In April 2016, HM Revenue and Customs (HMRC) implemented a significant change in the way benefits in kind (BIK) are managed for employers in the UK. This new system, aptly named “payrolling benefits in kind,” revolutionised the approach to reporting and taxing non-cash perks provided to employees.
In early 2024, the British Government unveiled plans to make the payrolling of benefits in kind mandatory starting from April 2026. We’ll get into the details of this announcement later on.
So, if you provide non-cash benefits to your employees and want an overview of payrolling benefits in kind, you’ve come to the right place.
What are benefits in kind?
Benefits in kind encompass a wide range of perks that you may offer to your employees, including company cars, private healthcare, gym memberships, and even the use of a mobile phone.
Essentially, if you provide something of value to your staff that isn’t included in their salary, it likely falls into this category.
Some common examples of BIKs include company cars, private medical insurance, and gym memberships.
What are your current options when it comes to BIKs?
When it comes to benefits in kind you have a couple of options:
- You can continue using the traditional method of submitting P11D forms to report employee benefits for tax purposes, if they aren’t included in payroll (until April 2026).
- You can register for payrolling benefits. This allows you to handle employee benefits through your regular payroll process, enabling real-time taxation of benefits via PAYE.
What are payrolling benefits?
Payrolling benefits in kind means including the estimated value of employee benefits directly in their regular payroll, instead of reporting them separately to HMRC on the annual P11D form.
This simplifies tax deductions, as Income Tax contributions for the benefits are deducted along with regular taxes.
The benefits of payrolling benefits in kind
Opting to payroll benefits in kind offers several advantages such as:
- Simplified admin: if your payroll software is capable of processing benefits in kind, you can say goodbye to the hassle of completing P11D forms and the associated deadlines.
- Improved accuracy: by reporting benefits in kind in real time, you minimise the risk of errors and discrepancies in your tax calculations.
- Enhancing the employee experience: payrolling benefits in kind allows you to provide your employees with a clear and transparent view of their total remuneration package. By integrating these benefits directly into the payroll, employees can easily see and understand the full value of their compensation.
What’s changing in 2026?
From April 2026, all benefits in kind (except for loans and living accommodation) must be reported and taxed through payroll. Which means that you’ll no longer be able to process BIKs through P11Ds.
You need to make sure that your payroll system can handle this change and upgrade or replace your software if need be.
How to register for payrolling benefits?
To register for payrolling benefits, use HMRC’s online service to manage your employees’ taxable benefits and expenses before the tax year begins. During registration, select the benefits you wish to integrate into payroll. Keep in mind that unless you use the online service to exclude specific employees, all benefiting employees will have their tax codes adjusted.
If you miss the 5th of April deadline to register for payrolling benefits, you’ll have to wait until the next tax year to include benefits in your payroll.
The Government hasn’t set a deadline for compliance with the legislation change coming in April 2026. However, they have said more updates will be released throughout the year.
What happens next?
You have a responsibility to communicate with your employees about the implications of payrolling benefits. This includes explaining how their pay will be adjusted, how tax deductions will be managed, and the impact on their tax codes.
Additionally, you must provide annual statements detailing the benefits received by each employee.
Benefits that are not included in payrolling must continue to be reported using P11D forms as per current procedures.
How to notify your employees
You must notify your employees by 1 June after the end of each tax year.
You can do this via:
- Letter
- Payslip
What happens if you want to cancel your registration?
To cancel your registration for payrolling benefits, notify HMRC via their online service before the tax year begins. If you decide to cancel after the tax year has started, you’ll need to wait until the year-end to cease payrolling (until the law changes in April 2026).
Where can I get extra information to help me prepare for April 2026?
To keep abreast of mandatory payrolling updates and requirements, you can refer to HMRC’s Employer Bulletins.
These bulletins offer crucial updates, guidance, and information on changes related to payrolling benefits, helping you remain informed about any new developments or requirements.
Is your current payroll process up to scratch?
If you are looking for a team of experienced payroll experts that can quickly and efficiently manage all your employees’ taxable benefits. Book a personalised demo with our sister-company Cintra.