The deadline for employers to report most taxable benefits through payroll software has been delayed by one year to 6 April 2027, allowing employers to continue using form P11D for an additional year.
Once mandatory reporting is introduced, all benefits, except for employer-provided accommodation and cheap/interest-free loans, will need to be payrolled. The two exceptions can still be reported using form P11D, although the longer-term intention is that they will also come under payroll provision. For 2026/27 Payrolling remains voluntary, and employers must register before 6 April 2026 to payroll employees’ benefits for this year. As is currently the case, it will not be possible to payroll accommodation or cheap/interest-free loans.
When will payrolling benefits become mandatory?
From 2027/28 onwards. Since payrolling will be mandatory, registration will not be necessary. Therefore:
- Registration will be required if an employer wants to voluntarily payroll accommodation or cheap/interest-free loans.
- The P11D process will remain in place for those employers who provide, but do not payroll, accommodation and cheap/interest-free loans.
An end-of-year process will be available to account for the values of any taxable benefits that cannot accurately be determined during the tax year. HMRC will automatically remove benefits from employees’ tax codes in readiness for payrolling from 6 April 2027.
For more information on your tax codes, check out: Importance of Tax Codes: Why You Should Pay Attention
How will business cashflow be impacted?
The move to mandatory payrolling could see employees facing tax deductions for multiple tax years at once. With payroll, tax is deducted in real-time, but employees could have tax collected through their tax code for benefits received in earlier years.
Should an employee face financial difficulty due to multiple tax deductions, they can request that HMRC spread the underpayment over more than one tax year. HMRC has published a technical note providing a detailed overview of the changes from 6 April 2027, available here.
How will P11D reporting be effected?
The change in mandatory payrolling will aims to phase of the more tradirtional use of annual P11D preporting for most benefits. Instead, the system will align tax collections with salary payments.
The final P11D reports will be required for the 2025/6 and 2026/27 tax years.
Do you qualify for P11D exemptions? Common exemptions include business travel/subsistence, phone bills, uniform/tools, trivial benefits under £50, and annual staff parties costing up to £150 per head.
Learn how to complete P11D forms here.
For more information, contact us on 01142 664 432 or email info@smh.group.
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