Global Employer Services News

United Kingdom - The end of P11Ds – or is it?

As part of an effort to simplify and modernise the tax system, the UK’s HMRC on 16 January 2024 announced their intention to mandate the reporting and paying of benefits in kind via payroll software from April 2026.

The two-year warning is much better than the few months’ notice HMRC provided in 2023 on the cessation of paper filing of P11Ds, so that at least is welcome, but there are still many unanswered questions.

HMRC confirmed that they will work with ‘industry experts’ to produce guidance. The Payroll governing bodies should be high on this list of experts, as their job is about to get even more complicated.

Although HMRC have hinted at this move for several years, there remains some benefits in kind that currently cannot be payrolled because of their complexity, including accommodations and beneficial loans. Whether these will have to be payrolled from 2026, and just how that can be achieved in practice, remains to be seen.
There are other practical areas that need clarification, including the following:
  • Under current UK tax law, employers cannot deduct more than 50% tax from employees’ salaries. What do employers do when this blocks full payrolling for an employee?
  • What happens to the current requirement that employers must notify HMRC of the Class 1A liability on employee benefits - the P11D(b)?
  • Will HMRC be able to change its systems to ensure that the tax code of everyone who currently has a BIK restriction is updated correctly for 2026/27?
Although the proposed changes are two years away, and the employer year-end filing season for 2023/24 is approaching fast, employers may wish to start considering now how they will move to payrolling of benefits and the steps needed to get there by 2026.

Michael Hepburn 
BDO in United Kingdom