Payrolling Benefits – should we do it and what should we worry about?

Last week Reward Heads held an excellent Forum session with Ian Goodwin and Nabeel Thakur of Forvis Mazars in the UK all around the subject of Payrolling Benefits, that is recognising taxable benefits through the payroll each month (or whatever the regular payroll interval is) rather than completing a P11D for them to be taxed in the following year.

We found that the group was fairly evenly split four ways between those who were planning to implement this in April 2025, those in April 2026, those who already did it voluntarily, and those with no plan - although by the end of the call, some participants had different plans!

Payrolling benefits is being driven by HMRC – the current requirement is for all benefits to be payrolled by April 2026 although there are still consultations underway.

We talked through the pros and cons, and key watchouts, many of which were influenced by employer-specific issues such as which benefits to payroll and how high a value they were, whether this was across the board or to certain groups only.

The overall tax and National Insurance payable by the employee and employer would be the same, just at different times. A key concern was the year of change when tax codes would have been amended for the prior year’s benefits and the tax collected monthly, at the same time that the current year’s benefits were being taxed. This is only for one year and for most lower earners the valuable of taxable benefits is fairly low.

Reduced admin was seen as a benefit for many as the year end P11Ds can require collection of lots of information. If benefits are confined so something that is easily calculable monthly such as a medical premium, this could be automated.

Beneficial loans and accommodation cannot be payrolled and so at present would need to stay on P11Ds.

A key concern were communications. Tax and pay are always stressful areas for employees and so these need to be well thought through, clear and simple. Happily those in the group who had implemented were able to share positive feedback once they had clearly set out that it was HMRC driven and what the individual implications would be.

As ever with Reward, a solid plan is required, ensuring that Payroll as a function or outsourced provider are on board, as well as registering with HMRC, before understanding what benefits need to be payrolled. Forvis Mazars can help with this. Contact Ian.Goodwin@mazars.co.uk or Nabeel.Thankur@mazars.co.uk

It is the perfect opportunity to review your benefits offering and ensuring that it is in line with your organisational strategy and values and indeed that the benefits are meaningful to employees and what they really want. Reward Heads frequently support clients with Benefits strategies and recommendations and would love to help. Please get in touch on rewardsolutions@rewardheads.co.uk

If you would like to join us at future forums, please email Marcus@rewardheads.co.uk