As we approach a significant change in how employee benefits are reported and taxed, it’s crucial for business owners to understand the implications of payrolling benefits in kind (PBIK). This shift promises to streamline processes and reduce administrative burdens for many UK businesses.

What are Benefits in Kind?

Benefits in kind (BiK) are non-cash benefits provided by employers to their employees. These can include company cars, private medical insurance, gym memberships, and other perks that have a monetary value. Traditionally, these benefits have been reported annually on P11D forms.

The shift to payrolling

HMRC has announced that from 6 April 2026, payrolling benefits in kind will become mandatory for all employers. This change aims to modernise the tax system and simplify the process of reporting and paying tax on employment benefits.

Key points to note:

• Voluntary adoption is possible from 6 April 2025.
• Mandatory implementation starts from 6 April 2026. Take note of the section below around implementation as you’ll need to start setting this up in good time!
• All benefits must be payrolled except for employment-related loans and accommodation (which can be voluntarily payrolled).

Benefits to payrolling

1. Simplified Reporting: Employers will no longer need to prepare P11D forms for staff.
2. Real-time Tax Deductions: Employees will pay the right tax at the right time, avoiding unexpected tax bills.
3. Clearer Understanding: Employees will have a better grasp of their tax obligations.
4. Reduced HMRC Queries: Simpler tax codes mean fewer employee inquiries about tax.

An important point to remember!

While payrolling simplifies many aspects of benefit reporting, it’s crucial to note that a P11D(b) will still be required.

This form summarises the total taxable benefits across the workforce and will still be subject to the same filing deadline of 6th July with payment due by the 19th July each year. We will of course continue to prepare this for our clients as necessary.

Preparing for the change

If you’re considering early adoption or want to ensure you’re ready for the 2026 deadline, here are some practical steps:

1. Review Current Benefits: Assess all benefits you currently provide to employees.
2. Update Payroll Systems: Ensure your payroll software can handle benefit payrolling before you register.
3. Communicate with Employees: Inform staff about changes to their payslips and tax codes. These will take time to update, so it may be helpful to register as early as you can before the end of the tax year.
4. Register with HMRC: For voluntary adoption, register before the start of the tax year. You can find details of how to do so here.
5. Beware of Ongoing registration: Once registered, benefits remain registered for payrolling until deregistered. Deregistration must also be done before the start of the tax year for which it is to take effect.

Considerations

1. Increased Real-Time Reporting: Payrolling BiK requires monthly or even weekly reporting, transforming what was once an annual task into a more frequent obligation.
2. Data Accuracy and Timeliness: Obtaining accurate and timely benefit information can be challenging, especially for complex benefits like company cars.
3. System Compatibility: Employers may need to update or replace their payroll systems to handle BiK payrolling effectively.
4. 50% Regulatory Limit: The 50% regulatory limit on income tax still applies when payrolling benefits, which could restrict the full amount of BiK being taxed.

Looking ahead…

This change represents a significant shift in how businesses manage employee benefits. While it may need some initial adjustment, the long-term benefits of streamlined processes could be beneficial.

If you have any questions about the future obligation to payroll BiKs or are considering early adoption, please get in touch to discuss the implications.