In the modern workplace, benefits in kind (BIK) have become an essential part of employee remuneration packages.
These non-cash benefits, ranging from company cars to private health insurance, provide your employees with valuable perks and you with many tax advantages (i.e. not having to file annual P11D and P11D(b) forms.)
Earlier this year, the British Government announced that payrolling of benefits in kind will become mandatory from April 2026. But more on that later.
We know there’s a lot to cover so we’ve broken it all down for you in digestible sections.
What are benefits in kind?
Benefits in kind are perks provided to employees that are not included in their salary but are considered part of their overall compensation.
Some common examples of BIKs include:
- Company cars
- Private medical insurance
- Gym memberships
- Childcare vouchers
- Meals and travel expenses
What are the advantages of payrolling benefits in kind?
Payrolling BIK offers several significant advantages for both you and your employees:
For you
- Simpler tax admin: reduces the administrative burden of submitting P11D forms at the end of the tax year.
- Improved cash flow: ensures that tax is collected in real time, preventing large end-of-year tax payments.
- Better transparency: provides a clearer understanding of total employee compensation.
For your employees
- Real-time taxation: employees pay the correct amount of tax each pay period, avoiding unexpected tax bills at the end of the year.
- Simpler tax returns: reduces the need for employees to file complex tax returns related to benefits in kind.
- Clearer pay statements: employees receive more transparent pay statements, reflecting their total compensation more accurately.
Payrolling benefits in kind: current status and April 2026 changes
As it stands, when it comes to benefits in kind, you have two choices:
- You can stick with the traditional approach of submitting P11D forms to report employee benefits for tax purposes (if they aren’t processed via payroll).
- You can opt to register for payrolling benefits, which means you process employee benefits as part of your usual payroll processing, allowing for the real-time taxation of benefits through PAYE.
What’s going to change from April 2026?
Starting from April 2026, all BIKs that you provide (except for loans and living accommodation) will have to be reported and taxed through payroll. You must ensure that your current payroll process will be able to handle this new development and take actions to either upgrade or replace your software if necessary.
How register for payrolling benefits
To register for payrolling benefits, you need to use HMRC’s online service for payrolling employees’ taxable benefits and expenses before the start of the tax year.
When registering, you’ll choose the benefits to incorporate into payroll. It’s important to note that all employees receiving benefits will have their tax codes adjusted unless you opt out specific employees from the payrolling process via the online service. Remember, this option is available to you until April 2026.
What happens if you want to register for payrolling benefits now and miss the deadline?
If you fail to register for payrolling benefits before the 5th of April, 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 in due course.
What are your obligations to your employees?
- You are required to inform your employees of what payrolling the benefits mean for them, explaining the pay adjustment, how the tax will be collected and how it will affect their codes.
- You will still need to provide statements to your employees giving details of the benefits annually.
- Any benefits not payrolled need to be reported on P11D forms as usual, for now.
How can I stay updated on mandatory payrolling developments and requirements?
To stay updated on mandatory payrolling developments and requirements, you can access additional information through Employer Bulletins provided by HMRC. These bulletins typically contain important updates, guidance, and changes related to payrolling benefits, ensuring you stay informed about any new developments or requirements.
Are you equipped for the shift to payrolling benefits?
Our team of experienced payroll experts can quickly and efficiently manage all your employees’ taxable benefits. Book a personalised demo today and see how we can help.