Mandatory Payrolling of Benefits in Kind

Currently, details of taxable benefits in kind (BIK) provided to employees must be reported to HM Revenue & Customs using forms P11D & P11D(b), which must be submitted by 6 July following the end of the tax year.

Employees pay the Income Tax due on their BIKs by way of an adjustment to their PAYE tax code. As the value of an individual’s BIK will often change each year, the amount of tax collected via PAYE will often be wrong & will have to be further adjusted in the following tax year.

Depending on the benefits provided to employees, employers pay the associated National Insurance (NI) liability either through the payroll or, more commonly, through the P11D process, with payment being due by 22 July each year.

Employers currently have the option to payroll BIKs, which means that the value is reported and taxed in real time. For example, if a monthly paid employee has a company car that gives rise to a BIK of £6,000, they will pay tax on an extra £500 each month through the payroll.

From 6 April 2026 onwards, payrolling of BIKs will be mandatory & the process will be expanded to capture the employer’s NI liability as well as the employee’s tax. The only exceptions to this will be beneficial loans & living accommodation, which can continue to be reported using the P11D process.

An “end of year process” will be used if the value of a BIK isn’t known during the year, for example, if the benefits were provided by a third party.

What should employers be doing now?

This is major change & employers should start planning in good time to make sure they are ready.

Consideration should be given to:

  • Who will be responsible for collating BIK data & reviewing the amounts that are going through the payroll?
  • How will in-year BIK changes be picked up?
  • How will the change be communicated to employees?
  • How will BIKs for starters & leavers be dealt with?

Our tax & payroll experts will be happy to support you with this process.

  • If we process your payroll already, we will contact you again to talk about how this will work.
  • If you process your own payroll, we will be happy to assist you with employee communication & the on-going calculation of the BIK amounts that need to be included in your payroll.
  • If this change is making you think that maybe it’s time to outsource your payroll, we would be happy to provide you with a quote for our services.