Compulsory payrolling of benefits in kind delayed

The government has delayed the introduction of mandatory payrolling and reporting of benefits in kind via PAYE leaving P11D intact

This means that companies will not have to file benefits in kind through payroll software until April 2027, giving nearly two years’ grace to businesses.

In addition, there will be no penalties during year one of operation, except for gross abuse of the system.

The original plan was to mandate the reporting requirements from 2026, which would have increased costs for businesses to comply with updated payroll software and invest in new systems where they did not use them.

Employers will now have until 1 April 2027 to prepare for mandatory reporting of income tax and Class 1A National Insurance contributions (NICs) on benefits in kind via payroll software, known as mandatory payrolling.

This will reduce the burden on businesses by giving them more time to prepare for changes.

Confirmation of the delay was made by Treasury minister, James Murray, who said in a written statement: ‘As recommended by the Administrative Burdens Advisory Board (ABAB), the Institute of Chartered Accountants of England and Wales (ICAEW) and the Employment and Payroll Group, the government has announced a delay to the introduction of mandatory payrolling.’

‘HMRC will continue to engage on design and delivery issues to ensure minimum disruption to employers,’ Murray added.

The move has been welcomed by tax advisers and payroll professionals as there was a general consensus that the change was being rushed through without full understanding of the implications and costs for business.

BDO national head of employment tax Caroline Harwood said: ‘While it is increasingly common for HMRC’s automation and reporting projects to be delayed, it will come as welcome news to employers that they can carry on using P11Ds for another year should they wish to.

‘HMRC have no doubt listened to the warnings from employers and advisers and sought to avoid the administrative headache that introducing a new in-year system in such a short timescale would have caused.

‘It is also heartening that HMRC have published a sensible timeline of steps it will be taking to implement mandatory payrolling from April 2027. Though employers are likely relieved to have some time to catch their breath, the effort taken to move to real time reporting of benefits in kind should not be underestimated.’

While the delay to the rollout is a benefit for businesses, the soft touch penalty approach has also been welcomed.

Emma Rawson, ATT director of public policy, said: ‘Mandatory payrolling of benefits will have a big impact on employers, employees and software providers.

‘Inevitably, mistakes will happen while employers get up to speed with the new requirements. We welcome the announcement that penalties will not be charged for errors in the first year of mandatory payrolling of benefits unless there is evidence of deliberate non-compliance.’

But Rawson warned there was no further clarity on whether payroll reporting on employer provided loans and living accommodation would be introduced at the same time. This had originally been delayed by a year to 2027 due to its complexity. In line with the current timetable it would seem logical to push this out to 2028, but this has not been confirmed.

‘We would encourage the government to use this additional time to look at how the taxation of employer provided living accommodation could be updated and simplified to better facilitate payrolling.’

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