From April 2026, the government will mandate the reporting and paying of Income Tax and Class 1A National Insurance Contributions on benefits in kind via payroll software. This represents a significant change to the current system and should reduce the administrative requirements and simplify the tax system for both employers and employees.

This means that the 2025-26 tax year will be the last year that employers will be able to file P11Ds and P11D(b)s with HMRC in most cases. From April 2026, tax on employment benefits will be collected in real time and not through tax codes in arrears. Class 1A National Insurance contributions will also be collected in real time for each pay period rather than at the end of the year. HMRC has said that this change will remove the need for 4 million end of year returns to be submitted.

HMRC has said that they will engage with stakeholders to discuss their proposals to inform design and delivery decisions and draft legislation will be published later in the year as part of the usual tax legislation process. HMRC will also work with industry experts to produce guidance, which will be made available in advance of 2026.

Employers that take on a new employee need to work out which tax code and starter declaration to use in their payroll software. Incorrect tax codes can lead to a new employee paying more tax than is due.

Employers will require certain information from their new employee in order to ensure that the correct tax code and starter declaration information is entered on the payroll software. In most cases, all the necessary information can be found on the employees P45. It is important to remind new employees to bring this with them on their first day of work.

If the employee does not have a P45 the necessary information can be collected by asking the new employee to complete HMRC's online starter PAYE checklist. A paper version can also be completed if the new employee is unable to use the online version. This information must be held in the employers’ payroll records for the current year and the 3 following tax years. Once the information has been collated, HMRC’s online tool can be used to work out the employee’s tax code.

The starter checklist can be used by a new employee if:

• they have a student or postgraduate loan;
• their personal details are different to those shown on their P45;
• they do not have a P45; and
• they have been sent to work temporarily in the UK by their overseas employer.

Once the checklist has been completed, the new employee should email, post or give the completed list to their employer. There is no requirement to send the checklist to HMRC.

The rules for individuals providing services via an intermediary such as a personal service company (PSC) are complex. The rules apply if the worker who provides services to a client through their own intermediary would have been an employee if they were providing their services directly to that client.

The off-payroll working rules usually shift the responsibility for deciding whether the intermediaries’ legislation applies, known as IR35, from the intermediary itself to the client receiving the service. In most cases, the client will be responsible for determining the employment status of the worker. However, if a worker provides services to a small client outside the public sector, the worker’s intermediary is responsible for deciding the worker’s employment status and if the rules apply.

You may be affected by these rules if you are:

• a worker who provides their services through their own intermediary to a client;
• a client who receives services from a worker through their intermediary; or
• an agency or other supplier providing workers’ services through their intermediary.

There are different rules that apply to those working for a small business and those working for medium or large-sized businesses.

Private sector companies and voluntary sector organisations are considered medium or large-sized if they meet two or more of the following conditions:

• have an annual turnover of more than £10.2 million;
• have a balance sheet total of more than £5.1 million; 
• have more than 50 employees.

There are a number of scenarios that fall outside the off-payroll working rules. If you think you might be affected, we would be happy to help with looking at this issue.