Payroll Benefits-in-Kind

Current treatment of benefits in kind (BIKs)

Benefits in kind are non-cash perks provided to employees, such as company cars, private medical insurance, or gym memberships.

These benefits are currently reported to HMRC annually by the employer using forms P11D. HMRC collects the tax on these benefits from employees via their tax code. The employer reports the organisation’s liability to Class 1A NIC on a form P11D(b) and must pay this by 19th July each year (22 July if paying electronically).

From 6 April 2027

Payrolling benefits in kind will become mandatory. This means that instead of preparing P11Ds, employers will be obliged to process benefits through the payroll. The tax due will be deducted in real time rather than through a change in tax code.

HMRC intends that, going forward, P11D(b)s will no longer be required for employers to declare their liability to Class 1A NIC as this will also be collected via the payroll in real time. More information on this is expected to follow.

From 6 April 2027, all benefits must be payrolled except:

• Employer-provided living accommodation; and
• Interest-free and low-interest (beneficial) loans.

The payrolling of these benefits is voluntary but due to their complicated nature, reporting annually via P11Ds and P11D(b) may be a more practical solution.

What you need to do

If you’re intending to payroll benefits and expenses, you must register with HMRC using the payrolling employees’ taxable benefits and expenses online service. You must do this before the start of the tax year (6 April).

You must tell HMRC which benefits you want to payroll during the registration process.

You should inform your employees that you will be payrolling benefits and they will no longer be receiving P11Ds.

You must send a notification to employees by 1 June following the end of each tax year regarding benefits that have been processed. This should include:

• Details of the benefits you have payrolled, for example, car fuel — this can include what the benefits are, the value, the cash equivalent, and which ones have been subject to PAYE
• The amount you have payrolled for optional remuneration
• Details of any benefits you have not payrolled

This notification can be made via their payslips. The payslips should show the different benefits on a line-by-line basis.

The benefit value will need to be calculated monthly rather than annually. If things change (such as the value of a benefit reducing), the payrolled amount will need to be recalculated.

Impact on employees

Tax on benefits will no longer be collected via employee tax codes annually. Instead, it will be collected via a deduction through the payroll each month.

However, in the first year that benefits are payrolled there will be the feeling of double taxation. This is because P11Ds report in arrears.

This means that employees will be issued with a tax code which reflects their prior year benefits, while being taxed on benefits they receive in real time through payroll.

It is important that employees are forewarned of this impact as soon as possible.

For the avoidance of doubt, the amounts are not double taxed but the tax on 2 years’ worth of benefit will be paid in one tax year. Going forwards employees will be taxed in ‘real time’.

Reimbursements

Amounts provided by way of reimbursement to an employee are not benefits in kind. This is because the employee is receiving cash.

These cannot be payrolled as benefits in kind because employees are liable to Class 1 NIC on such amounts. They must be processed through the payroll in the same way as earnings.

Next steps

If you would like further assistance or have any questions in respect of payrolling benefits, please get in touch with us at p11d@ouryclark.com.

If Oury Clark run your payroll we will reach out with next steps prior to your April 2027 payroll run to ensure you are all set for the change. If Oury Clark do not current run your payroll but you would like us to in light of the additional complexities please reach out to payroll@ouryclark.com.