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In this episode of The Tax Track, we discuss HMRC’s plans to mandate the payrolling of benefits in kind, and look at the implications of a recent tax case.


  • Lindsey Wicks, Senior Technical Manager, Tax Policy, ICAEW 
  • Stephen Relf, Technical Manager, Tax, ICAEW 
  • Peter Bickley, Technical Manager, Tax, ICAEW 


Ed Adams 


Lindsey Wicks: Hello and welcome to The Tax Track the podcast series from ICAEW, where we explore the latest developments in the world of tax and what they mean for our members and tax professionals alike. In this episode, we’re talking about the challenges posed by the government’s aim to payroll all benefits by 2026…

[there are so many changes going through that it is quite hard for employers to keep up with it all…]

We also look at a recent tribunal case in which a nursery tripped up over Entrepreneurs’ Relief…

[If you’re a taxpayer, and you’ve taken advice, then this case illustrates the need to check that advice is still current…]

I’m joined this month by Stephen Relf, Technical Manager, Tax, and Peter Bickley, Technical Manager, Tax. Welcome to you both.

Payrolling of benefits is in the news at the moment. First of all, agents can now register to payroll benefits in kind on behalf of their clients for the 2025/26 tax year onwards, and mandatory payrolling is coming in from 6 April 2026. Peter, what’s the reason behind the change?

Peter Bickley: Well, I think this was really part of the Revenue’s push – the government’s push – for digitalisation. And they want to get rid of the form P11D, that they’ve already been describing as a legacy form. And it would enable the Revenue to not have to process four million end-of-year forms, which would obviously ease their workload. It is being sold as simplification but I don’t think it’s simpler for employers, nor for advisers, because it’s going to be much more about having to get information to payroll every pay day. So instead of just doing a P11D once a year, they’re going to have to do it every pay day.

LW: And what do we know so far?

PB: First of all, it is meant to cover all benefits in kind. So it’s going to include accommodation and beneficial loans, which hitherto have not been included within payrolling, even if you’re doing it voluntarily. P11Ds that people will be submitting for 2025/26 are supposed to be the final ones that will be needed. But we believe there will still be a place for P11Ds for leavers and people who are not paid any money. So we’re not quite convinced that it is the end of the P11D yet. One of the other things we know so far is that there’s going to be real-time reporting from April 2026. So that means all benefits in kind will have to be reported in payroll in real time. Class 1A NICS will be paid in-year instead of at the end of the year using the P11D(b). That raises questions such as will it have its own identification reference number when you pay it, like PAYE does at the moment and, indeed, like Class 1A does at the moment?

LW: And Peter, how will it look post-April 2026 for employees and employers?

PB: It’s going to look different because everything will be going through the payslip. For employers, it’s going to be a lot of work, as I say, getting the information to payroll in time. So some interesting times coming up.

LW: As you mentioned, it doesn’t sound like it’s going to be simpler for employers or their advisers. So what are the main challenges?

PB: I think the main challenge is getting accurate data and efficient processes in order to get the information into payroll in real time, because you’re meant to be reporting – as you do if you payroll benefits in kind at the moment – you’re payrolling the benefit in kind for that month or week in that period. So payroll might not know that this car has been substituted for another car or whatever. I think probably the processes of getting the information to payroll is going to be the most challenging thing.

Also, where you have agents or payroll bureaux, it’s going to be even more challenging, making sure you get the information to them on time to be run through the payroll. You’ve got expat employees – are they going to be included in this? And their benefits are sometimes quite interesting. And they take, again, the period that it takes to get the information in. Some benefits are more difficult than others to payroll, like accommodation and beneficial loans, because you don’t really know what the figure is until after the pay period or even after the year end – because for loans, of course, you can do it on an annual basis. And getting information about cars is interesting at the moment.

LW: Currently you have to do that quarterly, don’t you, with the P46 (Car).

PB: That’s right. So quarterly is probably about enough. But I think even then, it’s quite hard because you’ve got to get the information in and process it. And if you’ve got fleet providers, third parties, maybe their systems are not compatible with yours, so under payrolling everybody’s computer systems will need to mesh together somewhat more than they do at the moment. And of course, you’ve got starters. So perhaps there’s going to be a month where the starter doesn’t get his benefit in kind put through the payroll in the first month; and leavers and people who don’t get paid any cash benefits. There are a lot of queries that we have raised with HMRC.

