MANDATORY PAYROLLING OF BENEFITS DELAYED

HMRC has confirmed that the mandatory payrolling of benefits in kind (BIKs) will be delayed to April 2027, giving businesses more time to get to grips with the process

Instead those taxpayers will receive a national insurance credit to secure their access to contributory benefits such as the state pension.

Several of the professional bodies have received reports from their members that Class 2 national insurance is being incorrectly included in SA302 tax calculations for 2024-25. Following submission of their tax return affected taxpayers have received letters from HMRC informing them that their return has been amended in one of three ways. HMRC has either:

• added £179.40 to the computation which should not have been added and needs to be removed;

• added £179.40 to the computation which needs to be removed and wrongly increased the tax liability by double this amount; or

• amended the Class 2 NIC amount to zero, which is in line with the original submission. In this instance no further action is required and the letter can be ignored.

This issue has been reported to HMRC and the department is investigating it as a matter of urgency.

Previously planned for April 2026, the change will require businesses to report and process income tax and Class 1A national insurance contributions on BIKs in real time, rather than declaring them annually via the P11D. Currently most BIKs can be processed via the payroll on a voluntary basis.

To report BIKs via the payroll, the payslip should be populated each pay period with an amount equivalent to what would be shown on the P11D divided by the number of pay periods in a year. For example, on a monthly payroll an annual dental insurance benefit of £3,000 would be declared as £250 per pay period. This should be pro-rated if the employee starts or leaves mid-month or the value of the benefit changes during the year.

Individuals such as non-executive directors who do not receive a salary but do enjoy BIKs will need to be added to the payroll for those BIKs to be taxed.

The P11D will still be available for two specific BIKs which will be excluded from mandatory payrolling: beneficial loans and employer-provided accommodation. However, these will be eligible for voluntary payrolling for the first time from April 2027.

If you outsource your payroll, you will need to send timely and accurate details of all BIKs to the provider. We can help you collate the necessary information in preparation for the change.