Payrolling Benefits in Kind: What You Need to Know for 2025

If you’re involved in managing payroll in the UK, you’ve probably heard about payrolling benefits in kind (PBIK). It's an important part of the UK’s tax system, and understanding how it works can save you time, reduce paperwork, and even help you avoid some common payroll errors.

In this guide, we’ll walk through what payrolling benefits in kind is, how it works, its benefits, and what you can expect in April 2027 when it becomes mandatory.

What Is Payrolling Benefits in Kind?

Payrolling benefits in kind (PBIK) means that taxable benefits provided to employees (like a company car, private health insurance, or gym memberships) are reported directly through the payroll rather than on the employee’s P11D form.

When employers offer benefits in kind to employees, they are usually required to report these on a P11D at the end of the tax year. This involves filling out separate paperwork for each employee, which can get quite time-consuming. With payrolling benefits in kind, these benefits are instead taxed through the payroll system, just like regular salary payments, meaning employees pay the correct amount of tax on them throughout the year.

Why Are Payroll Benefits Important?

Payroll benefits are an important tool for businesses to offer additional perks to employees without increasing their salary. From a tax perspective, payrolling benefits in kind simplifies the process of taxing these non-cash perks.

For employees, payrolling provides the convenience of having their tax obligations for benefits settled through their regular pay, reducing the chance of surprises when it comes to paying tax at the end of the year.

For employers, payrolling helps to streamline the reporting process and ensures compliance with HMRC requirements, making it easier to manage employee benefits and taxes.

How Payrolling Benefits in Kind Works

The Process of Payrolling Benefits

The process for payrolling benefits in kind is relatively straightforward. Here’s how it works:

1. Opt-In with HMRC: Employers must register for payrolling benefits in kind with HMRC. This is done through your PAYE (Pay As You Earn) system. Once registered, you’ll need to specify which benefits are being payrolled.
2. Incorporating Benefits in Payroll: When benefits are provided to employees (e.g., a company car), they are treated as part of the employee’s total pay for tax purposes. The value of these benefits is included in the employee’s monthly pay and taxed accordingly.
3. Tax Calculations: Employers calculate the tax on these benefits based on the value set by HMRC (known as the benefit-in-kind valuation). The tax is then deducted through the employee’s payroll, just like regular income tax.
4. No P11D Required: Once you start payrolling benefits, you don’t need to complete a P11D for those benefits, as the tax has already been deducted via payroll.

Reporting Requirements for Payroll Benefits in Kind

When it comes to payroll benefits in kind reporting, it's important to keep detailed records. Employers must submit a report to HMRC by 6 July each year, summarising all the benefits that were payrolled. This is different from the usual P11D submission, but it still serves as confirmation that the correct amount of tax has been deducted.

Benefits of Payrolling Benefits in Kind

Financial Advantages for Employers

For businesses, payrolling offers a number of advantages:

• Time-saving: Once benefits are payrolled, you don’t need to fill out and submit individual P11Ds for each employee who has received a benefit. This can significantly reduce administrative time.
• Less Risk of Errors: With payrolling, you’re ensuring that the correct tax is being paid throughout the year, rather than risking errors or late payments when submitting P11Ds.
• HMRC Compliance: Payrolling helps ensure that businesses remain compliant with HMRC’s tax rules, reducing the risk of penalties for late or incorrect filings.

Simplified Taxation for Employees

From the employee’s perspective, payrolling benefits in kind simplifies the process of paying tax. Instead of waiting until the end of the tax year to receive a P11D and potentially facing a large tax bill, employees pay tax on their benefits as they earn them. This means:

• Predictable tax payments: The tax on benefits is deducted each month, making it easier for employees to manage their finances.
• No End-of-Year Surprises: Employees won’t be hit with a large unexpected tax bill at the end of the tax year because tax is already being deducted via payroll.

Changes Coming in 2027: Mandatory Payrolling of Benefits in Kind

Starting in April 2027, payrolling benefits in kind will become mandatory for all employers offering benefits. While this change is still a few years away, it’s important for businesses to start preparing now.

The mandatory implementation means that employers will no longer have the option to choose whether to payroll benefits in kind or not. However, it’s worth noting that this change will streamline the entire process and make reporting benefits far simpler and more uniform across the country. If you haven’t yet made the switch, now is a good time to start familiarising yourself with the process.

Implications for Employers and Employees

For employers, the biggest change will be the need to ensure that their payroll systems are ready to handle benefits in kind, especially with the extra administrative requirements of reporting them regularly to HMRC. However, the process should be easier once it’s all set up, and the administrative burden will be reduced.

For employees, the move to mandatory payrolling should be a positive change, as it will provide more transparency and reduce any potential tax shock come the end of the year.

Conclusion: The Future of Payrolling Benefits in Kind

In summary, payrolling benefits in kind is a straightforward way for both employers and employees to ensure that benefits are taxed accurately and efficiently.

While the process is currently optional, the mandatory switch in 2027 will make it even more important for employers to familiarise themselves with the system now.

By starting early, businesses can reduce the complexity of payroll management and ensure they’re fully prepared for the changes ahead.

If you’re looking for expert help with payroll or need guidance on setting up payrolling benefits in kind, reach out to DH Payroll. Our team can ensure that your payroll processes are smooth, compliant, and tailored to your business needs. Contact us today to see how we can assist you!

Common Questions about Payrolling Benefits in Kind

What Are Payrolled Benefits in Kind?

Payrolled benefits in kind are non-cash perks offered to employees, like a company car or private health insurance, which are taxed via the payroll system instead of through the P11D.

Do You Have to Payroll Benefits in Kind?

As of 2025, businesses do not have to payroll benefits in kind unless they choose to do so. However, from April 2027, payrolling will be mandatory for all employers offering these benefits.

Can You Record Benefits in Kind Without Payroll?

Yes, you can still report benefits in kind without using the payroll system, but this would involve submitting a P11D at the end of the tax year for each employee who has received benefits.

How to Add Benefit in Kind Payments Through Payroll?

To add benefits in kind through payroll, you need to register with HMRC and set up the appropriate benefits in your payroll software. Once set up, you’ll simply include the value of the benefits in the employee’s pay.

Will Payrolled Benefits in Kind Show on the P11D?

No, once you’ve started payrolling benefits, you won’t need to submit a P11D for those specific benefits. Instead, you’ll report them through your payroll system.