Mandatory payrolling of benefits from 2026

HM Revenue and Customs (HMRC) has announced that from 6 April 2026 it will become mandatory for employers to payroll benefits in kind provided to their employees. 

HMRC is implementing this change as part of its wider plans to digitalise the tax system, and aims to simplify/modernise the tax reporting process associated with benefits in kind. 

This change will remove the requirement for employers to file P11Ds and P11D(b)s at the end of each tax year. Instead, the employer will be required to report and collect Income Tax and Class 1A National Insurance on the benefits through the payroll in real time.

The tax year ending 5 April 2026 (2025/26) will be the last year employers will be required to file P11Ds and P11D(b)s.

HMRC is yet to announce whether the mandatory reporting extends to benefits which cannot currently be payrolled, such as loans and accommodation benefits. 

HMRC has, however, confirmed that it will engage with stakeholders to discuss the proposal and will publish draft legislation later in the year.

The department will also be working with industry bodies to produce guidance to 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. 


• 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 cashflow 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.


• Consider whether it is time to review your overall benefit offering before the changes are brought in to ensure your benefit package is up to date. 

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

Where benefits are payrolled, 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.

Please refer to our Payrolling of Employee Benefits article for more information on this.

Further information

If you want any further information on payrolling benefits, please contact your normal Bishop Fleming contact or a member of the Employer Solutions team.