Last updated: October 2026
In Brief: Payrolling benefits in kind means taxing employee benefits through regular payroll instead of reporting them on annual P11D forms. It becomes mandatory in two phases: company cars, fuel, vans, and medical and dental benefits from 6 April 2027, then most other benefits from 6 April 2028. Loans and living accommodation stay outside the mandatory rules. From April 2027, employers will also pay Class 1A National Insurance on payrolled benefits monthly, rather than once a year.
The UK Government introduced voluntary payrolling of benefits in kind in 2016, letting you process your employee benefits directly through payroll instead of using a P11D form. Now, it’s becoming mandatory, and this guide covers the key information you need about payrolling benefits and how to prepare for the changes.
Key Facts: Payrolling Benefits in Kind
- Phase one (6 April 2027): Company cars, car fuel, vans, van fuel, and medical and dental benefits must be payrolled
- Phase two (6 April 2028): Most remaining taxable benefits must be payrolled
- Outside the mandatory rules: Loans and living accommodation, though you can choose to payroll them
- Class 1A NICs: Paid in real time through your monthly payroll for payrolled benefits, from April 2027
- P11D forms: No longer needed for payrolled benefits
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 cash equivalent value of employee benefits in their regular payroll, instead of reporting them separately to HMRC on an annual P11D form. This makes tax simpler, as the Income Tax due on the benefits is deducted along with the rest of their tax each pay period.
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 reported to HMRC.
BIK tax
BIK tax is the Income Tax employees pay on benefits or perks from their employer that aren’t included in their salary. These benefits can include company cars, private medical insurance, interest-free loans, or other non-cash perks.
You work out the value of each benefit using HMRC’s rules, and it’s added to the employee’s taxable income, so they pay Income Tax on it.
Company car BIK rates for 2026/27
Here are the BIK rates and bands for electric, hybrid, and petrol or diesel cars in the UK for 2026/27:
Table: Company Car BIK Rates, 2026/27 Tax Year. Source: HMRC
| CO2 emissions in g/km | Electric range in miles | BIK rate |
|---|---|---|
| 0 (zero emission electric) | Any | 4% |
| 1 to 50 (hybrid) | 130 or more | 4% |
| 1 to 50 (hybrid) | 70 to 129 | 7% |
| 1 to 50 (hybrid) | 40 to 69 | 10% |
| 1 to 50 (hybrid) | 30 to 39 | 14% |
| 1 to 50 (hybrid) | Under 30 | 16% |
| 51 to 149 (petrol or diesel) | N/A | 17% to 36% |
| 150 and above (petrol or diesel) | N/A | 37% |
Diesel cars that don’t meet the RDE2 standard pay an extra 4%, up to the 37% maximum.
It’s worth planning ahead if you’re choosing cars now. Electric car rates rise by 1 percentage point a year to 5% in 2027/28, and from 2028/29 the electric range bands for hybrids disappear, with every 1–50g/km car taxed at 18%.
Payrolling benefits in kind to become mandatory from 2027
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: taxed based on CO2 emissions and list price, using HMRC’s BIK rates.
- Car and van fuel: fuel provided for private use is taxed using a fixed multiplier, rather than the actual cost.
- Private medical or dental insurance: the premium paid by the employer is treated as a taxable benefit.
- Mobile phones: one company phone per employee is tax-free, but extra phones, or paying for an employee’s own private contract, are taxable.
- Childcare vouchers or subsidies: amounts above the exempt limit are taxable (childcare voucher schemes closed to new joiners in October 2018).
- Non-exempt travel expenses: travel costs that don’t qualify for tax relief, such as ordinary commuting.
- Gym memberships: the full membership cost paid by the employer is taxable.
- Meals provided by the employer: taxable when they’re not provided in a staff canteen available to all employees.
What’s going to change and how will it impact you?
Payrolling benefits in kind is becoming mandatory, but it’s being introduced over two years rather than all at once:
- From 6 April 2027: You must payroll company cars, car fuel, vans, van fuel, and medical and dental benefits.
