Payrolling Benefits in Kind

Background

Unless covered by a statutory exemption or extra-statutory concession, expenses and benefits are either reported to HMRC through P11D returns after the end of the tax year (for inclusion in the employee’s tax code) or they are taxed through the payroll and reported in a Full Payment Submission – known as Payrolling or being Payrolled.

The aim of payrolling is to ensure that income tax due on benefits in kind (BiKs) is paid in real time throughout the year, not after the tax year has ended.

Payrolling of benefits has existed on a voluntary basis since April 2016 but HMRC have announced plans to make this mandatory originally from April 2026, but since confirmed plans to delay to April 2027.

Whichever method an employer chooses to use, currently all employers must complete a P11D(b) which reports Class 1a NIC due and is the employer declaration to confirm all expenses and benefits have been accounted for.

Currently all benefits can be payrolled, with the exception of Beneficial Loans or Living Accommodation – these benefits should still be reported via P11D.  It is expected that these benefits will become available for voluntary payrolling from April 2027.

There is a misconception that employees will “double pay” tax when move from P11d to payrolling.  Once registered the benefit will be excluded from tax code in relevant year so that payrolling takes over.

Exact details are yet to be finalised by HMRC regarding the finer details of the Mandatory Payrolling of Benefits in Kind and we hope to be able to share this information when available.

What is Payrolling Benefits

Payrolling benefits in kind is including the estimated value of an employee benefits directly to their regular pay via payroll, instead of reporting them separately to HMRC on an annual P11D form. 

This aims to simplify deductions, as Income Tax contributions for the benefits are deducted along with regular PAYE taxes. 

What are Benefits in Kind?

A benefit in kind (BIK) is any non-cash service, perk or benefit provided by an employer to an employee for personal use. These can range from health insurance to gym membership and company cars. 

Not all benefits are taxable, however, those applicable must be properly declared to HMRC.

Registration

Employers or Tax Agents (Burgess Hodgson) must register to payroll benefits with HMRC prior to the start of the tax year in which you wish to commence payrolling benefits.  Registration is completed through the client or agent Government Gateway using PAYE online ID & Login details and during registration you will specify which benefits you wish to include in payroll. 

Employer link to register is here – register and use the payrolling benefits and expenses online service

Once registered you are registered as ongoing and not required to “re-register” each year.  

Once registered to payroll benefits you must payroll the benefits registered otherwise the employees will not pay tax on their benefits, and this becomes an Employer liability as HMRC can recover the tax missed, from the employer.

You can exclude an employee, whilst payrolling is voluntary, if the employee does have benefits but does not want to payroll them.  Therefore, a P11D is required.

If at some point you stop payrolling a particular benefit or expense, you can remove it from the registered selection, which will take effect from the start of the following tax year.

As it currently stands, if you miss the voluntary registration deadline, you have to wait until the next year to include benefits in your payroll.

Types of benefits

If any of the following have been provided to employees or Directors, a benefit arises which must be reported to HMRC.  This list is not exhaustive.

• Accommodation provided or rent paid.
• Personal Accountancy or legal fees paid by the employer for the employee.
• Assets bought, sold or given.
• Assets made available.
• Beneficial Loans
• Company Cars/Fuel
• Company Vans/Fuel
• Gym Membership
• Loans Written Off
• Medical Insurance
• Mobile Phones, where more than one telephone is provided to an employee. There is no benefit if only one mobile telephone is provided, so long as this was under a contract in the employer’s name and paid for directly by the employer.
• OpRA Schemes
• Staff Entertainment (except annual staff events not exceeding £150 per head per annum in total)
• Trivial Benefits

Selecting benefits

When selecting benefits to be payrolled, the benefits are grouped by HMRC in line with the P11D form, although not ordered in the same way.

Where several benefits are reportable in the same box (e.g. Box M where you could have both professional subscription costs and gym membership) they would be selected on an all or nothing basis.

The selection of benefits applies to all employees included in payrolling; you cannot select a different range of benefits for different employees.  But you can deselect excluded employees (where required) during registration.

List of benefit types available

Benefit	P11D Section
Car and car fuel	F
Private medical treatment or insurance	I
Assets placed at the employee’s disposal	L
Assets transferred (card, property, goods or other assets)	A
Entertainment	N
Income tax paid but not deducted from Director’s remuneration	M
Mileage allowance and passenger payments	E
Non-qualifying relocation expenses	N
Other items (including subscriptions and professional fees)	M
Payments for use of home telephone	N
Payments made on behalf of employee	B
Qualifying relocation expenses, payments and benefits	J
Services supplied	K
Travelling and subsistence payments	N
Van fuel	G
Vans	G
Vouchers and credit cards	C

*Please note that until April 2027, Interest-free and low interest loans (section H) and Living Accommodation (section D) are not available to register online or payroll as a benefit.

Calculations

Employers must start the year by calculating the portion of the annual cash value to process through the payroll in each pay period.

The annual cash value is calculated in the same way as it is for reporting on a P11D.  The next steps are;

1. Identify the number of pay periods that will fall during the tax year.
2. Divide the annual cash value of the benefit by the number of pay periods.
3. Add this value to the gross taxable pay (as notional pay) to each of the payroll cycles.
4. Calculate the income tax to deduct (or refund) in usual way.

Payrolling Car and Car fuel benefits do not have to complete a P46(car) to report any changes. There is a mandatory requirement to provide additional information through the payroll Full Payment Submission (FPS). If a car has Co2 emissions of 1-50g/km the cars zero emission mileage figure must be provided in the FPS. The date the car is first registered must also be provided in the FPS.

If a benefit changes during the tax year, then the annual benefit must be recalculated, and the new value apportioned over the remaining pay periods in the tax year. 

Communication

Once registered to payroll BiK, employers must write to affected employees to notify them and explain how the change will affect them.  Details of both payrolled and non-payrolled benefits should be provided and information about how the detail on their payslip will change and what this means.

There will be a change in tax code for employees that previously had benefits reported via P11D.

Considerations

Each time a benefit is provided, renewed, replaced or modified; your payroll processing team needs to receive the information as soon as possible to ensure information reported on the payroll is correct and up to date.   

Useful Links

How to use the payrolling benefits and expenses online service – https://www.gov.uk/guidance/paying-your-employees-expenses-and-benefits-through-your-payroll 

Register to Payroll Benefits in Kind by 5 April 2026 for 2026/27 Tax Year – register and use the payrolling benefits and expenses online service

HMRC Guidance – Payrolling; tax employees benefits and expenses through your payroll  – https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll#how-to-register-for-payrolling-benefits-and-expenses 

Expenses and Benefits – https://www.gov.uk/expenses-and-benefits-a-to-z