Payrolling Benefits in Kind – Everything you need to know

The Payrolling Benefits in Kind scheme was set up by the UK Government in 2016 and this refers to the practice of processing employees benefits through the payroll rather than on a P11d.

A benefits in kind is goods or services that an employee receives from their employer which isn’t included in their salary or wages.

These benefits are often referred to as a “perk”, such as a company car or private health insurance.

The purpose of this scheme was to make declaring and paying tax on benefits easier, compared to the previous method of submitting P11D forms.

It also removes the need for employers to complete P11Ds on behalf of employees, saving time and minimising errors.

From April 2026, payrolling benefits in kind will be made compulsory via your payroll software and this will remove the need for employers to submit a P11D at the end of the year.

This measure will help minimise the administrative burden for employers and HMRC and simplify the process of reporting and paying tax on all employment benefits.

1. If you want to payroll benefits you must be registered as an employer with HMRC. Once registered you can apply online before the start of the tax year.
2. Check that your employees are eligible for the benefits you plan to payroll.
3. Communicate the change to your employees and let them know how the process will work.
4. You must maintain accurate records of the benefit values, employee elections, and any necessary reporting documentation required by tax authorities.
5. Implement the changes to your employee’s records in the payroll software to reflect their payrolled benefits.
6. Employers must submit a P11D(b) before 6th July following the end of the tax year.

There are a number of reasons why payrolling your benefits could be advantageous. These include:

• Payrolling your benefits aims to simplify the administrative tasks for employers by integrating employee benefits into the monthly payroll process, eliminating the need for additional and burdensome year-end reporting.
• It reduces compliance risks, ensures accurate tax and National Insurance calculations and enables real-time reporting of taxes on benefits.
• The streamlined processing of benefits is designed for better employee understanding of tax implications, offers cash flow benefits by spreading tax deductions throughout the year, and results in cost savings through simplified year-end reporting.
• Processing benefits through payroll also facilitates meeting reporting deadlines and makes it easier for employers to make changes to benefit offerings.

Please note that you will need to apply for clearance from HMRC prior to the start of the tax year and recommend that the application is made in February at the latest.

For more information on how to payroll your benefits, please contact the Payroll team.