From April 2026, payrolling of benefits will become mandatory. This will significantly change the way that employee benefits are reported and taxed in the UK. So, what do employers need to know?
Under the new rules, all UK employers must payroll benefits-in-kind (BIKs) instead of submitting P11D forms each year.
The taxable value of benefits will be reported via payroll on a real-time basis. This includes things like gym memberships, company cars and private medical insurance.
This new legislation is designed to streamline the taxation process, reduce administrative burden, and offer employees more immediate clarity on their tax liabilities. However, the transition comes with a number of challenges for employers and so preparation will be key.
Changes to reporting benefits – The impact on UK employers
- Increased administrative responsibility: As a result of the changes, employers will need to ensure that all benefits are accurately accounted for within payroll, in each pay period, and that any updates are made on time. In addition, existing systems and processes may need to be adjusted to ensure compliance.
- System overhauls: Businesses currently relying on manual P11D reporting, or outdated payroll software may need to upgrade their systems ahead of the changes. Ensuring the correct tax treatment of each benefit will require more precision and attention to detail.
- Employee communication: The changes could have significant consequences for employees take home pay, particularly in the first year of operation, and so open and transparent communication with employees is going to be essential.
Is it time to outsource your payroll?
For many businesses, outsourcing their payroll function can make this transition much more straightforward. Here’s how:
- Expert compliance: We are well-versed in legislative changes, and can keep you compliant without the need for in-house expertise.
- Advanced systems: Payroll providers often use the latest software, equipped to handle the payrolling of benefits efficiently. This reduces the likelihood of errors and ensures the right benefits are taxed correctly, avoiding costly penalties and unnecessary headaches.
- Keeping employees informed: Employers can benefit from expert advice on how to communicate legislative changes to employees.
- Focus on core operations: Outsourcing enables employers to focus on core business activities, instead of navigating complex tax changes.
The upcoming changes to payrolling benefits in 2026 will require employers to make significant adjustments their payroll processes.
Outsourcing payroll to specialists can help companies to remain compliant, reduce administrative burden, and make the transition easier.
Preparing early will be key to ensuring a seamless switch to this new way of reporting benefits.
Payrolling benefits: support from payroll professionals GH Payscheme
To talk to our dedicated team of payroll professionals about payrolling benefits in kind, how it might impact you and how you can begin to prepare, email payroll@ghpayscheme.com, or speak to your usual George Hay adviser.
With business tax specialists under the same roof, we can also help you to understand the tax implications of your existing benefits package.
