Reporting benefits in kind for tax

Overview

With the end of the 2025/26 tax year approaching, employers need to start thinking about their obligations regarding employee benefits in kind reporting.

This article provides an overview of the P11D and PSA obligations as well as the new mandatory payrolling rules set to be introduced from April 2027.

P11D Obligations

Employers must report any taxable benefits in kind provided to their employees on forms P11D and P11D(b). Benefits-in-kind (BIK) include anything of monetary value provided to an employee that is not ‘wholly, exclusively and necessary’ for their job. Typical benefits include, but are not limited to, company cars, medical insurance, beneficial loans, living accommodation and gym memberships.

The key deadlines and requirements for the 2025/26 tax year are as follows:

• Forms P11D and P11D(b) must be submitted to HMRC by 6 July 2026. Employers must also provide employees with a copy of their respective Form P11D by this date.
• Employers must report the amount of Class 1A NICs owed on Form P11D(b). The rate for Class 1A NICs for the 2025/26 tax year is 15%. Payments must be made by 22 July 2026 if paying online, or by 19 July 2026 if paying by cheque.

Failure to complete the above forms correctly (e.g. a mistake or omission) can result in a penalty of up to £3,000 per form. Additional penalties also apply for failure to submit the forms by the 6 July deadline. Furthermore, if there is a Class 1A NIC liability due and it is not paid within 30 days of the 22 July due date, a penalty of 5% will apply, increasing by a further 5% after both six and 12 months, from the due date.

New Mandatory Payrolling Rules

With effect from April 2027, the government will mandate the reporting of most BIKs via payroll software.

Employers will be required to report and pay income tax and Class 1A NICs on most BIKs in real-time through PAYE using real time information (RTI), with the exception of employment-related loans and accommodation, which will be mandated at a later date.

This change will mean that most employers will no longer be required to file P11D or P11D(b) returns for tax years 2027/28 onwards, unless they have one of the excluded benefits identified above (although they may choose to voluntarily payroll these benefits also).

Employers should ensure they are ready for the transition to mandatory payrolling by familiarising themselves with the new requirements and updating their payroll systems accordingly.

Employers could choose to transition to voluntary payrolling for the 2026/27 tax year in readiness for the following year. To do this, employers must register with HMRC before 6 April 2026. Although P11Ds would not need to be filed for this tax year, a P11D(b) to report employer’s NICs due on the benefits would still be required.

Staying compliant when settling the tax on benefits for your employees

A PAYE Settlement Agreement (PSA) allows employers to pay the tax and NICs on certain minor, irregular or impracticable benefits on behalf of employees. The most common benefits an employer may want to settle the tax on behalf of their employees would normally include low value one-off gifts (not covered by the £50 trivial benefits exemption) and staff entertainment.

The key deadlines and requirements for the 2025/26 tax year are as follows:

• A PSA must be agreed with HMRC before 5 July 2026 for the 2025/26 tax year.
• PSA payments for 2025/26 will be due by 19 October 2026 (or 22 October if paying electronically).

Even under the future payrolling regime (see below), PSAs will remain relevant for items unsuitable for payrolling.

If you require any assistance with preparation of your P11D forms, agreeing PSA’s with HMRC, or would like further information on the transition to mandatory payrolling, please get in touch with your usual tax contact.