Mandatory payrolling signals the end of the P11D
On 16th January 2024 the UK Government published a policy paper announcing its intention to mandate the reporting and paying of Income Tax and Class 1A National Insurance Contributions on expenses and benefits exclusively via payroll software from 2026.
Recent P11D changes...
Last year the paper version of the P11D form was consigned to the waste paper basket of history, in a move that continued HMRC’s progression to fully digitising the tax system. This meant that the reporting of taxable expenses and benefits moved fully online, where employers or agents can use the Government Gateway or third-party software. Employers can choose to submit the P11D at the end of the tax year or payroll the real-time information through PAYE.
The P11D is complex and requires employers to give precise details of all the taxable benefits provided to employees. This includes things such as company cars, private healthcare and the transfer or use of an asset – items which can also be declared through the payroll.
There are some benefits that cannot be payrolled as they depend upon variable interest rates, such as preferential loans and the cost of living accommodation. At the moment, this fact is one of the few remaining obstacles to full digitisation. However, HMRC has confirmed that the electronic P11D will be phased out and that all taxable expenses and benefits must be declared using the PAYE system.
When will the changes come into effect?
It is the Government’s intention that these changes come into effect no later than April 2026. It will remove the requirement for up to 4 million P11D returns to be submitted at the end of each tax year.
The Government hopes that the changes will simplify the tax affairs of millions of people, whilst reducing the administrative burden on employers and the necessity to contact HMRC for advice and clarification.
What do you need to do?
The transition to mandatory payrolling will require some adjustments and businesses still submitting P11Ds will need to start planning ahead in order to be prepared. You should keep up to date with announcements and guidance from HMRC, make an inventory of current benefits and expenses paid and rate their importance in value. Other considerations will include updating systems, software and maybe even contracts.
HMRC will be consulting with the payroll industry to discuss the probable obstacles and potential solutions.
As the UK Government and tax authorities continue to pursue the objectives of full digitisation and tax simplification, the days of the P11D appear to be firmly in the past.
The best way to keep abreast of any changes in the world of Payroll is to attend our very popular course: The Payroll Update. Also keep a look out for a brand new course later this year, which will be available as soon as more guidance is released - promising to guide you through what you need to do to prepare for April 2026.