Stephen Relf: It does seem as well that every year, we seem to ask more and more of payroll. So thinking about longer-term auto-enrollment, RTI, and the recent changes to national insurance contribution rates – are we at a point where we just can’t keep putting more and more burden on payroll, do you think?

PB: There are so many changes going through that it is quite hard for employers to keep up with it all. If there’s notice, then software can be developed, and if the software perhaps gives prompts to employers, that will help as well. But there’s going to be new processes, so it is going to be hard.

SR: Do you think there’s anything that employers should do now to try and get ahead of the game, when it comes to payroll and benefits?

PB: I would suggest perhaps that employers should register next year to put through a couple of easy benefits if they’re not already doing it. Perhaps if you have gym membership or medical benefit, put that through payroll and just see how it works.

SR: I hadn’t appreciated that you could actually pick and choose to what extent you do it. So it’s not an all or nothing thing at this point?

PB: Yes, that’s correct. At the moment, you choose the benefits – and you can choose your employees as well, actually. You can perhaps put through a couple of easy benefits and get the hang of it before the Big Bang in 2026. We have suggested to the Revenue that perhaps if they want to mandate this, that they do it on a slightly more softly-softly basis – perhaps mandate the easy benefits if they want to do that. Then once that’s all bedded in, and everything works, perhaps move on to mandate the more difficult benefits and perhaps even change the rules on accommodation and beneficial loans so it is actually possible to payroll them in the year. And perhaps on the accommodation one, get rid of the rateable value.

SR: That’s a really good point. Because I think we all know the challenges of completing form P11D. But largely, it’s to do with working out the amount that’s taxable as a benefit in kind, it’s not necessarily putting the numbers into the form. So as you said, this is only really a true simplification, if they actually changed some of the rules for calculating the benefits.

PB: Or maybe do it on a previous month’s basis, so at least you have a bit of an opportunity to find out what the benefit was in that month before you have to put it through payroll, which perhaps sounds a bit old-fashioned – sounds a bit like the PYB for traders doesn’t it.

SR: We do have a tendency to go back in time in tax though, don’t we, and rediscover things that worked in the past.

PB: Exactly.


LW: And at the moment, it’s a once-a-year process?

PB: Yes, you do your P11, you get all the information in, stick it on the P11D by 6 July, send it in and pay the Class 1A – but that does give you a bit more time to get the information in and make sure it’s right and perhaps even query if it’s not right before you have to return it to the Revenue.

LW: But it’s also a once-a-year opportunity for registering to payroll at the moment?

PB: Yes, that’s right. So if you want to dip a toe in the water, then you have to register to payroll before 6 April for the year you want to payroll in. It’s a sort of whole year thing – it means you must be registered before 22:00 hours on 5 April before it. You can’t dip in now with a few benefits for the rest of the year if you haven’t registered before 6 April of the current year.

LW: And it’s also not possible for new employers either at the moment, is it?

PB: No, that’s right. So if you start up now as a new employer, you wouldn’t be able to payroll until the next 6 April. And you’d have to remember to register before the end of the year.

SR: So from the employer’s perspective, it does sound like it’s worth doing even if just to test the waters. But what would you say are the main problems with payrolling benefits at the moment?

PB: Well, the main problem is, I think, actually getting the information to payroll quickly enough – although if you payroll, there’s no need to submit P11Ds, they still need to submit the P11D(b)s to account for the Class 1A National Insurance contributions. You’ve got to provide the information to employees on what their benefits are by 31 May instead of 6 July so that you can do it as part of the P60 provision, although you can just tell them to look at their final pay slip for the tax year– that’s good enough.

It’s also applying the making good rules; generally making good can be when employees pay the employer for the benefit in kind to reduce the benefit. At the moment the deadline is 6 July if the benefit goes on P11D, whereas if it’s payrolled, then the making good for some benefits is 31 May. There’s also the 50% rule, which means that employers cannot deduct more than 50% of gross in tax from the employee’s pay. And of course, you’ve got other issues such as leavers for whom it’d be quite difficult to put in the final benefit in kind after they’ve left, because there’s no cash emoluments from which to deduct the tax; and there are employees who don’t actually get paid any cash emoluments, so they have only benefits in kind – so there isn’t any cash from which to deduct the tax. That’s just a few of the complexities which, if you payroll in kind, you have to think about.

LW: What should employers or agents do now to prepare?

