Forthcoming Changes to Reporting of Benefits in Kind (BiKs)
30th May 2024
From 6th April 2026 employers must process Benefits in Kind (BiKs) though payroll rather than the annual submission of P11D/P11D(b) returns.
The new approach is an effort to reduce administrative time for both employers and HMRC through the removal of annual form submissions.
If you are an employer and not already payrolling your employee benefits, you will need to prepare for these changes ahead of the deadline.
An initial phase in January saw a reduction in Class 1 NIC rates for employees and this will shortly be followed by further changes for the self-employed.
The cuts are a government step to reduce the gap in NIC rates between employees and the self-employed, while also continuing the Chancellor’s programme of changes to stimulate and recover the economy.
Read our article to understand what this could mean for you and your contributions in the 2023/2024 tax year and beyond.
WHAT ARE BENEFITS IN KIND?
Benefits in Kind are benefits given by an employer to employees or directors that do not typically form part of their wages. Benefits in Kind can include gym memberships, accommodation expenses, mobile phones, medical insurance or company cars.
HOW ARE BENEFITS IN KIND CURRENTLY REPORTED?
The current approach gives employers two options with which to report taxable benefits and expenses:
- Using forms P11D and P11D(b) by 6th July following the end of the tax year
Using this approach the employer must complete and submit Forms P11D and P11D(b) to HMRC, detailing any benefits provided to employees for that tax year. The associated tax is then calculated and the employee must pay any associated Income Tax related to benefits/expenses through their Self Assessment, or it can be collected by HMRC using an adjustment to their PAYE code. The employer must also pay any associated Class 1A NICs by the 22nd July* following the end of the tax year.
- Through voluntary payrolling of BiKs
Alternatively, in agreement with HMRC, the employer can register to implement voluntary payroll benefits, where the value of any BiKs is included within their pay and associated tax is calculated and collected from the employee’s pay in real time through through payroll. The benefit of this to employers is that reporting requirements are reduced as there is no requirement for P11D forms (unless related to benefits that can’t be payrolled, such as loans and living accommodation expenses). Even with this approach however, Class 1A NICs must still be reported and paid to HMRC by the employer by 22nd July* and P11D(b) Forms must still be submitted.
*19th July when paid by post
WHAT’S CHANGING?
With some 1.1 million claims for tax relief on employee expenses each year using digital or paper forms, HMRC believe the system is more complex and administratively burdensome than it needs to be.
In order to simplify the system the government will mandate the payrolling of BiKs from 6th April 2026 using Benefits in Kind payroll software. The exact details will be rolled out in consultation with stakeholders prior to implementation, as well as Employer Bulletin communications and associated HMRC publications. The move supports the government’s aim to fully digitalise the reporting of BiKs.
It is estimated that this will simplify the reporting of BiKs for some 3 million taxpayers
WHAT TO DO TO PREPARE
As and when guidance is issued, employers should review the details and consider changes that may have to be made to processes and systems. The new system will have a direct impact on the Income Tax burden and any associated penalties for non-compliance so it is important to ensure everything is in place.
For example the data flow journey will need to be considered to copy with real-time reporting of the data, in particular if currently held in multiple systems and/or relying on manual input.
Additionally, current payroll software may not support payrolling benefits and additional investment may have to be made in digital systems.
Employee communications will be key, as this will impact their own reporting requirements and potentially reduce their personal cashflow.
PAYROLL SERVICES
At TTR Barnes we offer a comprehensive payroll service from as little as £3 per month, from small businesses to large SMEs. We offer you the reassurance of your payroll compliance, including NICs and pension matters.
TALK TO US TODAY ABOUT YOUR PAYROLL
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All information correct at time of going to print/live and on the best knowledge and understanding of the author at the time. This article is for general information only and does not constitute financial advice or recommendations for individual circumstances. No responsibility is taken for any actions taken on the base of the information within this article.
