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HM Revenue and Customs is phasing out annual benefit-in-kind reporting for company cars.
The changes start from 6 April next year and, with draft legislation not due until 2025, many fleets are facing short deadlines to comply with those changes.
Starting with the 2026/27 tax year, employers must report the value of any workplace benefits (anything provided in addition to salaried income) to HMRC through their payroll software and collect any tax at the same frequency as employees are paid – even if that’s weekly.
Although some employers have already opted into that newer system, many still collect drivers’ benefit in kind monthly, report using a P11d form at the end of the financial year and collect any backdated tax at the same time. They have less than 18 months to reform that process.
Simon Down, director at Deloitte’s employment tax automotive team, warned that this could create administrative challenges – such as ensuring vehicle changes are reported to payroll more frequently, including downtime for repairs and courtesy car loans that last more than 30 days.
“A key risk is that, with a reduction in the amount of time to collate, validate and process fleet data, mistakes could be made,” he said. “These could create a very poor employee experience where they are taxed on vehicles they should not be taxed on, or if there are other problems with the data that are not identified and fixed within the narrow payroll window.
“Where these negative experiences are allowed to occur and persist, a company car scheme could come under negative internal scrutiny. Ensuring quality data and a robust approach to collate, validate and process that data is critical.”
The reforms also affect salary sacrifice schemes, where employees pay the monthly lease cost out of their pre-tax salary and (if the car emits 75g/km of CO2 or less) benefit in kind for the use of the vehicle.
Cheryl Clements, head of business development at Tusker, says the payrolling of benefits gives drivers more transparent, predictable monthly costs while reducing the risk of backdated tax bills. However, she advises opting in early – businesses have until the start of the tax year (on 6 April) to register.
“You’ve still got five months, so why don’t you do it from April 2025?” she said. “It isn’t going to take long to set up and a lot of people will be waiting until April 2026. If you need to involve your payroll team or payroll provider, they may be under the cosh to get everybody set up and on board.
“Get in contact with HMRC. Then speak to your payroll team or payroll provider to say: ‘This is what we would like to do. What do we need to do to make this happen?’ They should be able to work that through the system.”