The Autumn Budget saw the government confirm that from April 2026, payroll for all benefits in kind except accommodation and employment-related loans will be mandatory. Payrolling for these two benefits will be introduced voluntarily from the same date, with the government providing further details in due course.
From April 2026 most BIKs, Income Tax, and Class 1a National Insurance contributions will need to be reported to HMRC through a Full Payment Submission (FPS) using your payroll software.
Payrolling the cash equivalent for a BIK
Employers divide the cash equivalent of the BIKs provided across each employee's pay period. This figure can then be reported along with employee earnings so that income tax due on the benefit can be deducted and displayed on their payslip. The employer must revise this taxable amount should a change to the cash equivalent occur during the year.
End-of-year process
All payrolled BIKs should be reported as accurately as possible, with corrections being made throughout the year as soon as the revised taxable value of the BIK is known. If any discrepancies are found they must be rectified remaining Full Payment Submissions of the tax year.
Reporting more data than now
HMRC will now expect more data to be reported than previously under the voluntary system, reflecting the introduction of Class 1A NICs on BIKs being reported through payroll. HMRC will publish technical specifications for software developers in late 2025 detailing which additional information will need to be added to an RTI.
To conclude
These changes will be upon us sooner than you think. Payroll software will need to be readied so that it can accept and report the new data. But equally, employers will need to look at their processes in the application of BIKs, how they are to be assessed and handled, and have all third parties aligned with these plans for readiness. Although a reduced P11D will continue for loans and accommodation, the P11D is likely to be phased out completely in the not too distant future.
As always, our team at Ellacott Morris are ready to manage this and every other aspect of your accounts. Simply get in touch and let our experts do their thing.
