By Annie Makoff MembersAccountants discuss pros and cons of new benefits-in-kind reporting requirements19 Sep 2024 Benefits-in-kind changes are intended to simplify reporting requirements, but they will place demands on financial service providers. Here’s what you should be aware of.The new benefits-in-kind reporting requirements come into effect from April 2026. They require significant changes to payroll processes and systems: from this date, it will be mandatory for benefits-in-kind to be included on payroll, removing the need for annual P11D forms.Examples of benefits-in-kind include:company carsprivate health insurancechildcare vouchersgym membershiptravel expenses.Currently, benefits-in-kind are reported via P11D or P11D(b) forms for tax purposes. The employee receiving taxable benefits either pays relevant income tax through a self-assessment form, or HMRC collects the tax through a tax code adjustment via PAYE. The outstanding Class 1A NIC due to HMRC is then paid by the employer.It’s already possible to payroll certain benefits-in-kind, but there is still a requirement to complete a P11D(b) form.P11Ds can be labour-intensive and time-consuming so it’s hoped the latest regulatory changes, which will scrap P11D forms altogether, will reduce the admin burden.The changes, which aim to simplify income tax reporting, feed into HMRC’s Making Tax Digital drive.Accountants and finance teams will need to make changes to their systems and processes to get ready for the April 2026 start date.We asked accountants, tax and payroll experts for their views.More time, money and resources will be needed to manage reporting requirementsClair Williams, Tax Partner, Azets UKPayrolling of benefits-in-kind will become mandatory from 6 April 2026, meaning that Class 1A NICs and income tax will be collected in real-time via payroll. This removes the requirement for submission of P11Ds and a P11D(b) at the end of the tax year.Employers can register with HMRC for voluntary payrolling of benefits-in-kind before it becomes mandatory. But currently, not all benefits can be payrolled and the Class 1A NICs are not collected throughout the tax year, so there still remains a P11D(b) requirement post-year-end. P11Ds will be required in respect of certain benefits.Under the new requirements, benefits will have to be valued and reported digitally via payroll software during each pay run. This will require new software investment or upgrading existing systems to handle real-time reporting and integration with HMRC’s digital services.More time, money and resources will be needed to track and report benefits and manage the increased reporting requirements to ensure that all relevant benefits are captured accurately. The risk of errors in reporting may increase, leading to potential penalties and fines from HMRC for inaccurate or late submissions, particularly as some benefit-in-kind arrangements are complex and non-standardised.Increased costs relate to software, training, and potentially recruiting additional staff to manage the new processes. Real-time reporting and NIC payments might also impact cash flow management within the organisation.We recommend:Regular monitoring of HMRC announcements and guidelines around P11D changes.Consulting tax and payroll experts.Keeping comprehensive digital records of all employee benefits and expenses including value, period covered and relevant calculations.Verdict: More time, money and resources will be needed to track and report benefits and manage the increased reporting requirements.The change won’t simplify reporting because tax analysis for underlying benefits is still the sameNeil Maslen, Senior Manager, Private Client, HW FisherFinance teams within organisations will need to identify taxable and non-taxable benefits in ‘real time’ so that they can provide this to their payroll team/supplier.However, these changes won’t simplify matters because the tax analysis for the underlying benefits remains unchanged. They could, if anything, result in payroll reporting errors that weren’t there before. Given the short window to analyse the information and seek professional advice where necessary, it will be interesting to see how HMRC applies penalties for inaccuracies. One would hope for a ‘soft touch’ or a ‘soft landing’.We need to ensure that the payroll software in place allows for benefits to be included. Beyond this, it is ensuring that there are processes and policies in place that allow a business to identify taxable benefits as they arise.It may seem straightforward, but if an exempt benefit is structured incorrectly, it can easily become taxable. Significant training may be needed not only on the new systems but also to remove common mistakes, such as treating exempt benefits and personal reimbursements alike.Verdict: The changes won’t simplify things because tax analysis for the underlying benefits remains the same.Employers