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 to HMRC by 19th July each year (22 July if paying electronically).

From 6 April 2027

A phased introduction of mandatory payrolling of BIKs will be introduced for:

• company cars
• car fuel
• vans
• van fuel
• employer-provided medical benefits

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.

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.

The mandatory payrolling of most other BIKs will be introduced from April 2028.

This mandation specifically excludes loans and accommodation benefits. The payrolling of these benefits will be 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

Before benefits are payrolled, you should inform your employees that you will now be payrolling most 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 all benefits.  The notification must tell your employees that they will not be taxed twice because you payroll their benefits with HMRC.

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 in ‘real time’.

In the first year that benefits are payrolled HMRC may also be collecting tax owed on prior year benefits reported on their P11D.

This means that employees may be issued with a tax code which reflects tax owed for the prior year, 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 and would be well advised to ensure any tax code changes following the introduction of payrolling Benefits in Kind are reviewed carefully.

Reimbursements

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

Unless a specific exemption or relief applies, 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.