- From 6 April 2028: Most other taxable benefits must be payrolled too.
Alongside this, Class 1A National Insurance on payrolled benefits will be reported and paid in real time through your monthly payroll submissions, rather than once a year.
So, you’ll need to make sure your payroll process can handle both changes, and switch payroll software if necessary.
Benefits outside mandatory payrolling
Loans and living accommodation provided by employers sit outside the mandatory payrolling rules. You can carry on reporting them on a P11D, or choose to payroll them voluntarily. If you’d like to payroll them from April 2027, registration opens in November 2026 and closes on 5 April 2027.
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How to register for payrolling benefits in kind
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 choose which benefits you want to payroll. All employees receiving those benefits will have their tax codes adjusted, unless you exclude specific employees through the online service. Be aware that you won’t be able to exclude employees from benefits that fall under the mandatory rules.
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?
Not for payrolled benefits. Once a benefit is payrolled, you won’t need a P11D for it, and the Class 1A NICs will be paid through your monthly payroll rather than declared on a P11D(b).
During 2027/28, you’ll still need P11Ds and a P11D(b) for any benefits that aren’t payrolled yet. From 2028/29, they’ll mainly be needed for loans and living accommodation you haven’t chosen to payroll.
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.
For Class 1A NICs to apply:
- the benefit mustn’t already be liable for Class 1 NICs
- the benefit must be related to employment
- the benefit must be subject to Income Tax
How and when you pay depends on how the benefit is reported:
- Benefits reported on a P11D: You declare the total on your P11D(b) by 6 July after the end of the tax year, and pay by 22 July (electronically) or 19 July (by post).
- Payrolled benefits from April 2027: You’ll report and pay Class 1A each month through your normal PAYE payments.
Plan for 2027/28 carefully. In July 2027, you’ll pay Class 1A on your 2026/27 benefits through the P11D(b) as usual, while also paying Class 1A monthly on phase one benefits. That’s two lots of Class 1A in the same year, which can catch cash flow out if you’re not expecting it.
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 2027?
To prepare for the change to payrolling benefits in kind, review your current payroll processes and consider whether your software, or a payroll provider, can handle the change for you.
Start by working out which of your benefits fall into phase one, and plan your Class 1A cash flow for 2027/28. Making adjustments now means you’ll be ready well before the deadline, rather than rushing to catch up.
Our team of experienced payroll experts can quickly and efficiently manage all your employees’ taxable benefits. Sign up today to see how Cintra can help you.
Payroll Legislation Guide
The facts, figures, thresholds and allowances for 2026/27 spanning tax, National Insurance, pensions, statutory payments and more.
Frequently asked questions
Q. When does payrolling benefits in kind become mandatory?
A. Payrolling benefits in kind becomes mandatory in two phases. From 6 April 2027, it covers company cars, car fuel, vans, van fuel, and medical and dental benefits. From 6 April 2028, most other taxable benefits must be payrolled too.
Q. What benefits are outside mandatory payrolling?
A. Loans and living accommodation are outside the mandatory payrolling rules. You can keep reporting them on a P11D, or choose to payroll them voluntarily if you register with HMRC before the start of the tax year.
Q. Do employers still need to file P11D forms after April 2027?
A. Only for benefits you don’t payroll. During 2027/28, that may include benefits that don’t become mandatory until April 2028. From 2028/29, P11D forms will mainly be needed for loans and living accommodation you haven’t chosen to payroll.
Q. How will Class 1A NICs work after April 2027?
A. For payrolled benefits, Class 1A NICs will be reported and paid in real time through your monthly payroll, rather than declared once a year on a P11D(b).
Q. How do I register for payrolling benefits in kind?
A. To payroll benefits voluntarily, you must register through HMRC’s online service before the start of the tax year, choosing which benefits you want to include. If you miss the deadline, you’ll need to wait until the next tax year to payroll benefits that aren’t yet mandatory.
