Last week the Government published an update on progress made towards tax simplification which contained details of a package of measures one of which confirms that from April 2026, tax on benefits in kind will be paid through payroll, effectively ending the need to report on the annual P11D. More details are provided below on the changes announced.
Mandating the payrolling of benefits in kind
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 measure aims to reduce the need for taxpayers to contact HMRC and to reduce the administrative burdens for employers and HMRC “by simplifying and digitising the process of reporting and paying tax on all employment benefits.”
HMRC will engage with stakeholders to discuss this and to inform design and delivery decisions. 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 it will aim to make available in advance of 2026.
Further information will be published via the usual communication routes, such as through employer bulletins.
The timeline to move to mandating of payrolled benefits in kind is short and does not provide much time to ensure that software is developed and tested before this change comes into place in 2026 when Making Tax Digital for Income Tax also commences.
Relief for employment expenses
Each year, HMRC receives 1.1 million claims for tax relief from employees on their expenses. These claims are submitted through existing online services, or via digital or paper forms, resulting in some claims being manually processed.
To simplify the process, the government is designing a new, online service for employees to claim tax relief on all of their expenses in one place, meaning employees will get relief sooner. HMRC will provide further details later this year.
Amending the parents’ National Insurance Credit
As announced last year, the government will legislate to introduce a route for people to apply for National Insurance Credits for parents and carers for tax years where they have not claimed Child Benefit, to ensure that people do not miss out on their State Pension entitlement. The credit will add qualifying years of National Insurance where eligible which will support future State Pension eligibility.
Individuals will be able to claim this Credit from April 2026. The eligibility for the Credit will be closely based on Child Benefit eligibility criteria. Transitional arrangements will ensure those affected since 2013 are still able to claim.
Going forward, applications will be available for six years following the relevant tax year. The government will bring forward secondary legislation as soon as possible.
The government has launched a consultation proposing change to the Capital Gains Tax (“CGT”) rules that apply to alternative finance arrangements.
The proposed changes seek to amend those rules so that where property is used as collateral for the purposes of raising finance, the CGT outcome is the same whether alternative finance or conventional finance is used. The consultation also asks whether there are any implications for capital allowances. The consultation is open to responses for 12 weeks and closes on 9 April 2024.
Transfer pricing, permanent establishment, and the diverted profits tax (“DPT”)
The government has published a summary of responses from the consultation undertaken last summer which proposed reforms to transfer pricing, permanent establishment, and the DPT. The aim of the consultation was to develop simpler, shorter legislation that is easier to understand and administer and provides greater certainty for both HMRC and taxpayers.
The government will continue to engage with stakeholders on the proposed approach set out in the summary of responses with a view to publishing draft legislation for consultation later in 2024.