On January 16, 2024, the British government announced a significant change: starting from April 2026, the payrolling of benefits-in-kind will become mandatory. This initiative aims to reduce administrative burdens by fully digitalising the reporting of all employment benefits.
If you haven’t yet embraced payrolling benefits, now is the perfect time to get acquainted with the process. It’s essential to understand the pros and cons, as well as how this shift might impact your business’s finances.
Our blog provides comprehensive guidance on how to register for payrolling benefits: from identifying which types of benefits you can payroll to understanding how to report them and make payments to HMRC.
We’ve got all the information you need to navigate this transition smoothly.
Let’s get started.
What are payrolling benefits?
Payrolling benefits is a method where the taxable value of benefits you provide to your employees is included in their PAYE calculation. This means that income tax on these benefits is paid at source and spread out over the tax year.
What benefits can you payroll?
These are some of the benefits you can payroll:
- Health insurance
- Gym memberships
- Company cars
- Childcare vouchers or subsidies
- Mobile phone allowances
- Private medical insurance
- Meals provided by the employer
What benefits can you not payroll?
- Living accommodation
- Loans
How to register for payrolling benefits
Registering for payrolling benefits is pretty simple. Here’s what you need to do:
First, you need to register with HMRC via the payrolling employees taxable benefits and expenses online service, (this must be done before the start of the tax year).
When registering, you’ll select the benefits to include in payroll. It’s important to note that all employees receiving benefits will have their tax codes adjusted unless you opt out specific employees using the online service.
Keep in mind, this option is available until April 2026.
And if you miss the deadline to register for payrolling benefits
If you don’t register for payrolling benefits by April 5th, you’ll have to wait until the next tax year to include benefits in your payroll.
How to notify your employees
Once you’ve registered to payroll benefits, you need to inform your employees about the process and its impact on them.
You need to notify them by 1 June after the end of each tax year via email, letter, or payslip.
Your notification should also assure them that they won’t be taxed twice because you registered their benefits with HMRC before the new tax year.
What additional information should you include in your written notification?
To ensure all employees are well informed, your written notification should include:
- Detailed information about all payrolled benefits, including descriptions, values, and cash equivalents.
- Confirmation of PAYE tax deductions.
- Amounts payrolled for optional remuneration.
- Details of any benefits not payrolled.
This will provide transparency and help your employees understand their taxable benefits and financial situation better.
What else do your employees need to know?
You need to tell your employees that during the first year, their tax codes will be modified to exclude benefits in kind adjustments.
Each month, the adjusted amount will be processed through payroll, and they will be taxed accordingly.
At the end of the year, you will provide them with a statement detailing the taxable benefits they received throughout the year and the nature of those benefits.
What about if you have new employees
For new employees with payrolled benefits, you need to explain the taxation process.
Tell them that:
- Their tax code may be adjusted for benefits from previous jobs, but new benefits won’t be included.
- Any underpaid tax through their current tax code will still be collected.
How to cancel your registration
Your registration will remain active unless you choose to cancel it.
To do so, you must notify HMRC before the start of the tax year using the online service for payrolling employees’ taxable benefits and expenses.
If the tax year has already started when you change your mind, you must wait until the end of the tax year before you stop payrolling.
FAQs
Where can I access more information about the latest developments in mandatory payrolling?
To stay updated on mandatory payrolling developments and requirements, you can read the Employer Bulletins from HMRC.
These bulletins provide important updates, guidance, and changes related to payrolling benefits, keeping you informed about any new developments or requirements.
Is your current payroll process up to scratch?
If you are looking for a team of experienced payroll experts that can quickly and efficiently manage all your employees’ taxable benefits. Book a personalised demo with our sister-company Cintra.