What do you need to know?
The Payrolling Benefits in Kind (PBIK) scheme was introduced by the UK Government in 2016. It allows employers to process employees’ benefits through payroll rather than reporting them separately on a P11D.
A benefit in kind (BIK) refers to non-cash benefits employees receive from their employer, such as a company car or private medical insurance. These are often referred to as “perks” and are taxable.
The aim of payrolling benefits is to simplify how tax on benefits is reported and collected. Instead of submitting P11D forms at year end, the taxable value of benefits is included in employees’ pay throughout the year, ensuring tax is deducted in real time.
Mandatory Payrolling from 6 April 2027
From 6 April 2027, payrolling benefits in kind will become mandatory. Employers will be required to process most benefits through payroll software, removing the need to submit P11Ds for those benefits.
This change is designed to:
- Reduce administrative burden for employers and HMRC
- Improve accuracy by taxing benefits in real time
- Simplify the overall process of reporting and paying tax on employee benefits
Preparing for the 2026/27 Tax Year
The 2026/27 tax year will act as a key transition period for employers. It is recommended that businesses use this time to review and prepare their processes ahead of mandatory implementation.
Preparation Checklist
- Review all current benefits provided to employees
- Identify which benefits can be payrolled (and any exceptions)
- Ensure payroll software is configured to handle benefits in kind
- Engage with your payroll provider to confirm readiness
- Update internal processes and controls for benefit reporting
Employee Communication Points
- Communicate with your employees to explain what payrolling benefits means and how it works
- Clarify that tax will be deducted in real time rather than via tax codes or year-end adjustments
- Reassure employees that this does not increase the amount of tax due, only the timing
- Provide examples of how payslips may change
- Offer support channels for questions
Impact on Tax Codes
Under the current P11D system, HMRC typically adjusts employees’ tax codes to collect tax on benefits.
With payrolling:
- Tax on benefits is collected directly through payroll each pay period
- HMRC will no longer need to adjust tax codes for most benefits
- Employees may notice changes to their tax codes as benefits are removed from coding adjustments
Transitioning Away from P11D
Key Steps:
- Begin payrolling benefits at the start of a tax year
- Stop reporting those benefits on P11Ds once payrolling is in place
- Continue to submit P11Ds only for any benefits that cannot yet be payrolled (if applicable)
- Review year-end processes to align with the new requirements
How can Menzies help?
If you would like support preparing for mandatory payrolling of benefits in kind our team is here to help.
Our Payroll Bureau can manage your company’s payroll in-line with HMRC compliance, alleviating this responsibility from employers, and freeing up time to focus on your business.
Get in touch to discuss how we can support your transition, ensure compliance, and streamline your payroll processes.
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