The consultation, published by HM Revenue & Customs (HMRC), follows the announcement in the Pre-Budget report that HMRC would consult on how best to collect tax on benefits-in-kind and expenses through payroll, which would remove the need for the separate end-of-year process.
The consultation paper, published on HMRC's website, sets out proposals for change and seeks the view of employers, accountants, agents, software providers and any other interested parties.
The paper states: "Abolishing the P11d reporting process, which is consistently cited as onerous, and providing a statutory basis would reduce administrative burdens associated with providing benefits and expenses."
The Institute of Payroll Professionals (IPP) has urged the government to follow the example set by other countries such as Ireland, where a separate declaration of expenses through a P11d-type process is not required.
Processing through payroll is an approach that has been advocated as an accurate, cost-saving process.
Maurice Cheng, chief executive of the IPP, said: "At the moment. occupies a significant chunk of time for payroll and human resources departments' and anyone else involved in the process on the benefits side. It's just an unnecessary third-party process. None of this is a guarantee but we are certainly seeing some positive signs."
Since 2002 company car drivers have paid tax on a percentage of their car's P11d price with the percentage derived from the car's carbon dioxide emissions.