Employers offering sal/sac cars urged to act now ahead of P11D change

Employers are being urged to start preparing now for a major overhaul in how company cars and expenses are reported.

HMRC has announced changes to the reporting and paying of tax and Class 1A national insurance contributions (NICs) on benefits in kind (BIK).

The removal of the need to report benefits on P11D forms, set to take effect from April 2026, will impact both employers and employees.

Cheryl Clements, regional development manager at Tusker, explained: “With this change, payrolling benefits will be mandatory from April 2026.  

“Employers will need to comply with how they do the deductions and report to HMRC. Those who run a salary sacrifice car scheme, along with other benefits which are on salary sacrifice, will find this especially important.”

Historically there have been complications in understanding whether employers can use a manual P46/P11D process to update HMRC about the benefit, or whether to use payrolling the benefit (otherwise known as Tax at Source). 

“The new process of payrolling benefits will simplify this for employers,” said Clements. “It will remove the frustrations which some have felt when there have been inconsistent tax deductions and delayed payments.”

She told Fleet News that there is a “real mix” of how employers handle this. She added: “Some already report through payroll, but many don’t - depending on the historic processes in their organisation - so it’s very important that everyone understands the change and how it will impact their processes.”

Employers will need to change their processes to be compliant with tax at source. “Although it’s a different process, there are great benefits in the long run, not least saving time and reducing complexity,” continued Clements.

“The upcoming P11D changes will create standardisation, as well as a more efficient way of managing benefit-in-kind reporting.

“The result of this will enable real-time reporting across all benefits which will simplify manual processes, save time, drive efficiencies and cut down on delays.”

Wingate Benefits Solutions says that by eliminating the P11D form, the Government aims to transition towards real-time reporting of benefits via payroll, making the process more efficient and transparent, and minimise the risk of errors that can occur with annual reporting, leading to more accurate tax and NICs.

Furthermore, it wants to make it easier for employers to meet their obligations.

Wingate outlines five key implications from the change for employers: 

1. Real-Time Information (RTI) Adjustments: Employers will need to adjust their payroll systems to accommodate real-time reporting of benefits. This may require updating software and processes to ensure that all benefits are accurately recorded and reported as they are provided.
2. Training and Awareness: It’s crucial to train your payroll and HR teams on the new requirements. Understanding how to report benefits in real-time will be essential for maintaining compliance and avoiding penalties.
3. Policy Reviews: Review your current benefits policies to ensure they align with the new reporting requirements. This might involve reassessing how benefits are offered and managed within your organisation. 
4. Employee Communication: Keep your employees informed about the changes and how they will affect the reporting of their benefits. Clear communication will help manage expectations and reduce confusion.
5. Software and Systems Upgrade: Ensure that your payroll software is updated to handle real-time reporting. Many payroll providers will likely release updates or new features to accommodate these changes, so staying informed about these developments is crucial.

Richard Grover, strategic employee benefit consultant at Wingate Benefits Solutions, said: “The removal of P11D benefits from April 2026 represents a significant change for employers.

“By preparing now, you can ensure a smooth transition and continue to provide valuable benefits to your employees while remaining compliant with HMRC regulations.

“Embrace this change as an opportunity to streamline your processes, reduce administrative burdens, and enhance the overall efficiency of your payroll system.”

The message from Clements to employers is the same. “Start now,” she said. “The changes don’t come into effect until April 2026, but employers who get ready well in advance can avoid the complexities of such a change.”

She added: “We’d recommend starting by talking with payroll providers and software suppliers making sure they are ready for the new process.

“Be aware that there may be a demand for changes, so getting started early will have clear benefits. This will also help keep clear of delays and ensure the payroll system can handle new real-time reporting requirements.”

Clements says it is “incredibly important” that employers who offer salary sacrifice car schemes start early.

She concluded: “We suggest setting an internal deadline one year in advance ahead of official change, so April 2025 This helps avoid potential problems - additional costs, increased workloads and incorrect tax payments for employees.

“Regardless of whether payroll is outsourced or handled in-house, teams managing the changes must be prepared and trained. Cost changes may need to be considered too.”

For more from Gov.uk on simplifying the reporting of income tax and NICs on BIK, click here.