For many businesses, managing employee benefits in kind (such as company cars, medical insurance, and other non-cash perks) can be an administrative headache. Traditionally, these benefits have been reported annually to HMRC via form P11D, requiring separate tax adjustments for employees. However, payrolling benefits in kind offers a streamlined alternative.
What is payrolling benefits in kind?
Payrolling benefits in kind (PBIK) means reporting employee benefits directly through the employer’s payroll system, rather than via a P11D at the end of the tax year.
Employees’ tax codes are adjusted accordingly, allowing them to pay tax on these benefits in real time throughout the year. This method eliminates the need for a P11D, simplifying administration for employers and reducing unexpected tax liabilities for employees.
Key considerations for Employers
- Eligibility: Most benefits can be payrolled, but employer-provided living accommodation and beneficial loans (low or interest-free loans) must still be reported on a P11D.
- Registration requirement: Employers must register with HMRC before the start of the tax year in which they wish to begin payrolling benefits. This is currently optional from April 2025, but will be mandatory from April 2026.
- National Insurance contributions: Regardless of how benefits are reported, employers must still complete form P11D(b) and pay Class 1A National Insurance Contributions (NICs) on the total taxable value of benefits provided. The deadline for filing the P11D(b) and making payment is 6 July following the end of the tax year.
Looking ahead: Mandatory payrolling from 2026
From 6 April 2026, PBIK will become mandatory for all employers, with the exception of beneficial loans and living accommodation, which will still be reportable via P11D unless voluntarily included in payroll.
Employers have the option to transition earlier, from 6 April 2025, if they wish to get ahead of the change.
What should Business Owners do now?
- Consider early adoption: Businesses can opt to move to payrolling benefits from April 2025. This could reduce admin burdens and ensure a smoother transition before the 2026 deadline.
- Review internal processes: Employers should assess their payroll systems and ensure they can accommodate PBIK reporting. Consulting with a tax professional can help navigate the transition efficiently.
Please contact Dee or Helen below if you are considering payrolling benefits in kind or otherwise have any questions about future obligations. Planning ahead will help ensure a seamless transition and compliance with the upcoming changes.