Practical guide: Reporting 2025/26 expenses

Recap

The provision of taxable benefits and expenses to employees comes with a side order of employer obligations. Employers need to tell HMRC and their employees about those benefits, and pay the associated Class 1A NI unless they have opted to meet the tax bill on the employee’s behalf by including the benefit in a PAYE settlement agreement (PSA). The exact nature of the reporting obligation depends on whether the employer payrolled the benefit.

Payrolled benefits

For the 2025/26 tax year, payrolling was voluntary and employers could only payroll benefits if those benefits had been registered for payrolling before the start of the 2025/26 tax year. Under payrolling, the taxable amount of the benefit is treated like extra pay which is paid to the employee in instalments throughout the year on their normal pay days.

The taxable amount is either the cash equivalent value or, where the benefit was made available under an optional remuneration arrangement, the cash forgone or offered in exchange where this is higher.

Example. An employee is provided with a company car with a cash equivalent value of £6,600. The employee is paid monthly on the last Friday of each month. The employer payrolled the benefit in 2025/26. The employee’s gross pay for PAYE purposes is increased by £550 per month in respect of the benefit. The tax is worked out on the total gross pay each month and deducted from the employee’s cash pay. In this way, the employee pays the tax on their company car in-year through the payroll.

As most taxable benefits in kind are liable to Class 1A NI rather than Class 1, payrolled benefits should not be included in gross pay for NI purposes. Instead, they are taken into account when calculating the Class 1A liability on the P11D.

Where a benefit is payrolled, the taxable amount is reported to HMRC each time that the employee is paid on the full payment submission (FPS). Therefore, there is no need to tell HMRC about payrolled benefits after the year end. Remember not to include payrolled benefits on the employee’s P11D.

Employers must also provide employees with details of their payrolled benefits. This can be done by letter, by email or on a payslip. For the 2025/26 tax year, this information must be provided on or before 31 May 2026.

Payrolling will be mandatory from 6 April 2027. Employers will need to payroll all benefits with the exception of living accommodation benefits and taxable employment-related loans. However, they will be able to register to payroll these voluntarily.

P11Ds

Where an employee was provided with a non-payrolled taxable benefit in 2025/26, the employer must provide details of that benefit to HMRC after the end of the tax year. This is done via the P11D reporting process.

The information that the employer needs to provide depends on the nature of the benefit. Where the cash equivalent value is calculated under the general rule, it is necessary to supply details of the cash equivalent value (or cash foregone), any amount made good by the employee and the taxable amount. For other benefits with their own calculation rules, such as cars and taxable employment-related loans, more information is required.

HMRC publishes a range of useful working sheets which can be used to calculate the taxable amount for certain benefits. These can be found on the GOV.UK website .

There is no need to include payrolled benefits, exempt benefits or those included in a PSA on the P11D. However, remember that exemptions only apply where the associated conditions are met, and if the conditions are breached, the benefit will be taxable and should be reported to HMRC.

P11Ds for 2025/26 must be filed no later than 6 July 2026. They must be filed online as HMRC doesn’t accept paper forms. The forms can be filed using commercial software. Employers with 500 or fewer employees can also use HMRC’s PAYE Online service to file their P11Ds.

Employers must provide employees with details of taxable benefits and expenses reported on their P11D. This can be done by giving them a copy of their P11D or by providing details of their taxable benefits in a letter or by email. For 2025/26, this must be done by 6 July 2026.

P11D(b)

The P11D(b) is both the employer’s declaration that all required P11Ds have been submitted and also the statutory Class 1A NI return. When calculating the Class 1A NI liability, employers should take account of both payrolled benefits and those returned on the P11D. There is no need to include benefits liable to Class 1 rather than Class 1A, exempt benefits and those included within a PSA. The Class 1A rate is set at 15% for 2025/26.

Like P11Ds, the P11D(b) for 2025/26 must be filed online by 6 July 2026 using either commercial software or, for employers with 500 or fewer employees, PAYE Online. The Class 1A NI due for 2025/26 must be paid by 22 July 2026 if payment is made online. If the employer opts to pay by cheque, an earlier deadline of 19 July 2026 applies.

From 6 April 2027 under mandatory payrolling, employers will need to pay the Class 1A on payrolled benefits in-year with the PAYE and NI for that month.

Using a PSA

If an employer wishes to pay the tax on a benefit in kind provided to an employee, they may be able to do this by setting up a PSA. This is an agreement with HMRC under which the employer agrees to pay tax on the grossed-up value of the benefit.

As the payment of tax by the employer on the employee’s behalf is itself a taxable benefit, the benefits included within a PSA must be grossed up at the employee’s marginal rate of tax (using the relevant Scottish rate for Scottish taxpayers).

A PSA cannot be used for all benefits in kind; it is only suitable for those which are minor, which are provided irregularly or on which it is impracticable to operate PAYE. A PSA is an enduring agreement which remains in place until amended or cancelled by the employer or HMRC. Employers who already have a PSA should check whether it is still valid and make any amendments by 5 July 2026, or cancel it if it is no longer required. Where a new PSA is needed, it must be agreed before the start of the relevant tax year.

Where items are included within a PSA, Class 1B NI is payable in place of the Class 1 or Class 1A liability that would otherwise arise. Class 1B NI is also due on the tax due under the PSA. The tax and Class 1B NI should be paid by 22 October 2026 if payment is made electronically, or by 19 October 2026 if payment is made by cheque.