Employers in Yorkshire have less than 15 months to prepare for compulsory HMRC reporting on payroll expenses and benefits in kind.
“This has the potential to cause administrative headaches for employers – many are unaware this change is coming and so risk being unprepared,” warned Richard Whitelock, Employment Tax Advisory Partner at UK top 10 accountancy and advisor firm Azets in Yorkshire.
“Given the scope for reporting mistakes as both HMRC and businesses get to grips with this new approach, it might be advisable for employers to register to voluntarily payroll benefits from the tax year 2025/26, to iron out any wrinkles before it becomes mandatory from April 2026.
“These changes concern people’s taxable income and affects their net take home pay. So this isn’t something that employers can ignore or put off. Our advice is to plan ahead and be proactive.
“HMRC wants staff taxable benefits and expenses to reported in real time, and have PAYE tax and NIC deducted each pay period (typically usually every month), rather than once a year via a retrospective P11D form.”
Employers currently report any taxable expenses and benefits in kind for employees, such as company cars and private medical insurance, to HMRC every year in a P11D form – which isn’t due for submission until 6th July after the tax year end.
The employer pays Class 1A National Insurance of 13.8%, rising to 15% in 2025/26 on the benefit value, and the employee must declare any such P11D benefits on their personal tax return, which will often result in changes to their PAYE tax code so they pay the correct tax.
Trepidation from businesses about the impending changes was evident in a special Azets webinar on preparing for mandatory payrolling of benefits in kind this month (JANUARY 2025) – nearly 570 employers attended, with more than 50 questions asked by the attendees.
Azets’ webinar poll, with responses from the majority of attendees, showed that nearly half were considering implementation on a voluntary basis from this April, with nearly 36% holding off until mandatory introduction and 14% already voluntarily payrolling their staff benefits.
Asked if they feel prepared for the April 2026 changes, nearly 69% of employers were “reasonably confident” but may need further help and support, with 20% confident they know what to do and just over 11% stating they needed assistance because they were “not at all prepared”.
Richard added: “The key question for employers is whether their payroll software will be user friendly and capable of dealing with real-time reporting in relation to this major change.
“They will need to know in advance about expenses and benefits in kind going through the books, whereas on the current P11D reporting system they can look after the tax year has ended to see what the costs were.
“We would also recommend that employers consider how to best communicate any switch to payrolling benefits to their workforce, and consider what process they need to maintain in respect of benefits calculations etc…
“It may also be worth reviewing your existing workplace benefits to check they remain appropriate and value for money. Azets can assist with this as needed.”
There are two things you cannot payroll voluntarily at the moment, Richard said.
These are beneficial loans, including overdrawn directors’ loans accounts and living accommodation provided to employees – these will remain reportable on a P11D form.
Announcements in the Autumn Budget confirmed that the mandatory payrolling of beneficial loans and living accommodation will be delayed beyond April 2026 but it will be possible to report these benefits on a voluntary basis from April 2026.
All other P11D benefits will be subject to mandatory payrolling.
Azets has three offices in Yorkshire, in Leeds, Bradford and York, where it employs 335 people.
