Employment Tax Update - August 2026

This bulletin follows the release of the June and July Agent Updates (Issue 144 and Issue 145). In this issue we cover the content most relevant to employment taxes and reward activities. 

Mandatory payrolling of benefits in kind (BIKs)

• Following extensive engagement with employers, software developers and representative bodies, the Government has decided to phase the introduction of mandatory payrolling of BIKs from April 2027.
• From 6 April 2027 onwards, mandatory payrolling will apply only to company cars, car fuel, vans, van fuel, and medical benefits.
• Mandatory payrolling for most other benefits will be introduced from April 2028.
• Employers will be able to register for voluntary payrolling for all other BIKs that have not been mandated to be payrolled from April 2027, including loans and accommodation, from November 2026.
• Where employers payroll benefits on a voluntary basis, the Class 1A National Insurance contributions (NICs) have to be reported on a form P11D(b) by 6 July and paid over to HMRC by 22 July following the end of the relevant tax year. HMRC is considering the expansion of voluntary services to allow employers to process the associated Class 1A NICs on BIKs through payroll alongside the income tax liability.
• Mandatory payrolling of benefits in kind interim guidance has been updated to reflect phasing and feedback received to date.

UK - India Double Contributions Convention (DCC)

Our February employment tax update set out details about the DCC between the UK and India.

• The DCC entered into force on 15 July 2026.
• The UK and India have agreed to extend the detached worker provision in the DCC from three to five years. This means that employees who are sent to work temporarily in India for up to five years, and their employers, will continue to pay NICs in the UK. They will not have to pay social security contributions into the Indian scheme.
• Employees who will remain liable to pay UK NICs whilst working in India should hold a valid certificate of coverage issued by HMRC covering the period of their work in India. This will confirm to the Indian Employees’ Provident Fund Organisation that the employee is not liable to pay social security contributions in India.
• Applications for certificates of coverage for periods of work in India can now be made using the online CA9107 form.
• Similarly, employees sent to work temporarily in the UK by their Indian employer for up to five years will continue to pay social security contributions into the Indian scheme so long as they hold a valid certificate issued by the Indian Employees’ Provident Fund Organisation. They will not have to pay UK NICs. 

PAYE Settlement Agreement (PSA)

• PSAs are an agreement between an employer and HMRC to report minor, irregular, or impracticable expenses, or benefits provided to employees during the tax year.
• The deadline for applying for a PSA or making amendments to an existing PSA was on 5 July 2026 for the 2025/26 tax year.
• This agreement is enduring and remains in place until changed or cancelled by HMRC or the employer.
• HMRC no longer accept PSA correspondence by email. Instead, employers or their agents can submit PSA calculations and apply for, amend, or cancel PSA Agreements using online forms.
• If you are unable to use the online PSA forms, or have any submissions to make to the PSA team, you can write to: PAYE Settlement Agreements, HM Revenue and Customs, BX9 2AN.
• The Government has published a call for evidence on PSAs seeking to improve understanding of how PSAs operate in practice, including how employers interpret the rules and where there may be complexity or uncertainty. The evidence gathered will allow an informed view of whether any changes are needed, with the aim of addressing unclear boundaries and inconsistent use and helping to reduce administrative burdens for employers and advisers. 

NICs for internationally mobile individuals

• The Government will formalise an existing NICs practice for non-resident directors who attend a small number of board meetings in the UK but are based in countries without a social security agreement.
• Under this measure, non-resident directors will be able to carry out limited UK duties without incurring a National Insurance contributions liability, providing clarity and certainty for employers and internationally mobile individuals.
• There is a separate NICs easement that allows certain employees posted abroad by their employer to work in a country with no social security agreement to return to the UK for short periods without them needing to pay additional Class 1 NICs. The Government is considering its approach to this practice and will work with stakeholders on providing further clarity about this in due course. 
   

Macfarlanes is a pre-eminent law firm advising a global client base across Private Capital, Private Wealth, M&A and Disputes.

Visit our website to learn more about our services and how we can assist.