PB: Probably, as we said earlier, I think consider registering by 5 April 2025 for 2025/26 and, as I say, do a few simple benefits. The main thing, of course, is to communicate what you’re going to do to your staff. Because it is going to have an impact on the employees. Employers and agents will obviously need to review their processes, think where the risky areas are, and have to keep up to date with what’s going on. So keep an eye on Employer Bulletins and the Agents Update, which we normally flag up in our TAXwires and news items.

LW: It does feel like everything’s gone quiet since that initial announcement back in January that there is going to be mandatory payrolling for 2026. As you’ve mentioned, we’ve got the articles, we’ll keep people up to date. We’ve already got a TAXline article that you wrote last year, Peter, on payrolling of benefits as it currently stands, and we’ll be running a webinar on this topic on 16 October – hopefully we’ll have some more information to share by then.

A link will be included in the show notes for this episode, if you’d like to book.

So let’s move on to another article that Stephen, you wrote for TAXline about a tax case involving what was then called Entrepreneurs’ Relief and is now known as Business Asset Disposal Relief for TAXline. What was that case about?

SR: Yeah, thanks, Lindsey. This is a decision from the First Tier Tribunal (FTT) in the case of Delaney. Mrs Delaney ran a nursery business. Initially, she did that in her own name as a sole trader. But later on she decided to incorporate her business, which meant transferring it to a limited company of which she is the main or sole shareholder. On doing that, she triggered a capital gain on the transfer of the goodwill and so she had a CGT bill to pay. Now it’s at this point where there begins to be a disagreement between Mrs Delaney and HMRC. Mrs Delaney believed that the correct tax rate was 10% because of the availability of Entrepreneurs’ Relief, now known as Business Asset Disposal Relief. HMRC rejected that – Entrepreneurs’ Relief was not due – and said the tax rate at that point, the higher rate, was 28%. So quite significant difference there in the two views on how much tax is payable. Because the goodwill was valued at somewhere over £1m, the actual difference in real terms was close to £200,000 of tax, so quite a significant number.

At the heart of the problem was changes that were made to Entrepreneurs’ Relief, effective from 3 December 2014. On that day, the then Chancellor George Osborne had delivered his Autumn Statement, and had announced that, effective from that date, Entrepreneurs’ Relief was no longer available on the transfer of goodwill in an incorporation. So the key issue really was: did that transfer of goodwill take place before 3 December 2014, or after? Had there been a business transfer agreement or formal documentation of that kind, it would have been really easy to determine the date. But unfortunately, in this case, there was very little in the way of actual documentation. And so it fell to the FTT to try and work out what the date of disposal was, based on the evidence that was available to it.

LW: And so, what was the story?

SR: Mrs Delaney had started to trade back in 1996. And if we roll forward to 2011, the business at that point was quite successful and she was trading from two different sites. It appears that this was the point where it was first suggested to her that incorporating the business could be of benefit to her. Early the next year, 2012, she started to enter into negotiations with the landlords to renew the leases on the two sites for her nursery. At that point, she raised the idea with them of the lease being in the name of a new company. Those negotiations continued throughout 2012, but unfortunately ultimately they were unsuccessful. And that left Mrs Delaney looking for new premises. By the end of that year, roughly December 2013, she’d identified new premises big enough to handle both sites and was going to press ahead with that. At that point, she registered the new company with Companies House and from then on all negotiations with the landlord were done in that company’s name.

LW: So it sounds like everything was on track to happen before that date in December 2014?

SR: Yes, certainly at that point, things were looking good. But as is often the case, there were some problems with the landlord and they did actually go ahead, it wasn’t until September 2013 that the company agreed terms with the landlord. There was also then still quite a lot to do. The property had been in residential use, so the company had to apply for planning permission for change of use; there was building work to do so it was fit to run a nursery out of and also, once all that was done, the company then had to apply to Ofsted to be registered. That was all done by 1 September 2015. And at that point, the company opened the nursery business in the new premises and operated the nursery from that date. Now, as we discussed earlier, there was no formal documentation. So here we have a contract that was undertaken by conduct. Mrs Delaney believed that the contract was effective from the date the company was registered with Companies House and certainly before December 2014. HMRC believed that the contract was effective on or around 1 September 2015, when the company was actively running the business, and certainly after December 14. The FTT agreed with HMRC, finding that at December 2014, the company was not in a position to buy or to run that nursery business.

LW: So what are the big takeaways from this case?

