The 2026-27 tax year marks the last optional year where employers can register to payroll their benefits in kind before the mandatory rollout in the 2027-28 tax year. This will be replacing the P11D forms.
What is a Benefit in Kind (BIK)?
A benefit in kind is good or service provided by an employer to their employee(s), either for free or greatly reduced cost. As the benefit to the employee still retains a monetary value which would not be included as a part of their salary package, the employee must be taxed on the additional cash value of the benefit. This is done by reporting the equivalent cash value of the employee’s benefit to HMRC.
HMRC note the following items as a BIK on their website:
- Company Car
- Medical Insurance
- Loans (over £10,000.00, or any value ‘written off’)
- Living accommodation (Cost over £75,000.00)
If you are unsure if an item needs to be included as a benefit in kind, please consult your tax adviser.
There are also some notable exemptions listed on HMRC. For the full list, please reference HS207 Non-taxable payments or benefits for employees (2025): Click here
What do I need to do to start payrolling Benefits in Kind?
To start payrolling a benefit in kind in the 2026-27 tax year, you will first need to register with HMRC before 6th April 2026 (register here). From April 2027, this system will become mandatory, and registration will not be required.
Once you have applied to start payrolling BIKs, you will need to inform us that you intend to report these on your payroll. This should include a brief overview of each benefit and the additional monetary value that needs to be reported through the payroll each tax year. These need to be monitored and updated if/when the value or membership changes.
If an employee begins or stops receiving a Benefit in Kind (BIK) part way through the tax year – including new starters and leavers – the taxable value of the benefit must be adjusted accordingly. This adjustment method is generally based on calendar days as the employee usually has access to their benefit every day of the year.
Moving from P11D to payrolling benefits in kind
If you are a company who has already been submitting P11D’s and are moving to payrolling your benefits in kind, there are some important payroll aspects to note to your employee when you make the switch.
When you submit your P11D form, HMRC reviews this data and subsequently issues an amended tax code for the following tax year to reclaim tax on a benefit that’s previously been enjoyed.
When you switch to payrolling your benefits, please be advised that any previously submitted P11D’s will still affect an employee’s tax code in the following tax year. As a result, when you begin processing benefits through payroll, in the new tax year, you will now be reporting this as a real time reporting method. This may mean that employees may experience what appears to be “double taxation”. However, this cannot be avoided but employers should be aware in case employees query their tax deductions in the new tax year.
The figures will be reported on your FPS and shown on your employees HMRC portal each payroll period. These figures will also be included in payroll documents such as Payslips, P45s and P60s for each employee’s record.
