Admin work is not something that people enjoy doing. Moreover, filling out forms for paying taxes on the benefits provided to employees can be quite a hassle. After several years of consulting with accountancy and tax bodies, the government has announced that reporting employee benefits on form P11d will no longer be required. The date of change is April 2026.
Did you know that the government is working on simplifying our tax system? They aim to make it easier for us to navigate and understand the tax process. This announcement concerning P11d goes towards that overall effort.
From April the government and HMRC want us to process employee benefits via the payroll.
You can already payroll benefits. But even if an employer payrolls benefits like medical insurance, they still need to complete a form P11d(b) to pay Class 1A NIC. That’s why a lot of employers have chosen to continue to submit form P11d.
Changes announced to P11d’s
We were not particularly surprised by the announcement made last month. The paper version of the tax form was already eliminated at the start of this tax year. This means that if you used to fill out the paper version, you’ll now have to do it online. Alternatively, you can hire an accountant to do it for you.
Currently, there are two ways you can report employee benefits:
- You can complete the online forms using software by 6th
- Or you can payroll the benefits.
Completing the online forms by July means that your employee may receive a revised PAYE Code during the tax year. This can often confuse people especially if there is an underpayment of tax due to the change in benefits.
Payrolling the benefits is a lot more straightforward. You include the benefits as part of the monthly payroll process which means employees pay tax in real time. All well and good but you can’t report any loans (including director’s loan accounts) or living accommodation. Not yet anyway.
Another stumbling block has always been the need to complete a form P11d(b) to pay over the class 1A NIC due to the benefits. These two issues meant a lot of employers have refrained from payrolling benefits.
So how have these two potential problems been addressed so that we can move forward with payrolling all benefits?
HMRC has suggested that Class 1A NIC will be paid via the payroll software removing the need for P11d(b). This means software houses have two years to offer a solution.
There is also going to be a widespread consultation. This would include the accountancy and tax bodies, businesses, and of course software houses. It is not clear at the moment what is going to happen. We just need to wait and see. We are expecting more information later in the year.
What do these changes to P11d mean for you
A start date of April 2026 has been suggested by the government. This does not leave HMRC (who are already resource-poor) to draft changes. They need to draft full specifications for software development and testing before implementation.
It puts all software houses and HMRC’s tools under tremendous pressure as they are expected to deliver Making Tax Digital (MTD) by April 2026.
We’ve experienced delays and stumbling blocks in the past with the government’s attempts to introduce changes to MTD. Two years is not a long time! So there may well be a delay but we can’t be sure.
You may decide to start payrolling benefits sooner than 2026. You can indeed do so as long as you don’t have concerns about the two issues we have already mentioned.
There is also the potential issue of student loans. Student Loan repayments are calculated by referring to the pay subject to NIC. However, we know where employers have payrolled any benefits, HMRC’s systems are calculating the repayments based on the higher figure.
So be aware if you are using the HMRC systems. HMRC is aware of this problem and are trying to resolve it.
How can we help you?
Mandatory payrolling of benefits brings us closer to real-time tax collection, as per the government’s aim. It could be that payroll processing may get a bit complicated.
We have a dedicated team to help you should this change put extra pressure on you. Email or call your normal manager and find out how we can help you. If you are not yet working with us why not have a look at how we work