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Payrolling Employee Benefits

March 6, 2024

Starting in April 2026, UK employers will have to include the benefits they give to their employees, like company cars or health insurance, directly in their payroll.

This means these benefits will be taxed through the payroll system, and not reported separately.

To fulfil this you will need to:

  • Keep track of your data more rigorously and stringently.
  • Take on more responsibility with PAYE, which will now be scrutinised more heavily.
  • Explain these changes clearly to your staff so they understand where, how and why their benefits are being taxed.
  • Figure out how to manage certain benefits, like loans or company cars, under this new system, which might be tricky.
  • Check if your payroll software is compatible with the proposed changes (our software, BrightPay, is)

Employees might also see changes in their cash flow because, with benefits in kind being added to their payroll, the tax on these benefits will be taken out of their monthly pay.

This means they might end up with different take-home pay each month, especially during the first year of this change.

Steps to Prepare for the Changes

To effectively manage the upcoming changes in payrolling benefits in kind, here are some practical steps you can take:

  • Start preparing now. Review your current payroll processes and benefits administration to identify any changes needed.
  • Ensure your payroll software can handle the inclusion of benefits in kind. If not, plan for necessary upgrades. Conduct testing well in advance to avoid last-minute hitches.
  • Train your payroll and HR teams on the new requirements. They should understand the changes in tax calculations and reporting.
  • Develop a clear communication strategy to inform your employees about how these changes will affect their pay and tax.
  • Encourage employees to review their personal finances and budgeting, considering the potential changes in their monthly take-home pay.

By taking these steps, you can ensure a smoother transition to the new system and easily maintain compliance.

If you need advice or assistance with this change please get in contact

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