Payroll Benefits in Kind​​: Everything You Need To Know

The payment and collection of taxes form the foundation of public welfare in the UK. All the businesses generating profits are liable to tax payments in line with the HMRC regulations. Similarly, the earnings of employees that they receive from their employment are subject to tax as well. It is noteworthy that the earnings of an employee do not only include what they are paid in the form of salary or wages. Instead, earnings also incorporate anything else that an employer gives to their employee and has a monetary value. This is usually referred to as benefit-in-kind. More importantly, they are taxable and must be reported to HMRC. Since they are a part of payroll processing, i.e. they need to be payrolled, they are called payroll benefits in kind.

In this regard, this blog will elaborate on everything an employee and an employer need to know about how to payroll benefits in kind, including their reporting requirements under HMRC.

 

 

What Are Payroll Benefits Kind?

Payroll benefits in kind (BIK) are non-cash perks or benefits that employers provide to their employees in addition to their salary. Primarily, these benefits can include company cars, private health insurance, interest-free loans, and childcare vouchers. Nevertheless, although obtaining these benefits elevates employee compensation packages, they are also subject to taxation and must be reported to HMRC. Consequently, it is mandatory for both employers and employees to gain sufficient clarity on how payroll benefits in kind work, how they are taxed, and how to report them correctly. Moreover, HMRC has strict regulations regarding BIK taxation for the tax year 2025, making it crucial for businesses to stay updated to avoid the imposition of penalties.

How Do Payroll Benefits In Kind Work?

It is significant to point out that payrolling benefits in kind are a substitute for reporting them on form P11D. It means payrolling benefits in kind replaces P11D reporting because the value of taxable benefits is now included in taxable pay when calculating the PAYE. Further elaborating, the government introduced the scheme of incorporating the benefits in kind in payroll in 2016 with the aim of reporting and paying tax on benefits more easily as opposed to the previous method of submitting annual P11D forms.

For ease of understanding, a P11D is a document submitted to HMRC by employers to report taxable benefits or BIK given to employees. These taxable benefits are specifically the ones which were not already payrolled. However, these benefits shall now be covered in payrolling. In fact, according to the HMRC’s new guidelines, payrolling Benefits In Kind (BIK) will become mandatory for all employers in the UK starting April 6, 2026. Employers now must report and pay tax on most employee benefits through the payroll system. Consequently, it will save employers from the hassle of completing and filing separate P11D forms for reporting those benefits.

To know more about why government has mandated payrolling the BIK, visit the government website:

Also, to learn more about a P11D form, read our thorough guide:

• What is a p11d and why is it important for tax purposes?

What Qualifies As A Benefit In Kind?

As mentioned above, all benefits or perks provided by an employer that have monetary value but are not included in the employee’s salary are classed as benefits in kind. The following are the common examples of taxable benefits:

• Company cars and fuel: If you have acquired a company car for personal use, it will be taxed based on CO2 emissions and list price.
• Private medical insurance: Health insurance paid by the employer.
• Company shares: On the contrary, while you should know the taxable benefits, you must also remain mindful of the non-taxable benefits:
• Interest-free loans: Loans above the HMRC threshold of £10,000 provided at zero or low interest are exempt from tax payment and are also referred to as beneficial loans.

To learn more about interest-free loans, visit the government website:

• Living accommodation: Housing provided by the employer.
• Training: expenses incurred on employee training are also non-taxable.

Last but not least, although the taxable benefits in kind can be payrolled, non-taxable benefits still need to be reported through a P11D form.

How To Register For Payrolling Benefits In Kind?

In order to payroll benefits in kind, the employer must register them with HMRC. to do so, they will use the payrolling employees taxable benefits and expenses online service. It is notable that the employer must register the BIK with HMRC before the start of the tax year if they want to payroll benefits for the following year. Fortunately, by using the online service to payroll benefits in kind, the employer will eliminate the need to submit a form P11D. In addition, the employer must notify HMRC of all the benefits in kind they want to payroll during the registration process.

Moving further, HMRC will amend the tax codes for all employees receiving these benefits, unless they are excluded or their benefits will not be payrolled through the online service. Beyond that, if an employer misses the registration deadline (April 5), they cannot payroll benefits in kind until the next tax year.

What Are The Reporting Requirements For Payrolling Benefits In Kind?

To payroll benefits in kind, it is essential for employers to provide employees with a written statement outlining which benefits have been included in the payroll by June 1, following the end of the tax year. It will also include the value of the benefits. Also, all payrolled benefits and expenses must be included in the Real-Time Information (RTI) Full Payment Submission.

Now, after the benefits in kind have been payrolled, there will no longer be any need for the form P11D. Nevertheless, form P11D would still be required to declare any non-taxable or non-payrolled benefit by July 6 2025. Likewise, employers still necessarily submit form P11D(b) to report Class 1A National Insurance Contributions due on expenses and benefits, regardless of whether they have been reported through the payroll.

 

 

Conclusion:

In conclusion, payroll benefits in kind offer considerable incentives to employees but also come with tax obligations and reporting requirements that employers must manage correctly. Similarly, employers must understand which benefits are taxable, how they are reported, and how to ensure tax optimisation to remain compliant and efficient. Alternatively, by hiring the services of a certified payroll accountant, they can leverage tax-efficient benefits and ensure timely reporting so that you will not have to bear the brunt of non-compliance with HMRC.

In a similar manner, The primary goal of payrollservices.accountants is to simplify your payroll operations via payroll outsourcing. Our team of expert payroll accountants extend their services throughout the UK with the aim of reducing your administrative burden.

Ultimately, with us, employers can optimize their payroll processes while providing meaningful perks to their workforce.

Disclaimer: Please note that the information provided in this blog is exclusively for informational purposes and should not be considered financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.