Employment Tax Update - February 2026

This bulletin follows the release of the February Agent Updates (Issue 140). In this issue we cover the content most relevant to employment taxes and reward activities.

UK-India Double Contributions Convention

• The UK and India have reached an agreement on social security contributions (also known as National Insurance contributions in the UK) for employees moving between the UK and India.
• The Double Contributions Convention (DCC) will come into effect by summer 2026.
• The DCC ensures that employees moving between the UK and India will only have to pay social security contributions in one country at a time. Employees from one country who are sent to work temporarily in the other country for up to three years will continue to pay contributions in their home country.
• Employers with employees going to, or coming from, India should check the terms of the DCC to determine where they will be liable to pay social security contributions.
• Employees who will remain liable to UK National Insurance while working in India should  apply to HMRC for certificates of coverage using the online CA9107 form.  These certificates confirm that an employee will continue to pay National Insurance contributions in the UK and will not be liable to pay social security contributions in India.

Deferred remuneration – income tax guidance for internationally mobile employees

• HMRC has published new guidance to clarify the tax treatment of individuals in the following circumstances:
  • the individual who earned employment income while resident in the UK for tax purposes;
  • a portion of this income related to employment duties performed outside of the UK;
  • the income was paid when the employee was no longer resident in the UK; and
  • the new country of residence has a double tax treaty with the UK.
• The new guidance (HMRC International Manual to clarify the tax treatment of employment income-deferred remuneration) contains some examples to explain which country has the right to tax the deferred income and explains how overpaid UK tax can be reclaimed.

Payrolling benefits in kind (BIKs)

• The deadline to register for voluntary payrolling of BIKs for the 2026/27 tax year is 5 April 2026.
• Employers wishing to payroll BIKs for the first time should make sure they complete the registration process before 6 April 2026 as voluntary registration is not possible once the new tax year has begun.
• From 6 April 2026, the current voluntary registration tool will close. This change reflects the move to mandatory payrolling of BIKs from 2027/28 onwards.
• Under the new process from 2027/28, most employers will not need to register for voluntary payrolling because payrolling will be mandatory for most BIKs.
• Employers are encouraged to review the interim guidance on  mandatory payrolling of benefits in kind and expenses  which provides a timeline of future updates and delivery.
• The guidance also sets out additional plans to make payrolling of employment-related beneficial loans and living accommodation a voluntary process in the 2027/28 tax year. A new registration service will be introduced for those employers wishing to voluntarily payroll these benefits.
• Do not hesitate to reach out to us if you would like help with the new process.

End-of-year reporting

• Employers should prepare for making their last Full Payment Submission (FPS) or Employer Payment Summary (EPS) of the tax year.
• The last FPS or EPS of the year, up to and including 5 April 2026, needs to include an indicator that the employer is making the final submission.
• Some commercial payroll software will not let employers put the indicator on an FPS. If that is the case, employers should send their last FPS and then send an EPS with the indicator ticked.
• Employers will also need to prepare a P60 to give to employees who are still in employment with them on 5 April 2026. This information must be provided to employees by 31 May 2026.
• If employers are not going to pay anyone again this tax year, they will need to send an EPS with the indicator ticked to show that they did not pay anyone in the final pay period.

Reporting expenses and benefits for the tax year ending 5 April 2026

• For those employers who do not yet payroll expenses and benefits, the deadline for reporting forms P11D and P11D(b) (which deals with Class 1A National Insurance contributions) for BIKs provided in 2025/26 is 6 July 2026.
• All P11Ds and a P11D(b) must be filed online and at the same time. Late submissions may result in a penalty.
• If you make a mistake and need to submit an amendment, be aware that HMRC no longer accepts paper amendments. To rectify the mistake, refer to expenses and benefits for employers  which provides guidance and forms for correcting P11D and P11D(b) errors.

Taxed Award Scheme (TAS)

• Third party companies may be engaged to provide non-cash incentive awards such as non-cash vouchers to employees on behalf of their employer.
• Income tax and Class 1A National Insurance are due on any such awards. Providers of such awards should use a TAS to make a payment to HMRC which covers the tax liability due on awards made to employees.
• Employees must report the award on their tax return. Employers must provide their employees with the grossed-up value of the award and the tax paid on it. It is unlikely they will have to pay any further tax if a TAS covers their award, unless they are liable to pay tax at a higher rate and the TAS only covers the basic rate.
• The Incentive Award Unit deals with all aspects of a TAS, including the valuation of awards and the type of contractual arrangement. Details on how to contact the  Incentive Award Unit  are available online.
• A TAS for awards given in 2025/26 tax year must be agreed by 6 July 2026. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.