Ever since their introduction in the 1960s, P11Ds (annual forms to report employee benefits) have been somewhat of a fixture within UK payroll. But new legislation means that a paradigm shift is taking place around how we process and report benefits.
In 2016, payrolling benefits became a new way of reporting 'benefits in kind' directly via payroll. Since then, employers have had the choice to either use that system or to carry on with P11D submissions. But from 2026, payrolling benefits will become the only official way for businesses to report benefits to HMRC, eliminating the need for P11Ds altogether.
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Read more: The future of payroll
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The new mandate has been issued as part of the government’s initiative to fully digitalise taxation and reporting. If successful, payrolling benefits will reduce the P11D workload while increasing payroll accuracy. It should also align with a wider shift towards digital and real-time information, and encourage businesses that have been sitting on the sidelines of effective transformation to finally take the leap.
Still, this enforced mandate will leave HR leaders with less than two years to set up new processes and fully prepare for this change. For reference, the deadline to register for payrolling benefits for the new tax year is 5 April.
If admins have missed this year’s deadline, then they’ll need to wait until 2025. But, that doesn’t mean businesses can’t use this time to get ahead of the curve; they can start perfecting and setting up their processes now so that they’re ready for payrolling benefits, even starting part-way through the year for a more seamless transition next year.
If companies wait until they’ve registered, they might start noticing discrepancies in employee pay. Some of the challenges that can crop up include how to prorate private medical insurance benefits for starters or leavers, or not receiving company car information until after an employee has returned the car. Under the old system, employers would simply add car values to their P11D at the end of the year. But moving forward, businesses will need to add these values as soon as an employee has the keys to this car.
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Read more: Payroll errors impact 25% of UK employees
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Managing costs and training staff will also become critical. Some of the challenges that HR leaders are likely to face are adhering to new tax laws (especially in the context of a new government), negotiating budgets for new systems, and ensuring staff are comfortable using new platforms and technology to handle benefits reporting.
If they want to get ahead, HR managers need to develop a keen understanding of how the new compliance is going to work and also take a strategic approach to retooling. With P11Ds becoming obsolete, HMRC is moving towards more technology-driven solutions. That means they could introduce more complicated calculations, assuming that people will no longer be doing these manually.
Businesses who’ve been hesitant to adopt HR and payroll software may soon find it to be a crucial investment. All of this points to a wider evolution of the HR department, from back-office support team to leading business function, empowered by technology.
So, while we may still be two years away from the big switch, getting your software and team in order early on will help you make smarter decisions and avoid the pitfalls that come with inaction. Businesses should use this time to refine their processes and smooth out any issues now, while they still have flexibility. It's much easier to make adjustments and learn from mistakes before the switch becomes mandatory.
Sylvain Grande is chief product officer for PayFit