should assess potential impact of mandatory payrolling on their systems nowKerrie Given, Associate Director, Prime Accountants GroupFrom April 2026, employers will need to report and pay income tax and Class 1A National Insurance Contributions (NIC) on benefits in kind through payroll. Essentially, all benefits that would normally be reported on a P11D will be integrated into the payroll under the new system.Businesses must register for payrolling benefits through HMRC’s online service, and must be completed before the start of the tax year in which they wish to implement payrolling.Employers should start assessing the potential impact of mandatory payrolling on their systems and processes now. This will help ensure a smooth transition to the mandatory payrolling benefits system. Failure to prepare could result in incorrect tax reporting, leading to penalties and interest charges from HMRC. Additionally, employers may face increased administrative burdens in trying to rectify errors retrospectively.The new system will:Reduce administrative burdens for employers.Simplify the tax reporting process by integrating benefit taxation into the regular payroll.Reduce the need for separate P11D submissions.Provide clearer and more immediate tax deductions for both employers and employees, ensuring that employees pay the correct amount of tax on their benefits in real-time.Help HMRC improve compliance and streamline tax collection.Verdict: There are many benefits, but employers should assess the impact of mandatory payrolling on their systems now.The changes will simplify annual reporting, but systems will need updatingVipul Sheth, Chartered Accountant and MD, AdvancetrackThe changes set to be imposed by the incoming Benefits-in-Kind payroll reporting (BIK) in April 2026 shouldn’t be a cause for concern.Accountants may tentatively welcome them first and foremost for their purpose of simplifying annual reporting – reducing the burden of the annual P11D process, streamlining reporting and bringing it into line with monthly payroll. That’s as well as aligning reporting with PAYE, which may help avoid unexpected tax bills at year-end.But it’s also sure to add challenges for certain businesses, not least those with more complex benefits structures, where gathering accurate BIK data from employees and relevant departments before payroll deadlines could risk becoming a frantic process, leading to potential payroll delays or inaccuracies.Businesses and accountants will need to look at making several adjustments:Update payroll systems, ensuring timely information sharing between departments.Invest in staff training.Facilitate coordination between payroll, HR, and other teams to ensure benefits information is communicated accurately and on time each month.Start preparing early by reviewing existing systems and processes, ensuring payroll software is up to date for real-time BIK reporting, and engaging with advisors to ensure a smooth transition. Starting the process now will help businesses avoid any last-minute complications as that deadline approaches.Verdict: The changes will simplify annual reporting, but systems will need updating.Employees with benefits-in-kind face a ‘double tax hit’Jack Dale, Payroll Manager, Kreston ReevesJust as auto-enrolment pension legislation impacted the processing of payroll, benefits-in-kind will present similar challenges. It will be even more necessary to ensure payroll and benefits staff have the necessary skills set to handle these challenges.Employers will need to know the benefit value for each employee in a timely manner to meet payroll cut-offs. Employees expect payslips to be correct and to be paid on time. If mistakes are made, this can affect the employer-employee relationship.In the first year employers make the switch to payroll benefits (compulsorily by 6 April 2026), employees will have a ‘double tax hit’. That’s because they’ll be paying for benefits from the tax year 2025/26 via a tax code change on their last remaining P11D and the ‘on payslip’ calculation on each payslip in the tax year 2026/27. There are additional complications, too:The inclusion of figures within payroll mean that the payroll data needed will be greater.Annual statements for employee benefits will still need to be provided at the tax year-end.P11Ds may still need to be filed for some employees/directors and a P11D(b) for Employer’s National Insurance will need to be calculated, submitted to HMRC and paid.There’s a real need for more clarification so employers can start planning and communicating with staff – especially those who may see a big change on their payslip.Verdict: Employees will be hit with double-tax, so employers need clarification urgently.Would you like to contribute to future articles like this one? If so, please get in touch with Annie Makoff-Clark at [email protected]. Annie Makoff is a freelance journalist and editor.