ICAS and the CIPP are part of a key stakeholder discussion group on how the transition might work. Most experts around the table have commented that the legislation at Part 3, Chapter 5 of ITEPA 2003 (covering living accommodation) and Part 3, Chapter 7 of ITEPA 2003 (covering loans) needs upgrading to make it fit for the future and easier for employers to work out the taxable value of the BiK. However, HMRC is currently proposing not to change the underlying legislation. This will mean that the burden of performing calculations for BiKs in each pay period will fall on the employer. ICAS and the CIPP have made strong representations to the HMRC policy team, pointing out that the legislation must be changed first to reduce complexity in the years following the mandation. It may be the case that the legislation never gets changed once mandation
comes in, if it isn’t changed beforehand.
Software As all BiKs will need to be processed through payroll software in future, employers will need to ensure their provider is up to speed. Software developers first need to understand the changes being made before they can design and build the necessary programmes and carry out pilots and testing of payroll software changes. Employee cash flow Employers will also have to consider how many BiKs can be processed through any one pay period, which will result in deductions from pay. Note that under the Income Tax (PAYE Regulations) 2003 the amount of tax deducted from a payment of salary cannot exceed 50% (this is known as the ‘overriding limit’). Individual taxpayers who have been in receipt of BiKs in 2025/26 will be starting to pay the tax through their tax code on those BiKs in 2026/27. If 2026/27 BiKs are then payrolled at each pay interval, this will lead to an overlap situation where they’re paying last year’s and this year’s tax simultaneously, until the overlap period ends at the end of the
| Professional in Payroll, Pensions and Reward | June 2024 | Issue 101 50
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