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• Valuing benefits - HMRC expect employers to add benefits during the tax year when they arise, and collect across remaining pay periods. Where reasonable estimates are used, a new benefits in kind update process can be used to record any underpayments/overpayments of tax. Whilst this is a welcome easement, it means that employee communications and the reconciliation process will become even more important;
• Employees and directors who receive no employment income - Employers will be required to send details of the benefits in kind and expenses provided using an RTI Full Payment Submission, and to pay the Class 1A NICs due in the same way that applies for employees who receive employment income through payroll. The payroll will need to show no payments of earnings and no tax paid. Any income tax arising will be collected under Self-Assessment; and
• Penalties â€� under an initial ‘light touchâ€� enforcement approach, it is proposed that penalties for inaccuracies will be charged in 2027/28 only in cases of deliberate non-compliance, with the usual penalties effective from 2028/29 for inaccurate reporting (but details of the penalty regime are outstanding). Existing late filing and late payment penalties for RTI returns will still apply in the first year of mandatory payrolling, as will statutory late payment interest.

HMRC’s technical note sets out a new timeline for implementation, including further consultation, which is summarised below:

Employers who adopted PBIKs early on a voluntary basis may need to consider the impact of any changes that arise from the expected consultation exercises on their approach.

As this is a complex change for employers, we recommend employers take this extra time to allow design and delivery issues to be resolved.

ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø in the UK’s employment tax team are working with employers to prepare benefits and payroll processes for real time reporting and are developing technology to support this important change. We welcome the additional 12 months employers have been given to prepare and urge all employers to use the 2024/25 P11D reporting process to establish a project plan for benefit, process and technology change to support a smooth transition in 2027.

Please contact the authors, or your usual ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø in the UK contact, to talk through how we can support your preparations for mandatory payrolling of benefits in kind. You can also  to network with peers and ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø specialists.

For further information please contact:

• Caroline Laffey
• Clare Tomlinson