Employee benefits and mandatory payroll reporting

Released On 1st Mar 2024

Starting in April 2026, UK employers will have to include the benefits they give to their employees, such as company cars or health insurance, directly in their payroll.

This means these benefits will be taxed through the payroll system and cannot be reported separately.

This change is to make tax reporting easier for employers, but it also means employers need to be ready for a few added responsibilities.

Your new responsibilities

You will no longer be able to pick and choose which benefits you include in your payroll and which you report separately – it will all have to be reported via your payroll records.

In addition, you will need to:

Keep track of your data more rigorously and stringently.
Take on more responsibility with PAYE, which will now be scrutinised more heavily.
Explain these changes clearly to your staff so they understand where, how and why their benefits are being taxed.
Check if your payroll software is compatible with the proposed changes.
Figure out how to manage certain benefits, like loans or company cars, under this new system, which might be tricky.

Employees might also see changes in their cash flow because, with benefits in kind being added to their payroll, the tax on these benefits will be taken out of their monthly pay.

This means that the monthly take-home pay for the salaried employees varies more on a month-by-month basis, especially during the first year of this change.

Practical steps to manage the changes

To effectively manage the upcoming changes in payrolling benefits in kind, here are some practical steps you can take:

Start preparing now. Review your current payroll processes and benefits administration to identify any changes needed.
Ensure your payroll software can handle the inclusion of benefits in kind. If not, plan for necessary upgrades. Conduct testing well in advance to avoid last-minute hitches.
Train your payroll and HR teams on the new requirements. They should understand the changes in tax calculations and reporting.
Develop a clear communication strategy to inform your employees about how these changes will affect their pay and tax.
Encourage employees to review their personal finances and budgeting, considering the potential changes in their monthly take-home pay.

By taking these steps, you can ensure a smoother transition to the new system and easily maintain compliance.

Remember, early preparation and clear communication are key to managing this change effectively.

If you need support or advice in relation to this change, please speak to our team.