Added employee loans and living accommodation to the list of benefits that employers can tax directly through the PAYE system.
These Regulations amend the Income Tax (Pay As You Earn) Regulations 2003 to include employee loans and living accommodation as 'specified benefits' that can be processed through the Pay As You Earn (PAYE) system.
They establish specific calculation methods for the cash equivalent or relevant amount of these benefits and permit employers to make reasonable assumptions regarding contract-based information for these calculations.
The measure enables employers to apply for 'authorised employer' status to payroll these specific benefits starting from the 2027-28 tax year.
Arguments For
The explanatory note states that these amendments allow employers to voluntarily apply to become an 'authorised employer' for reporting loans and living accommodation benefits via payroll rather than traditional year-end reporting.
The document specifies that providing methods for calculating cash equivalents and relevant amounts allows for in-year tax deductions and repayments under the PAYE general rule.
The regulations permit employers to use reasonable assumptions based on existing employee contracts when exact information for benefit calculations is not yet known at the time of the payroll run.
Arguments Against
Legal practitioners may note that the regulations rely on cross-references to the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and the Finance Act 2017, requiring employers to navigate multiple legislative layers to calculate benefit values.
Tax professionals might point out that while the regulations take effect in November 2026, the full transition for in-year applications is delayed until the 2027-28 tax year, creating a phased implementation period that employers must manage.
The requirement for employers to make "reasonable assumptions" about unknown information for benefit calculations could lead to potential discrepancies or the need for subsequent adjustments if initial estimates prove inaccurate.
Citation and commencement
- 1 These Regulations may be cited as the Income Tax (Pay As You Earn) (Amendment No. 3) Regulations 2026 and come into force on 5th November 2026.
This section establishes the official name of the regulations.
It sets the date for the legal changes to begin as 5 November 2026.
Amendment of the Income Tax (Pay As You Earn) Regulations 2003
- 2 The Income Tax (Pay As You Earn) Regulations 2003( 3 ) are amended by regulations 3 to 9.
- 3 In regulation 61A( 4 ) (interpretation)-
- (a) in the definition of 'relevant amount'( 5 ) for '120A, 154A or 203A' substitute '103A, 120A, 154A, 175A or 203A( 6 )';
- (b) in the definition of 'specified benefit'( 7 )-
- (i) after paragraph (ba) insert-
- '(bb) section 97 (living accommodation),
- (bc) section 103A (living accommodation: optional remuneration arrangements),', and
- (ii) after paragraph (fa) insert-
- '(fb) section 173 (loans),
- (fc) section 175A (loans: optional remuneration arrangements),'.
This section updates the definitions within the primary PAYE regulations to include living accommodation and loans.
It specifically adds these items, including those provided under optional remuneration arrangements (salary sacrifice), to the list of 'specified benefits' that can be handled through payroll.
- 4 In regulation 61C (authorised employer) omit paragraph (9A)( 8 ).
This section removes a previous restriction that prevented employers from applying to become authorized to payroll these specific benefits.
By omitting this paragraph, the document allows for new applications to HMRC for the upcoming tax cycles.
5 In regulation 61D (deductions and repayments of tax: general rule) in Step 1 in paragraph (1) for 'or 61G' substitute ', 61G, 61GA or 61GB'.
This section updates the general procedure for calculating tax deductions and repayments.
It ensures that the new calculation methods for living accommodation and loans are incorporated into the standard PAYE steps.
6 After regulation 61G (method of calculating the cash equivalent or relevant amount of noncash vouchers, credit-tokens and employment-related benefits), insert-
' Method of calculating the cash equivalent of living accommodation
61GA.-. -(1) Where the specified benefit is living accommodation, the cash equivalent or relevant amount of the specified benefit is to be calculated in accordance with section 103 or 103A of ITEPA, as the case may be.
(2) For the purposes of paragraph (1), the authorised employer may make reasonable assumptions, based on a contract or agreement made with the specified employee, about information that is necessary for the calculation but that is not known on the date the calculation is made.
Method of calculating the cash equivalent of loans
61GB.-. -(1) Where the specified benefit is a loan, the cash equivalent or relevant amount of the specified benefit is to be calculated in accordance with section 175 or 175A of ITEPA, as the case may be.
(2) For the purposes of paragraph (1), the authorised employer may make reasonable assumptions, based on a contract or agreement made with the specified employee, about information that is necessary for the calculation but that is not known on the date the calculation is made.'.
This section introduces two new regulations that define how to calculate the taxable value of living accommodation and loans.
It grants employers the authority to use estimates based on employee contracts when certain details needed for the exact calculation are unavailable at the time of payroll.
7 In regulation 61H (modification of the general rule: cessation of employment but continuing benefit), in Step 2 in paragraph (2) for 'or 61G' substitute ', 61G, 61GA or 61GB'.
8 In regulation 61I (modification of the general rule: in-year adjustments: change to the benefit during the year with effect from the date of the change), in Step 1 in paragraph (2)-
- (a) in sub-paragraph (a)-
- (i) after '94A,' insert '102, 103A,', and
- (ii) after '161,' insert '175, 175A,', and
- (b) in sub-paragraph (b) for 'or 61G' substitute ', 61G, 61GA or 61GB'.
9 In regulation 61J (modification of the general rule: in-year adjustments: change to the benefit during the year with effect from the start of tax year and other changes), in paragraph (1)(b) for 'or 61G' substitute ', 61G, 61GA or 61GB'.
These sections adjust existing rules for special circumstances, such as when an employee leaves a job but continues to receive a benefit, or when a benefit changes mid-year.
They ensure the new calculation methods for loans and housing are applied correctly during these administrative adjustments.
Transitional provision - effect in relation to in year application for authorisation
- 10 For the purposes of regulation 61C(4) and (5) of the Income Tax (Pay As You Earn) Regulations 2003, the amendments made by these Regulations have effect for the tax year 2027-28 and subsequent tax years.
This section dictates the timeline for when employers can start applying to payroll these benefits during a tax year.
While the regulations exist earlier, the ability to apply for authorization within a tax year specifically for these benefits is deferred until the 2027-28 tax year.
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