Mandating the payrolling of benefits in kind

Frequently Asked Questions

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1. What has the government announced?

On 16 January 2024, the government published plans to look to mandate the reporting of taxable benefits-in-kind (BIKs) through payroll. This change, where approved, will take effect from April 2026.

2. Why is this change being made?

The main intention is to simplify the reporting of BIKs and reduce the administrative burden for employers that comes with filing annual Forms P11D.

The government estimates this will simplify the tax affairs of 3 million people and reduce the need for them to contact HMRC, whilst eliminating the need for 4 million end of year P11D returns to be submitted to HMRC by employers.

It will also help the government collect tax quicker on BIK given it will reduce the reliance on personal tax code adjustments following the filing of Forms P11D.

3. How does Payrolling benefits work?

Payrolling benefits works by:

i. Including the cost of employee BIKs in gross pay.

ii. Taxing the BIK cash equivalent in real time within each pay period where a BIK is received. This means an additional amount of tax is due on the BIK value reported on the payslip at the employee’s applicable marginal tax rate.

This is instead of taxing BIKs via an adjustment to the employee’s tax code in the following tax year and the employer filing a Form P11D at year end. Under the current P11D arrangement, the tax is usually collected by reducing the employee’s personal allowance by the value of their BIKs received in the previous tax year, resulting in an additional part of their gross pay being subject to income tax.

4. Can BIKs be payrolled now, instead of waiting until April 2026?

Yes, HMRC already allow employers to payroll certain BIK, provided they formally elect to do so prior to the start of the tax year that they wish to payroll benefits.

This then means, that, for certain benefits these do not need to be reported on Forms P11D, as the tax is collected through payroll. However, the employer is still required to file a P11D(b), including these BIK values and pay Class 1A NIC by 19 or 22 July following the end of the tax year in which these BIK were payroll.

Alongside this, any BIK not covered by the voluntary payrolling of BIK agreement in place with HMRC will need to be reported on Forms P11D, as will any BIK that cannot currently be payrolled – beneficial loans and living accommodation.

5. What does this mean going forward?

On paper at least, it appears this move will potentially signal the end of annual Form P11D filing for employers from the 2026/27 tax year onwards. The reporting of taxable BIK will instead take place on a pay period basis with employees paying tax in the relevant pay period when the BIK is received, rather than through an adjustment to their tax code in the following tax year.

However, it is currently unclear if this will eliminate the need for year end reporting altogether. As above, there are current BIK that cannot be payrolled and others where it might not be advisable to payroll (e.g. transfer of an asset). The Government will need to carefully consult on this and it will be important for employers to consider what steps to take.

We have helped a number of clients historically transition to voluntarily payrolling BIKs and will be happy to provide support here too.

6. Which benefits are affected?

The change will apply to all BIK currently reported via Forms P11D. However, there remain question marks over the practicalities of reporting certain BIK through payroll, most notably accommodation and beneficial loans.

HMRC currently prohibit the payrolling of these BIK due to the difficulty of calculating the value of the BIK on a pay period basis rather than on an annual basis. We expect further guidance to be published on this in due course and look forward to sharing our views with the government on this topic.

Additionally, some BIK and expenses are not costs upon which the employer wants the employee to pay tax on. For these costs, it will remain more practical for employers to continue to report certain benefits and expenses through a PAYE Settlement Agreement (PSA) rather than through payroll. This typically covers expenses and BIK which are minor, irregular or impracticable to report on an employee-by-employee basis, such as staff entertaining and staff gifts.

One other aspect to be mindful of is whether any tax legislative change comes in relating to how taxable benefits are defined for specific BIKs, including accommodation, certain vehicle types (e.g. double cab pick-ups), provision of assets and loans – this will be something to watch over the coming year.

7. What else needs to be considered?

Payrolling BIK will mean a number of additional considerations for employers who currently file Forms P11Ds, including:

Communication to employees to advise them of changes to how their BIK will be reported and taxed and how this will impact their tax affairs in the short and longer term.
How tax will be paid on BIKs for employees receiving statutory pay, no pay or where the additional tax due on the BIK will lead to a tax lability higher than 50% of their pay in a particular pay period.
How payrolled BIKs should be shown on payslips.
Changes to reporting processes to ensure that the correct BIK value is reported through payroll.
Managing legislative updates that change how certain BIKs are calculated (e.g. changes to the CO2 percentage for company cars).
Interaction with National Minimum Wage checks and compliance impact on other BIK.

8. What should employers do now?

Ahead of the new rules being introduced in April 2026, employers should not panic. There are still three years worth of P11Ds to report before transition may be required.

Therefore, it is important employers take stock and look at what they should do and when action should be taken. A good starting plan may be as follows:

Review current employee BIK packages and identify which BIK may be impacted
Assess how current processes may be impacted and the practical steps that may need to be taken
Carry out a feasibility review on the interaction with current BIK, pay and HR practices to see how this can be best transitioned
Consider how it can be communicated to employees and when it may be most appropriate to start payrolling BIK (e.g. 2026/27 or earlier). If earlier than 2026/27, the employer will need to elect to voluntarily payroll BIK prior to the start of the relevant tax year.
Undertake payroll testing and establish relevant controls for all BIK, particularly those that might change within the tax year (e.g. company car changes)
Assess how to approach BIK that are more troublesome or currently cannot be reported via payroll (e.g. BIK provided via Optional Remuneration, loans, living accommodation)
How will this impact and interact with cash flow and budget plans given Class 1A NIC liability

Given we are still waiting for further guidance from HMRC on some of the issues highlighted above, we would advise that employers do not rush to immediately start payrolling BIK. As stated above, Form P11D reporting will remain in place for the next three tax years so there is still plenty of time for employers to consider the optimal reporting arrangements moving forward.

9. How we can help

To help, we offer an initial high level consultation call to discuss your current BIK and reporting status.

Please complete our questionnaire as this will enhance our understanding of how this potential future change will interact with your current BIK controls and communications to employees, as well as how you can plan for any changes that take place from April 2026.

Please complete our questionnaire