Managing Taxable Benefits in Practice
Part 2: A Practical Guide
In our previous newsletter, we looked at what counts as a benefit in kind and how to offer perks that support your team without triggering unexpected tax.
This week, we’re looking at the practical side: reporting obligations, deadlines and the options available when providing benefits, particularly as your business grows.
This update covers benefits provided during the 2025/26 tax year (6 April 2025 to 5 April 2026).
If you have provided benefits during that period, please get in touch. Remember that P11D submissions for 2025/26 are due by 6 July 2026.
Avoid Surprises: Plan your Benefits Early
Benefits in kind are often overlooked until year-end, but by then, key deadlines may have passed, and employees can be hit with unexpected tax bills.
Whether it's a gym membership, a wellbeing benefit or a staff entertainment event, it is important to think through the tax and reporting implications before you start offering perks.
If you are considering new benefits or want to review what you’re already offering, Onside should be your first call. We’ll help you plan ahead, avoid surprises and make sure your approach supports your team while being compliant.
The P11D Process and Year-End Reporting
If you have provided taxable benefits that have not been payrolled or have not set up a PSA agreement (covered below), you need to report them to HMRC using a P11D form for each affected employee and a P11D (b) form to declare the employer’s Class 1A National Insurance due.
Key deadlines for the 2025/26 tax year
- By 6 July - submit the P11D and P11D (b) forms; and provide employees with a copy of their P11D form
- By 22 July - pay the Class 1A National Insurance (if paying electronically)
Costs and impact
Employees pay income tax at their respective tax rates. For example, for a higher-rate taxpayer, the rate would usually be 40%.
Employers pay Class 1A National Insurance at 15%.
PAYE Settlement Agreements (PSAs)
Some benefits are not always deemed appropriate to be taxable for employees via their payslip or P11D, like staff entertaining or small non-cash gifts over the trivial benefit limit, especially if the tax consequences were not expected by you or the employee. A PAYE Settlement Agreement (PSA) lets you cover the tax and NIC on these benefits yourself, as the employer.
Key deadlines
- Apply to set up the agreement by 5 July 2026 for benefits in the 2025/26 tax year.
- Submit your PSA calculations to HMRC (HMRC expect these from end of July).
- Pay the grossed-up tax and Class 1B National Insurance by 22 October 2026.
What’s included
The expenses or benefits you include in a PSA must be:
- Minor - examples include small gifts and vouchers, staff entertainment, personal bills.
- Irregular - expenses that are not paid at regular intervals, for example weekly or monthly.
- Impracticable - expenses that are difficult to place a value on or divide between individual employees.
The catch - it’s more expensive
With a PSA, the benefit is ‘grossed up’ meaning you pay the tax and the NIC as if the employee had received the benefit after tax.
Example: if you provide a £1,000 benefit to a 40% taxpayer in 2025/26 tax year:
Income tax due (grossed up): £667
Class 1B NIC: £250
Total cost to you: £1,917
Compare that to the P11D route, where:
Employee pays the £400 tax (40% of £1,000).
Employer pays Class 1A NIC - £150.
Total cost to you: £1,150.
PSA may be cleaner for employees, but often 50%+ more expensive for you.
Payrolling Benefits
Payrolling benefits can be a good alternative to P11Ds, specifically for regular benefits.
This allows you to include the value of certain benefits through monthly payroll, so tax is collected from employees in real time and there is no need for a P11D at year-end.
Note that you, as the employer, still need to file a P11D (b) form to pay the Class 1A National Insurance.
Key Deadlines
Register with HMRC before the start of the tax year for which you’d like to payroll benefits for. For example, you could consider setting this up for 2027/28 tax year by 5 April 2027.
Tell your employees in writing by 1 June at the latest following the start of the tax year including details of payrolled benefits, the amounts and impact on their pay and tax codes.
Submit the P11D (b) form by 6 July after the end of the tax year in which you’ve payrolled benefits.
Pay Class 1A National Insurance by 22 July (if paying electronically) after the end of the relevant tax year.
Benefits You Can Payroll
Most benefits can be payrolled, including medical insurance, company cars, gym memberships and other regular employee perks. The main exceptions are employer-provided accommodation and interest-free or low-interest loans.
What’s Changing: Mandatory Payrolling from April 2027
HMRC has published its intention to make payrolling of benefits in kind mandatory, moving away from the traditional P11D system. HMRC has confirmed that mandatory payrolling of benefits in kind will be introduced in phases from April 2027, although final guidance for phase 1 is expected at the Autumn Budget 2026, so the detail may evolve but the change is planned to be phased in as follows:
- From 6 April 2027 (Phase 1): mandatory payrolling will apply to company cars, car fuel, vans, van fuel, and employer-provided medical benefits.
- From 6 April 2028 (Phase 2): most remaining benefits are expected to move into mandatory payrolling though full details for this phase are still to be confirmed by HMRC.
Employer-provided loans and living accommodation will remain outside the mandatory regime for the time being, though voluntary payrolling of these benefits will be available.
In practice, this means that for many businesses the 2025/26 P11D process (due now) will be one of the last times you go through the traditional year-end reporting cycle for the most common benefits.
We will be issuing a dedicated update on this ahead of the April 2027 deadline. In the meantime, if you would like to discuss how these changes affect your business, please do get in touch.
Key Takeaways
Managing benefits does not have to be a year-end scramble.
The best approach is to be proactive. Discussing expenses and benefits in advance helps provide clarity and achieve the best outcome for both employees and the business.
Remember to:
- Review benefits before they are introduced.
- Understand whether P11D reporting, a PSA or payrolling is most appropriate.
- Meet all HMRC reporting and payment deadlines.
- Prepare for mandatory payrolling from April 2027.
What Next?
If you need support reviewing your benefits, getting a PSA in place or would like to explore payrolling benefits, please reach out. We’re here to help you set things up smoothly, before the deadlines hit.
Feel free to contact your Client Director or our Head of Accounting, Linda Lipkova, and they will be happy to discuss your options.