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In April 2026, HMRC will introduce a game-changing shift in how businesses report and manage Benefit-in-Kind (BIK) items and Class 1A National Insurance Contributions (NIC).
Under new rules, employers will be required to report BIKs and pay the associated tax and NIC through payroll software, eliminating the need for the traditional P11D form.
This comes as part of the Government’s broader initiative to modernise and streamline the tax and National Insurance reporting processes.
For smaller business owners this shift may seem overwhelming but, in this article, Jon Lee, Payroll Manager, highlights how the changes will affect your payroll processes, and the steps you can take now to ensure a smooth transition.
What are Benefits-in-Kind (BIK)
Benefits-in-Kind (BIKs) are non-cash benefits that an employer provides to an employee, such as company cars, private healthcare, or subsidised meals. These benefits are subject to tax, and as an employer, you’re responsible for reporting the value of these benefits to HMRC. The value is then treated as taxable income for the employee, and both income tax and National Insurance Contributions (NIC) are applied.
How Are BIKs currently reported?
Currently, employers report all BIKs to HMRC using the P11D form at the end of each tax year. The P11D form details the value of each benefit provided to the employee, and the employer is responsible for making sure the correct tax is paid on these benefits. The employer also submits a P11D(b) form, which calculates the total Class 1A NIC owed on all BIKs provided.
While the P11D process has worked for many years, it’s also been an administrative burden for businesses, requiring significant time and effort to complete the forms accurately. There is also a risk of mistakes, which can result in fines and penalties from HMRC.
What’s changing in April 2026?
From April 2026, the rules will change, and all reporting of BIKs will need to be done through payroll software.
This is known as the “payrolling of benefits.” Instead of submitting P11D forms, employers will report benefits and pay the associated income tax and Class 1A NIC through their payroll systems, which will automatically calculate the correct tax liability in real-time.
The key changes to note are:
- Real-time Reporting: BIKs will be reported and taxed as they are provided to the employee, just like salary payments. This real-time system will help to reduce the potential for errors and ensure that employees’ tax codes reflect their true taxable income throughout the year.
- No More P11D Forms: The P11D and P11D(b) forms will no longer be required for reporting benefits. This will significantly reduce the amount of paperwork businesses need to handle.
- Digital and Automated: The process will be fully digital and integrated into your payroll system, helping to automate calculations and reduce the manual effort required.
Who does this affect?
These changes will affect all employers that provide BIKs to employees. So, this includes all small businesses that offer benefits such as company cars, health insurance, or other non-cash perks.
For small business owners who might not have a dedicated payroll or HR team, this shift could initially seem daunting. However, it’s important to remember that while the new system will require some adjustments, it’s designed to streamline and simplify the reporting process in the long term.
What does this mean for you?
As a small business owner, you’ll need to make sure that your payroll software is capable of processing these changes by April 2026.
And you’ll need to:
Upgrade or Update Payroll Systems: Make sure your payroll system is compatible with the new payrolling rules. This may involve upgrading your current software or using a new system that can handle real-time reporting and tax calculations for BIKs.
Collect Data: Accurate tracking and data collection of the value of any benefits you provide will be crucial. You’ll need to report these values on a regular basis, likely alongside employee salary payments.
Consider Class 1A NIC: If your company provides BIKs that are subject to Class 1A National Insurance Contributions, then make sure your system is also set up to calculate these contributions accurately.
Communicate with Employees: Employees will need to know about the changes, particularly how it will impact their net pay. Since BIKs will now be taxed in real-time, their tax deductions might change throughout the year, which could affect their monthly income. Clear communication will help them to plan ahead.
What action to take now?
Whilst this transition doesn’t become mandatory until April 2026 – now is the time to start getting prepared by choosing to voluntarily payroll some, or all of, your benefits starting in April 2025.
The 2025/26 tax year offers the ideal opportunity to test the system while still using the P11D forms as a backup. Helping to ease the transition and check that everything works smoothly before the official mandate.
If you’re a small business owner concerned about the impact of these changes on your business and your time – speak to us about our outsourcing payroll services that offer a practical and efficient solution to navigate these changes.
With our expertise, tailored solutions, and streamlined processes, we’ll not only help your business stay compliant, but we’ll also simplify your payroll management process. Leaving you to focus on what you do best – growing your business.
Get in touch with Jon or one of the payroll team today to find out more about our payroll services, by calling 0330 058 6559 or emailing hello@scruttonbland.co.uk
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