29.4.2025 | Tax

As the tax year closes and many businesses begin preparing their P11Ds, a shift is on the horizon worth noting and planning for. Here, Andrew Diver, Head of Tax at Beatons Accountancy Firm in Ipswich, looks at changes that will see most employee benefits in kind paid through payroll.

If you operate a large business, chances are you are well aware of your P11D obligations.

This is a form used by employers to report certain benefits or expenses provided to employees, such as company cars, private medical insurance, gym memberships, and interest-free loans.

These benefits aren’t processed through payroll, so the P11D lets HMRC know what has been provided and ensures employees pay the correct tax.

Last year, however, HMRC announced that the traditional P11D form will be phased out entirely, with employers expected to move towards real-time benefit reporting via payroll.

The P11D process usually takes place at the end of the tax year, which means many of you will be filing this shortly. But with the move to payroll, all of this will shift in the year, meaning tax will be deducted in real-time, and the need for P11D forms will disappear altogether from this time next year. However, a P11D(b) will still need to be submitted at the end of the year.

Rethinking your benefits strategy

For some employers, particularly larger companies, this won’t be a huge leap.

Many already voluntarily payroll certain benefits. But for others, this could be an opportunity to pause and reconsider what you’re offering.

With real-time tax deductions, employees will have a clearer picture of their total reward package, and employers can look to offer benefits that are both attractive and tax-efficient.

Here are some benefits that might be worth exploring as part of your offering:

• Electric vehicles – Company car tax rates are currently low for electric vehicles, and the benefit-in-kind value can be significantly more attractive than traditional vehicles.
• Trivial benefits – Gifts under £50 (not cash or cash vouchers) given occasionally and not as a reward for work can fall under the trivial benefits exemption.
• Cycle to work scheme – Employees can spread the cost of a new bike tax-free, and employers benefit from NI savings.
• Annual event exemption – Up to £150 per head can be spent on annual events like Christmas parties or summer socials, provided certain conditions are met.

What should you do now?

While the compulsory change doesn’t take effect until April 2026, larger companies or those with growing headcounts should start reviewing their benefit structures and payroll systems now.

Not only does it help ensure compliance, but it can also enhance staff satisfaction and retention.

At Beatons, we’re working with clients to help them prepare, from reviewing current benefit packages to exploring software solutions and payrolling strategies.

If you’d like to talk through the upcoming changes or review your benefits, get in touch – we’re here to help you stay ahead of the curve.