The UK Government introduced the Payrolling Benefits in Kind scheme in 2016, allowing you to process your employee benefits directly through payroll instead of using a P11D form.
And with payrolling benefits set to become mandatory in 2026 (more on that later), let’s go through the key information you need (and where to find more) around payrolling benefits and how to prepare for the government’s announcement.
The definitions
Before we get into the nitty gritty of payrolling benefits in kind, let’s make sure we’re on the same page when it comes to the terminology.
Payrolling benefits
Payrolling benefits in kind means including the estimated value of employee benefits directly in their regular payroll, instead of reporting them separately to HMRC on the annual P11D form. This simplifies tax deductions, as Income Tax contributions for the benefits are deducted along with regular taxes.
Benefits in kind
A benefit in kind (BIK) is any non-cash perk or service provided by an employer to an employee for personal use. These perks can range from gym memberships to company cars.
It’s important to highlight that not all benefits are taxable, however, those that are must be properly declared to HMRC.
BIK tax
A BIK tax is a tax applied to employees who receive benefits or perks from their employer that aren’t included in their salary. These benefits can include company cars, private health insurance, interest-free loans, or other non-cash perks.
The value of the benefit is determined by HMRC and added to the employee’s taxable income, meaning they must pay Income Tax on it.
Company car BIK rates for 2024/25
Here are the BIK rates and bands for EV, hybrid and petrol vehicles in the UK for 2024/25:
| CO2 emissions in g/km | EV range in miles | BIK rate |
|---|---|---|
| 0 (zero emission EV) | Any | 2% |
| 1 to 50 (hybrid) | >130 | 2% |
| 1 to 50 (hybrid) | 70 to 129 | 5% |
| 1 to 50 (hybrid) | 40 to 69 | 8% |
| 1 to 50 (hybrid) | 30 to 39 | 12% |
| 1 to 50 (hybrid) | < 30 | 14% |
| 51 to 160 (petrol or diesel) | N/A | 15% to 36% range |
| 160+ (petrol or diesel) | N/A | 37% |
Payrolling benefits in kind to become mandatory from 2026
As it stands, you have two ways of processing benefits: Submit a P11d form or do it through payroll.
The most common payrolled benefits are:
- Company cars.
- Health insurance.
- Mobile phone allowances.
- Private medical insurance.
- Childcare vouchers or subsidies.
- Travel expenses such as car fuel benefit.
- Gym memberships.
- Meals provided by the employer.
What’s going to change and how will it impact you?
Starting from April 2026, payrolling benefits in kind will become mandatory, eliminating the need for you to file annual P11D forms.
This means all BIKs – except for loans and living accommodation provided by you – must be reported and taxed through payroll.
You’ll need to make sure your payroll process can handle this and change your payroll software if necessary.
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How to 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.
During registration, you’ll specify which benefits you want to include in payroll. 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, you’ll only be able to do this until April 2026.
As it stands, if you miss the registration deadline, you’ll have to wait until the next tax year to include benefits in your payroll.
Next steps
- Communicate with your employees: You need to explain what payrolling benefits in kind means for them and how it works.
- Include cash equivalents in their pay: Make sure the cash equivalent of each payrolled benefit is included in their pay as a taxable amount.
- Provide them with comprehensive benefit details: This should include a full description of all payrolled benefits in the tax year, along with their cash equivalent.
- Complete a P11D form: You need to submit a P11D to HMRC for any benefits that aren’t payrolled.
How to report the benefits you provide to your employees
Let’s take a look at P11D and P11D(b) forms, what they are, why you need them and their main difference.
P11D
A P11D form is a document that details benefits in kind and expenses (like company cars or health insurance) that you provide to your employees, in addition to their regular salaries.
P11Ds are crucial because they make sure benefits are accurately accounted for and taxed, whilst meeting legal requirements and helping everyone pay their fair share of taxes.
P11D(b)
A P11D(b) form is a declaration form that provides the total amount of Class 1A National Insurance contributions (NICs) due on all benefits provided to your employees.
What’s the difference between a P11D and a P11D(b)?
While both forms involve reporting benefits and expenses, the P11D focuses on detailing individual benefits provided to your employees, while the P11D(b) declares your overall liability for National Insurance contributions on those benefits.
Will they still be needed under the new system?
No, P11Ds and P11D(b)s won’t be needed from April 2026. All employee benefits will be processed through payroll instead.
When do you need to pay Class 1A NICs?
You’re responsible for paying Class 1A National Insurance contributions on most benefits you provide to your employees. These contributions are covered by you and aren’t deducted from your employees’ salaries.
You must pay Class 1A NICs for:
- Directors and certain senior employees.
- Regular employees.
And certain conditions must be met for Class 1A NICs to apply:
- The benefit mustn’t already incur a Class 1 NICs liability.
- The benefit must be related to employment.
- The benefit must be subject to Income Tax.
When you don’t have to pay Class 1A NICs
You won’t have to pay Class 1A NICs if:
- Your employee receives a non-taxable BIK.
- The beneficiary does not doesn’t meet the criteria for “employed earner”.
- The benefit is included in a PAYE settlement agreement.
How can you prepare yourself for April 2026?
To prepare for the change to payrolling benefits in kind, asses your current payroll processes and consider switching to a payroll company that can handle this change for you.
You should start planning and making any necessary adjustments now to make sure your company is prepared before the deadline.
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Payroll Legislation Guide
The facts, figures, thresholds and allowances for 2025/26 spanning tax, National Insurance, pensions, statutory payments and more.
