Despite these concerns, with the start date only a year away and unlikely to be delayed, ICAEW is urging employers and payroll agents who do not yet payroll benefits-in-kind to act now and test payrolling some benefits in the forthcoming 2025/26 tax year. Employers currently have a choice over which benefits to payroll and for which employees, but they must register with HMRC before the start of the new tax year in just 15 days' time.

ICAEW is concerned that employers will not have enough time to prepare for the proposed mandatory processing of employee benefits through payroll from April 2026. For example, employers will need time to update their own and, in some cases, third-party procedures to collect the data for near real-time processing. Plus, a key difference between the current and proposed regimes is that calculation, reporting and payment of class 1A national insurance contributions on benefits-in-kind will move from being annual to in-year. However, with just one year to go, neither the legislation nor HMRC guidance is available, which does not allow enough time for the necessary software to be fully developed and tested, ICAEW warned.

The Institute urges HMRC to consider phasing in the proposed start date of 6 April 2026 to give businesses a two-year ‘soft landing’.

In its representation submitted to the government , ICAEW also called for greater clarity on how the new system will work. It said that updating the existing form for reporting benefits and modernising how it is processed would be a more pragmatic approach. This would avoid imposing unnecessary compliance burdens on employers and creating additional work for HMRC. The use of AI could also facilitate a better solution to the improved processing of benefits-in-kind, the Institute said.

The Institute urged HMRC to provide greater clarity for employers and payroll bureaux in key areas including how to report benefit-in-kind data not available in real time; what new information must be included on payslips and HMRC submissions; how mid-year starters and leavers will be processed; and what employees should report on self assessment returns.

Adelle Greenwood, ICAEW Technical Manager, Tax, said:

“Modern renumeration packages have become increasingly complicated, with employers offering flexible benefits to attract and retain talent. It is against this backdrop that changes are being introduced too quickly, and we urgently need more clarity and guidance from HMRC.

“The resources needed to payroll benefits will impose extra cost and complexity for businesses, when the focus should be on kickstarting and sustaining economic growth.”

ENDS

Notes to editors

1. Further information about ICAEW’s representation to HMRC on mandatory payrolling of benefits can be found here: ICAEW has questions for HMRC on mandatory payrolling of benefits