Earlier this year, HMRC announced that payrolling benefits will become mandatory from 6th April 2026, making it essential for businesses to understand how this change affects them.
In today’s competitive job market, offering attractive employee benefits such as private healthcare, life insurance, and income protection can make a big difference in recruiting and retaining top talent. By payrolling these benefits, employers can reduce the administrative burden of completing P11D forms and ensure employees are taxed accurately through their monthly earnings. In this blog, we’ll explore what payrolling benefits entails, the steps you need to take before April 2026, and how adopting this approach sooner can benefit your business.
What is payrolling benefits?
Payrolling benefits means that the tax your employees owe on certain benefits – such as medical insurance, company cars, or life insurance – is collected via their monthly salary through Pay As You Earn (PAYE). This process significantly reduces the administrative burden for employers, especially when it comes to filing annual P11D forms, which report employee benefits.
Since 2016, employers have had the option to voluntarily payroll their employee benefits by registering with HMRC before the start of the tax year in which they intend to begin payrolling the benefits. This approach not only simplifies the administration process, but it also ensures that employees pay the correct amount of tax throughout the year. By doing so, employers can prevent disruptive mid-year tax code changes that may occur due to underpayments from previous years’ benefits.
What’s changing?
In January 2024, HMRC announced that payrolling benefits will become mandatory from April 2026, giving employers time to prepare for the transition. If you’re considering making the switch, it’s wise to act early. By implementing payrolling benefits from April 2025, you’ll not only streamline your processes but also be well-prepared ahead of the mandatory deadline.
Does it apply to all benefits?
It’s important to note that, as it currently stands, not all benefits can be payrolled. For example, employer-provided living accommodation and interest-free or low-interest loans cannot be included in the process. This may change in the future, but for now, you’ll need to continue reporting these benefits separately.
Do you need to inform your employees?
Yes. Once you’ve registered for payrolling benefits, you’re required to provide written notification to all affected employees. This notification should clearly explain which benefits will be payrolled, how they will be taxed, and what impact this may have on their take-home pay. Transparency is key here, it’s important that employees are fully aware of how the change affects them.
What action should employers take?
To start payrolling your benefits, you’ll need to register with HMRC and provide your payroll provider with the annual value of each employee’s benefits. This allows them to calculate the correct tax to deduct from your employees’ monthly salaries. It’s important to start conversations with your payroll provider or agent well before the tax year begins to ensure a smooth transition.
If your payroll is handled internally, the person responsible for payroll will need to take on these tasks. It’s also crucial to check whether your current payroll software supports payrolling benefits, as this functionality is essential for managing the process efficiently.
In addition to preparing for the technical aspects of payrolling benefits, now is an ideal time to review your overall employee benefits package. Ensuring that your benefits are up to date, competitive, and aligned with your employees’ needs will not only help ease the transition but also strengthen employee satisfaction and retention. By updating your offering now, you’ll ensure a smoother switch to payrolling and present a benefits package that truly resonates with your team.
Why act now?
Transitioning to payrolling benefits in April 2025 is a smart move that will streamline your internal processes and ensure you’re well-prepared for the mandatory changes in April 2026. Acting early can save your business time, effort, and potential confusion, allowing for a smoother implementation and reducing administrative burdens before the deadline.
To review your benefit offering, book a benefit consultation with one of our experts. Our customised approach will ensure you get the benefit solutions that align perfectly with your company culture and employee needs.
For further information on payrolling benefits, visit the HMRC website.
The information in this article is intended as a general guide to payrolling benefits and may not cover all individual circumstances. We recommend consulting with a payroll professional or your financial advisor for tailored advice specific to your business.
