Payrolling Benefits in Kind

Taxing Employees’ Benefits and Expenses through your Payroll 

Overview

Taxing employees’ benefits and expenses through your payroll is often referred to as ‘Payrolling of benefits’.

Payrolling of benefits allows employers to tax, the taxable value of benefits in kind (BIK), via payroll during the tax year.  All benefits can potentially be payrolled, apart from employer provided living accommodation and low or interest free employer provided loans.

Further information about payrolling benefits can be found Payrolling: tax employees' benefits and expenses through your payroll - GOV.UK (www.gov.uk) .

Registration for Payrolling Benefits

Registration is currently voluntary, but must be made online by the employer, before the start of the tax year (6th April), in which the employer wishes to payroll benefits.  If the deadline is missed, employers cannot formally payroll benefits until the start of the following tax year.

HMRC has announced that payrolling benefits in kind and paying Class 1A NIC on BIK via payroll will be mandatory from April 2026.

Employers can register online at How to use the payrolling benefits and expenses online service - GOV.UK (www.gov.uk)  .

From 6th April 2024, Agents can register on behalf of their clients, any employment benefits to be taxed through their client’s payroll, on or after 6th April 2025.

Employers must tell HMRC which benefits you wish to payroll during the registration process.  HMRC will amend the tax codes for all employees receiving those benefits unless the employer excludes any employees from the online registration.

For tax year 2024-25, you must continue to submit P11Ds for benefits and expenses that have not been payrolled.

Employees

Communication with employees is important.  Once registered, employers must notify employees that their benefits are being payrolled and what it means for them. 

After the end of each tax year and by 1 June, employers must also provide employees with specific details about the benefits which have been payrolled.

Employers

Once the tax year has started, employers must payroll benefits for the whole of the tax year or until the benefit stops.

Registration is ongoing, so an employer only needs to inform HMRC if they wish to deregister, which must be done prior to the start of the next tax year.

Employers still need to calculate and pay Class 1A NI contributions on the payrolled benefits and submit form P11D(b) to HMRC.  The P11D(b) must be submitted by 6th July and Class 1A NIC paid by 19th July or 22nd July if paying electronically.

Advantages of Payrolling Benefits in Kind

1.      Annual P11D forms are no longer required for those employees whose benefits have been payrolled.

2.      There is flexibility over which benefits and employees to include in payrolling of benefits.

3.      Employees are more likely to pay the correct tax due on their benefits during the tax year.  PAYE tax code errors and underpaid tax liabilities associated with benefits are less likely to occur if payrolling of benefits is done correctly.

Disadvantages of Payrolling Benefits in Kind

1.       Benefit values must be accurately determined each tax year.  Changes to benefit values must be tracked and taxable values amended in real time.  HMRC penalties can apply where payrolled benefits are not payrolled correctly.

2.       Employers must wait until the end of the tax year to stop payrolling if it is not right for them.

3.       An annual P11D(b) is still due.

 Is Payrolling Right for My Organisation?

Employers considering payrolling benefits should therefore determine how this will affect both them and their employees and what both parties could gain from this.  

Before registering, employers should consider what benefits they can and cannot payroll, which employees they will include in payrolling benefits and the processes and procedures needed to payroll benefits correctly and efficiently.