Patrycja Binieda
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Payrolling benefits in kind (BIKs) has become an increasingly relevant topic for employers as HMRC continues to refine and encourage real-time employment reporting practices. While the concept of BIKs has long been part of the UK tax landscape, the option to payroll these benefits via an online service offers employers a modern, streamlined alternative to the traditional P11D reporting route.
In this article, we provide an in-depth look at what payrolling benefits in kind entails, how it works, which benefits can be payrolled, and the implications for employers and employees alike.
Tip: While we focus on providing clarity, this overview should not be treated as a substitute for professional advice.
Payrolling benefits in kind is a method by which employers report and deduct tax on employee benefits through the payroll system, instead of reporting them separately via a P11D at the end of the tax year. This allows the tax due on benefits to be collected in real-time through PAYE (Pay As You Earn), aligning with HMRC's broader goal of a more responsive and digitalised tax system.
Employers must register with HMRC before the start of the tax year if they wish to payroll benefits. Once registered, they include the cash equivalent value of benefits in the employee’s taxable pay each pay period. This process removes the need to submit P11Ds for those benefits, although employers are still required to submit a P11D(b) and pay any Class 1A National Insurance Contributions (NICs) due.
Historically, all benefits in kind were reported after the tax year ended, creating a delay between when the benefit was received and when tax was paid. This was administratively burdensome, often leading to confusion, underpayments, or unplanned expenses.
HMRC introduced voluntary payrolling in April 2016, allowing employers to integrate benefit taxation into their payroll processes. The objective was to reduce the compliance burden and improve accuracy and timeliness of tax collection. While still not mandatory, payrolling has steadily gained popularity, particularly among larger employers with more complex benefit arrangements.
Most benefits in kind can be payrolled, but there are exceptions. The most commonly payrolled benefits include:
However, some benefits cannot currently be payrolled, such as:
These must still be reported through the traditional P11D process.
To payroll benefits, employers must register with HMRC via the online Payrolling Benefits in Kind service before the start of the next tax year (6th April 2026). Late registrations are not accepted, and benefits cannot be payrolled mid-year.
When registering, employers must:
Once registered, the employer does not need to submit P11Ds for those benefits, provided they are correctly payrolled.
Implementing payrolling requires updates to payroll systems to ensure correct tax deductions and record-keeping. Employers should work closely with their payroll provider, online service, or software vendor to:
Robust processes must be in place to handle mid-year changes, such as starters and leavers, or changes in benefit provision.
From an employee's perspective, payrolling offers greater clarity, especially when using an online service to manage and track these benefits. Tax is deducted as the benefit is received, rather than through a later adjustment to their tax code.
Benefits include:
However, employees must be clearly informed about the changes and how they affect their payslips and tax liabilities. Transparent communication is crucial to avoiding confusion.
Although the tax on payrolled benefits is collected in real-time, Class 1A NICs must still be reported and paid annually. Employers are required to:
This remains a key administrative step even for fully payrolled organisations.
While payrolling benefits offers several advantages, employers should be mindful of potential pitfalls:
Thorough planning, good internal controls, and clear communication are essential to mitigating these risks. It is always advised to seek professional support from an expert payroll accountant or tax adviser.
Employers must retain detailed records of all payrolled benefits, including:
These records should be retained for at least three years from the end of the tax year to which they relate, in case of HMRC enquiry.
While payrolling offers significant administrative efficiencies, the availability of an online service may not suit every organisation. Factors to consider include:
Some employers may find the traditional P11D process more suitable, particularly if they only provide a limited range of benefits. Most employers actually outsource their payroll to ensure it is managed correctly.
As HMRC continues to move towards a more digital, real-time tax system, it is anticipated that payrolling will become the norm rather than the exception. There have been industry discussions about the potential for mandatory payrolling in the future, although no formal announcement has been made at the time of writing.
In the meantime, voluntary payrolling remains a valuable option for employers seeking to simplify their compliance processes, enhance employee transparency, and improve tax accuracy.
When implemented effectively, payrolling benefits in kind can become a strategic tool for both employers and employees. By integrating BIKs into the payroll process, employers can offer a more seamless, transparent experience that adds real value to their workforce. Real-time tax deductions mean employees don’t face unexpected tax bills, and employers benefit from reduced administrative burden over the tax year.
To maximise these advantages, employers should:
Properly managing this process turns benefits into a key part of your retention and recruitment strategy, while avoiding common compliance pitfalls.
While the concept of payrolling benefits in kind may seem straightforward, in practice it involves intricate tax rules, accurate valuations, and the need for up-to-date payroll software. Engaging an experienced accountant ensures you remain compliant while unlocking the full efficiency of the payrolling system.
An accountant can help you:
Navigating this without professional guidance can lead to costly mistakes or even HMRC penalties. Accountants act as a bridge between your payroll function and evolving tax legislation, keeping your business compliant and efficient.
At Pulse Accountants, we understand that payrolling benefits in kind is not just a compliance issue—it’s an opportunity to improve how you engage with your employees and streamline your tax obligations. We specialise in supporting businesses of all sizes with tailored payroll and tax services that simplify complexity and deliver value.
Here’s why clients choose us: we help manage their expenses effectively.
Whether you’re considering payrolling for the first time or looking to improve your existing setup, Pulse Accountants can guide you through every step with clarity and confidence.
Payrolling benefits in kind offers a pragmatic, forward-looking alternative to the traditional end-of-year reporting model. When implemented correctly, it can lead to smoother compliance, more accurate tax deductions, and improved employee understanding.
However, success hinges on early registration, robust payroll systems, and clear communication. Employers considering the shift should undertake a thorough review of their current processes and seek expert guidance where necessary.
Note: This article is intended for general guidance only and does not constitute professional advice. Specific advice should be sought based on your organisation's circumstances.
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