Death of the P11d? Mandatory payrolling of benefits from 2026

From April 2026, the government will mandate the reporting and payment of Income Tax and Class 1A National Insurance Contributions (NICs) on benefits in kind via payroll software.

Why are HMRC mandating?

HMRC is implementing this change as part of its wider plans to fully digitalise the tax system and aims to simplify/modernise the tax affairs of 3 million people and reduce the need for them to contact HMRC.

The Government believes this measure will reduce administrative burdens for thousands of employers and HMRC by simplifying and digitising the reporting process and paying tax on all employment benefits. It will remove the need for 4 million P11d end-of-year returns to be submitted to HMRC.

HMRC will be working with industry bodies to produce guidance which will be made available to employers in advance of 6 April 2026.  

Key considerations for employers

As an employer, you will need to:

• Check whether your current payroll software meets the functionality requirements to allow you to payroll benefits or ensure that they have this development in hand.
• Consider educating your employees on the changes. The employees will need to be made aware of the potential impact the reporting may have on their net income and whether this may cause cash flow issues.
• Be aware that all benefit data throughout the year must be accurate, reliable, and available in ample time for the payroll reporting so it can be processed. Errors when reporting could result in potential penalties and/or have a direct impact on the net pay of your employees.

Why should you payroll benefit?

• It removes the need for you to complete P11Ds on behalf of your employees. Not only does payrolling the benefits in kind save time, but it also reduces the risk of making any manual errors, unlike P11Ds.
• Employees pay the tax on the benefit during the tax year in which they receive it.
• You can plan regarding which benefits you wish to process in this way.
• The benefit’s value is visible in the employees’ taxable gross figure on their payslips.

How do I register?

To payroll benefits, you need to register with HMRC before the start of the next tax year with details of the benefits you wish to payroll.

To use this method for the 2025/26 tax year, you’ll therefore need to register online before 6 April 2025.  

Once the tax year has started, you can only deregister at the end of the tax year.

Use the link below to register:

Payrolling: tax employees’ benefits and expenses through your payroll – GOV.UK (www.gov.uk)

An air of caution needs to be applied before registering as some software programs currently may not calculate the tax and national insurance contributions correctly.  If you do consider payrolling benefits earlier, we would strongly recommend manually checking the calculations to ensure that the tax and national insurance has been correctly applied.

Since 2016, employers have had the option to voluntarily payroll most employee benefits, provided they register with HMRC before the start of the tax year in which they plan to start payrolling the benefits. 

Where benefits are paid, they do not need to be reported on a P11D at the end of the year. However, the employer is still currently required to file a P11D(b) to calculate and pay any Class 1A National Insurance due (this will not apply from April 2026).

Employers that currently provide their employees with benefits in kind, but do not report through payroll, may want to consider transitioning over before it becomes mandatory in April 2026. 

As detailed guidance has not been issued yet we are unsure if all benefit in kind will be included in the mandatory reporting requirement or if mainstream items only will be included, such as medical insurance, car and van benefits.   

If you need any help with your payroll processing or preparing for P11d changes, our Payroll team would be happy to help. Get in touch via payroll@lambert-chapman.co.uk or call us on 01376 326266.