SR: I think there are two wider points of interest here. The first is around the lack of documentation. The burden of proving the case fell on Mrs Delaney and she wasn’t able to do that, because she could not point to a formal document that said when the transfer took place. It’s mentioned in the decision as to why that’s the case: solicitors had been lined up to prepare documentation but that hadn’t happened, and it is suggested that this was due to cost concerns. The FTT did describe this decision as naive. And also, with hindsight, clearly it’s potentially quite expensive because it may well have cost Mrs Delaney close to £200,000.

I think the second point is that, if you’re a taxpayer and you’ve taken advice, this case illustrates the need to check that advice is still current before you act. Because as we’ve seen here, there can be events in your business or in your personal life which impact on that advice. Also, you can get significant tax changes which take effect very quickly.

LW: In that case, it was on the day when it was announced. And do we have any sympathy for the taxpayer, given that this change was made without any notice being given? If it’s your company, and you’re transferring goodwill from yourself as trader to the company, you can understand a little bit the cost mentality; but equally, you can understand as professional accountants that that piece of paper could have played a key part in this.

SR: I think, as well, it’s worth remembering that this is an incorporation. So it’s not a sale to a third party, and therefore no new funds came into this business out of which to pay the tax. So ultimately, Mrs Delaney has crystallised a significant tax liability when she didn’t necessarily need to do that. And I think the tax liability is significant partly because of events outside of her control. For example, had the first landlords been amenable, then it’s possible that the company would have been trading from the original premises well in advance of December, and this would never have been an issue. Also, as you mentioned, there were those tax changes. We had the change to Entrepreneurs’ Relief, effective in December 2014, announced on the day. But also if we roll forward a little bit from 16 April, that tax rate of 28% was cut to 20%. So effectively, in a period of what was less than 18 months, we had a tax rate that went from 10% to 28% to 20%. And it’s really just Mrs Delaney’s misfortune that the transfer was found to have occurred too late for 10% and too early for 20%.

PB: When does the transfer actually occur – is it when the company is incorporated or when the trade starts?

SR: Ideally, for a business at this size – and it is worth remembering that this was actually quite a successful business at this point – you would have a formal process in place for transferring the business and all of its assets. There would be a document that sets a date and in advance of that date you would, for example, write to parents and change contracts; you would let everyone know. So it is quite a significant undertaking. But in this case, it’s almost been done unofficially over a period of time. In that situation, there’s a little bit of confusion as to when the decision to transfer the goodwill actually did happen. And there are a number of key events going back to when the company was first registered, from there all the way through to when the doors open that did make it extremely difficult in this position. And yes, had Mrs Delaney prepared the agreements and gone with a formal process, this would have been a lot clearer.

PB: Well, I suppose when it’s your own company, you do tend to treat it as your own and the formalities do sometimes get pushed out of the way.

SR: I think that raises a really good point. Certainly, in the past, a lot of people incorporated their businesses without necessarily understanding what that meant – it was still their business. And that applies for the incorporation process itself but also, possibly more importantly, for how they run the company afterwards. I think an awful lot of people get confused about what used to be drawings, but then suddenly become dividends. It can cause an awful lot of problems and it is important that people fully understand the consequences of their actions.

LW: Thank you. And I think it’s also a really good case for demonstrating why advisers get very nervous about Entrepreneurs’ Relief as it was, or Business Asset Disposal Relief now, around any fiscal event, and whether we’ll get any sudden changes announced. Because history has shown that we have, and this case demonstrates the consequences.

SR: Yes, it has been and probably will be a real political football. And as you say, we do always keep one eye on it when it comes to budgets and Autumn Statements.

LW: That’s it for this episode. Many thanks to Stephen and Peter for your contributions.

If you’ve missed anything, we’ve included some links for further reading in the show notes. And if you’ve found it useful, then don’t forget to subscribe so you never miss an episode. You can rate and share the podcast too. We’ll be back next month with the next Tax Track. In the meantime, why not check out the sister podcasts from ICAEW? Insights provides business, finance and accountancy analysis, while each episode of In Focus offers a deep dive into a selected topic. There’s also the recently launched Students’ podcast aimed at young professionals. If you’re not already a member of ICAEW’s Tax Faculty, remember that ICAEW members can join the Faculty for no additional cost. Faculty members receive our monthly TAXline bulletin. In addition, anyone can subscribe to receive our weekly TAXwire bulletin containing the latest tax news from ICAEW. Thanks for listening.

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