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 latest announcement.
The definitions
Before we get into the nitty gritty of payrolling benefits, 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.
Payrolling of benefits to become mandatory from 2026
As it stands, you have two ways of payrolling 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 BIKs 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 ensure your payroll process can handle this change and upgrade or replace your software if necessary.
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 payrolling benefits, how it works, and what it means for them.
- Include cash equivalents in their pay: Ensure 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 are not 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 BIKs 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 ensure 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 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 (NICs) on those benefits.
Will they still be needed under the new system?
No, P11Ds and P11D(b)s will not be needed from April 2026. All employee benefits will be processed through payroll instead.
When do you need to pay Class 1A NICs?
You need to pay Class 1A National Insurance Contributions (NICs) for benefits subject to tax, like company cars, mobile phones and private medical insurance.
Here are some examples of when you don’t pay Class 1A NICs:
- If your employee receives a non-taxable BIK.
- If your beneficiary does not meet the criteria for “employed earner”.
- If the benefit is included in a PAYE settlement agreement.
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How can you prepare yourself for April 2026?
To prepare for the change to payrolling benefits in kind, assess your current payroll processes and consider upgrading to payroll software that accommodates this change.
You should start planning and making any necessary adjustments now to ensure your company is prepared before the deadline.
You’re in safe hands with Cintra
Our team of experienced payroll experts can quickly and efficiently manage all your employees’ taxable benefits.
Start preparing for 2026 now and book a personalised demo today to see how we can help you.
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The facts, figures, thresholds and allowances for 2024/25 spanning tax, National Insurance, pensions, statutory payments and more.
