Changes to Payrolling Benefits and P11D

As part of ongoing efforts to simplify and modernise the tax system, significant changes to the reporting of employee benefits are on the horizon. From April 2026, it will become mandatory for employee benefits, which are currently reported through the P11D form, to be reported through payroll. In our latest blog below by our Tax Assistant, Teigan Risley, we explain what employers will need to do.

What is ‘Payrolling Benefits’?

Payrolling benefits is a process that allows employers to handle the tax on their employees’ benefits as part of their regular payroll activities. By adding the cash equivalent of the benefit to the employee's salary each pay period, employers can streamline tax collection. This approach allows employees to pay the tax on their benefits in real time, reducing the amount of paperwork at the end of the tax year.

As it stands, employers can choose to payroll some or all of the employee benefits they offer, or report through the P11D form.


Why is the P11D process changing to Payrolling Benefits?

This measure is designed to reduce administrative burdens for thousands of employers and HMRC by simplifying and digitising the process of reporting and paying tax on all employment benefits. It will eliminate the need for 4 million end-of-year returns to be submitted to HMRC. From April 2026, when the tax year concludes, you will not need to submit a P11D form for payrolled benefits. Instead of providing your employees with a P11D, you must pay give them written notification explaining what benefits you have payrolled.

However, please note, at this stage we believe a P11D form will still be required by HMRC for any benefits that are not payrolled, such as living accommodation and low-interest loans.

Furthermore, if a Class 1A liability is payable on any benefits you provide, you will still need to submit a P11D(b), even if the benefit is payrolled.


Notify your employees of the P11D to Payrolling Benefits changes

During the first year, your employees will need to know that:

  • Their tax code will change to remove the adjustment for their benefits in kind.
  • You will process the adjusted amount through payroll each month, and they will pay tax on that amount.
  • At the end of the year, you will inform them of the total taxable benefit they have received and what it was for.

Every year thereafter by 1st June after the end of the tax year, you will need to provide a written notification to your employee which can be sent via letter, email, or payslip. The notification must inform your employees that they will not be taxed twice because you have registered to payroll their benefits with HMRC before the start of the new tax year. You should include the following information:

  • Details of the benefits you have payrolled, such as car fuel, including the value, the cash equivalent, and which benefits have been subject to PAYE tax.
  • The amount you have payrolled for optional remuneration.
  • Details of benefits you have not payrolled. limited to the amount invested in the company, and this can provide a layer of protection for your personal assets.


New employees and Payrolling Benefits

For new employees with payrolled benefits that you hire from April 2026, you must explain how the benefit will be taxed. Inform the employee that:

  • Their tax code may be amended to adjust any benefits from previous employments.
  • The new benefit will not be included in their tax code.
  • Any underpaid tax they may be paying through their existing tax code will still be collected by their tax code.


LWA’s Tax and Payroll Services teams are here to help

If you need assistance managing your corporate tax liabilities and payroll duties, our expert team at LWA is here to help. Please feel free to call our Corporate and Personal Tax team or our Payroll Services team on 0161 905 1801 in our South Manchester office or 01925 830 830 in Warrington. You can also contact us by email at receive monthly business updates, advice, and tips, sign up for our newsletter or follow us on social media by clicking the icons at the top right of our website page.


For further details on Payrolling Benefits, you can visit the website here.