Changes to be introduced to P11D Benefit in Kind process

As part of its continuing tax modernisation programme, the Government has announced that from 6 April 2024 it will become mandatory for employers to process benefits in kind through the payroll for income tax and Class 1A National Insurance Contributions (NIC) rather than annually submitting P11D/P11D(b) returns.

Currently, employers who wish to payroll benefits in kind need to register with HMRC before the start of the tax year in which they want to do this. The employer then includes the value of the employees’ benefits in their pay and the tax is calculated through the payroll. Thereafter, the employer is still required to calculate the Class 1A NIC due on the benefits and complete and submit form P11D(b) after the end of the tax year and ensure the Class 1A NIC is paid by 22 July (19 July if paying by post) following the end of the relevant tax year.

For those employers who currently do not payroll benefits, they are required to complete and submit to HMRC forms P11D and P11D(b) detailing the benefits provided to employees in the tax year. From 6 April 2023 these forms must only be submitted online unless the employer is digitally excluded. HMRC then include the value of the benefit in the employee’s tax codes using the information recorded on form P11D.

The proposed new process will seek to reduce the administrative burdens on employers and HMRC, primarily looking at removing the need to submit P11D returns to HMRC each year. It is yet to be seen whether the suggested reduction of burden will favour HMRC more than employers. For their part, HMRC will not have to process numerous P11D forms whereas employers will still need to have suitable processes and systems in place to calculate the benefits position for each employee to include within their payroll processes.

Draft legislation will be published later in the year and HMRC will also look to produce guidance regarding the changes before they are introduced in April 2026.