Now is the time to get your business in shape for the changes to benefits in kind ahead of the phased 2027 deadline.
HMRC have announced the delay of benefit in kind and has said it will now be phased. employers will be required to report taxable benefits in kind and pay Class 1A National Insurance Contributions (NIC) through payroll rather than annual P11D forms.
What are the changes that are coming to benefits in kind?
From April 2027, taxable benefits will be reported to HMRC in real time and will be paid via payroll, which is typically referred to as ‘payrolling of benefits’,
This will be done by the full payment submission submitted to HMRC following each pay period.
Employers will have to work out what the yearly value of the benefit is and divide it by the number of pay periods in that year. This amount is then taxed each pay period.
If there are any changes to the benefit amount throughout the year the amount can be adjusted.
With limited exceptions the P11D and P11D(b) will no longer be required.
What are taxable benefits in kind?
A benefit in kind is a benefit that is paid to an employee which is not paid to them in cash.
These benefits can be a cost effective way of incentivising and rewarding employees which can be tailored to the need and priorities of your workforce.
Common benefits in kind include private health insurance, company cars, company phones and gifts that come to a value of over £50.
The employees then pay tax on any benefits in kind that they receive.
What employers need to do to prepare for mandatory payrolling?
Employers need to start planning now for the introduction of mandatory payrolling.
They will first need to ensure their current payroll software meets the functional requirements which allows them to payroll benefits.
Employers may want to consider if they wish to update their overall benefits package before the changes are implemented.
This will give employers time to ensure benefit packages are current so they can update payroll accordingly.
You may want to consider briefing your employees on the changes. They should be advised to check their PAYE code to make sure they can make any adjustments to ensure they aren’t taxed on the same benefit twice.
It is also advisory to make them aware of the potential impact this may have on their net income.
All benefit data throughout the year must be accurate and available with ample time before the changes to payroll come about so it can be processes in due time.
Any errors that are made when reporting could result in potential penalties and may have a direct impact on employee’s net pay.
How can we help?
Changes to payroll can cause headaches for in house payroll teams. Processing changes on software that doesn’t meet functional requirements can be impossible.
Our payroll team has up to date software which will manage your payroll without giving you a headache.
Get in touch today for more information on our payroll services.
