Is your organisation ready for the 2026 payroll overhaul?

Significant changes to payroll reporting are on the horizon for UK businesses. Starting from 6 April 2026, employers will be required to report and pay Income Tax and Class 1A National Insurance Contributions (NICs) on most Benefits in Kind (BiKs) in real-time through the Full Payment Submission (FPS) process. This shift aims to streamline tax processes, but recent reports indicate that many businesses are unprepared for these upcoming changes.

Let’s explore the payroll overhaul and see how it might affect your business.

Understanding the P11D changes

Benefits in Kind are any non-cash advantage or service of monetary value, such as company cars or non-business travel expenses. Traditionally, employers have used forms P11D and P46 to report BiKs provided to employees after the end of the tax year. The new mandate will eliminate the need for these forms by requiring real-time reporting of BiKs through payroll. This means that taxable benefits will be taxed as they are provided, rather than being reported retrospectively.

So, why has the government introduced this reform? According to HM Revenue & Customs:

“This change will stop 4 million people from having their Income Tax collected in arrears which means that they will be paying the right tax at the right time. It will make it simpler for employees to understand what they are paying tax on as the information relating to this will be more accurate and clearer to understand. For HMRC it will mean we will no longer receive 4 million end-of-year returns which will ease the pressure on our services.”

The BiK reporting process will be through the Full Payment Submission (FPS). This is the same process employers currently use to report salary and other employee details to HMRC. However, real-time reporting could cause complications.

To comply, employers must ensure their payroll software can process BiKs in real-time. This means accurately calculating the taxable value of benefits and integrating them into employees’ taxable pay each pay period. Without the right system in place, payroll teams risk miscalculations, compliance issues and potential penalties from HMRC.

Preparing your team and technology

The transition to mandatory payrolling of benefits requires careful planning and coordination across various departments, including HR, finance and IT. Here are key steps to ensure your organisation is prepared:

1. Assess current payroll systems: Evaluate whether your existing payroll software can actually handle real-time BiK reporting. If not, consider upgrading to a system that offers this functionality.
2. Train relevant staff: Ensure that payroll and HR teams are well-versed in the new requirements. This may involve training sessions or workshops to familiarise them with the updated processes.
3. Review benefit offerings: Analyse the benefits you currently provide to employees and determine how they will be treated under the new system. Some benefits may require different reporting methods or valuations.
4. Communicate with employees: Inform your workforce about how the changes will affect their pay and benefits. Transparency will help manage expectations and address any concerns.
5. Consult with professionals: Engage with tax advisors or payroll specialists to ensure full compliance and to address any complex scenarios specific to your organisation.

The importance of early preparation

With just over a year until the changes take effect, early preparation is crucial. A proactive approach will not only ensure compliance but also minimise disruptions to your payroll processes. Organisations that delay may face challenges in system upgrades, staff training and potential non-compliance penalties.

At Phase 3, we understand the complexities of payroll management and the impact of regulatory changes on your business operations. Our team of experts is dedicated to helping organisations navigate these transitions smoothly. We offer comprehensive services, including payroll system assessments, staff training programs and ongoing support to ensure your payroll processes are efficient and compliant.

To assist you further, we are developing an in-depth guide that delves into the specifics of the 2026 payroll overhaul, offering detailed insights and practical steps for a seamless transition. Stay tuned for its release, and in the meantime, feel free to contact us for personalised support tailored to your organisation’s needs.

Explore our payroll consultancy services today to prepare your organisation for success in the evolving payroll landscape.