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.
Payrolling benefits in kind means that taxable benefits provided to employees, such as a company car, private health insurance, or gym memberships, are reported directly through the payroll rather than on a P11D form at the end of the year.
Instead of completing separate P11D paperwork for each employee after the tax year ends, benefits are taxed through the payroll system throughout the year, just like regular salary. Employees pay the correct amount of tax on their benefits as they go, rather than receiving a bill at the end of the yea
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.
The process for payrolling benefits in kind is relatively straightforward. Here’s how it works:
Where the value of a benefit is not known at the start of the year — for example, where an invoice comes from a third-party provider — employers are expected to use a reasonable estimate and recalculate across remaining pay periods if the value changes during the year.
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.
P11Ds are still required for both 2025/26 and 2026/27, with the filing deadline of 6 July 2027.
This is the last tax year in which the traditional P11D process applies to most benefits.
The registration service for voluntary payrolling closed after 5 April 2026. Employers who did not register before this date are unable to opt in voluntarily for 2026/27 and will move directly to mandatory payrolling from April 2027.
Those who did register before the deadline will be payrolling benefits voluntarily this year and must still submit a P11D(b) for 2026/27 and provide employees with a statement of payrolled benefits after the year end.
For businesses, payrolling offers a number of advantages:
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:
HMRC has confirmed that mandatory payrolling of benefits in kind will apply from 6 April 2027. The change was originally planned for April 2026 but was delayed to give employers more time to prepare.
From April 2027:
Employment-related loans and living accommodation will be excluded from mandatory payrolling for the time being. A P11D process will be maintained for these two benefit categories. However, employers will be able to voluntarily payroll these benefits if they register to do so, the registration service for this opened in November 2026.
HMRC has said it will adopt a soft-touch approach in the first year of mandatory payrolling for genuine errors, but employers should not expect this to continue. From 2028/29 onwards, penalties and interest will apply in the same way as they do for other payroll reporting obligations
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.
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!
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.
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.
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.
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.
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.
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