What Employers Need to Know About the Changes to Payrolling Benefits
Preparing for the New Way of Reporting Benefits in Kind
The way employers report and tax Benefits in Kind (BiKs) is changing. These changes are designed to simplify the tax process by collecting tax on employee benefits through payroll, rather than through annual P11D forms.
Although many employers already payroll benefits voluntarily, the new rules will require most taxable benefits to be payrolled, making it important to review your current processes and prepare well in advance.
What Is Payrolling Benefits?
Payrolling benefits means that the taxable value of an employee's benefits is included in their regular payroll throughout the tax year. Income tax is collected in real time through PAYE, rather than HMRC adjusting the employee's tax code or the employer submitting a P11D after the end of the tax year.
Examples of taxable benefits that may be payrolled include:
Company cars (subject to reporting requirements)
Private medical insurance
Gym memberships
Non-cash vouchers
Other taxable employee benefits
National Insurance reporting requirements will continue to apply, and employers will still need to account for Class 1A National Insurance Contributions on applicable benefits.
What Is Changing?
HMRC is moving towards mandatory payrolling of most Benefits in Kind. The aim is to:
Simplify end-of-year reporting.
Reduce reliance on P11D forms.
Ensure employees pay the correct amount of tax during the year.
Improve the accuracy and timeliness of tax collection.
While some exceptions may remain, employers should expect payrolling to become the standard method of reporting taxable benefits.
Why Employers Should Prepare Now
Although implementation dates have been announced well in advance, employers should use the time available to ensure they are ready.
Preparation should include:
Reviewing all employee benefits currently provided.
Confirming which benefits will need to be payrolled.
Checking whether payroll software supports benefit payrolling.
Ensuring payroll and HR systems share accurate benefit information.
Training payroll and HR teams on the new requirements.
Communicating the changes to employees before implementation.
Early preparation can help avoid reporting errors and reduce the administrative burden when the changes take effect.
What Employees Need to Know
Employees may notice changes to their payslips as taxable benefits are included in payroll. Although the timing of tax deductions will change, the overall tax due should generally remain the same.
Employers should explain:
Why taxable pay may appear higher.
Why tax deductions may change from month to month.
That they may no longer receive a P11D for most benefits.
Where to obtain further information if they have questions.
Clear communication can help minimise confusion and reduce payroll queries.
Practical Steps for Employers
To ensure a smooth transition, employers should:
Audit all Benefits in Kind currently provided.
Confirm which benefits will be subject to payrolling.
Review payroll software capabilities.
Test payroll calculations before implementation.
Update internal payroll procedures.
Inform employees of the upcoming changes.
Work with payroll providers or advisers where necessary.
The Benefits of Payrolling
Although the transition will require planning, payrolling benefits offers several advantages:
More accurate tax collection throughout the year.
Fewer end-of-year reporting requirements.
Reduced need for tax code adjustments.
Greater transparency for employees.
A more streamlined payroll process.
The move to mandatory payrolling of Benefits in Kind represents one of the most significant changes to payroll reporting in recent years. Employers who begin preparing early will be well placed to implement the changes smoothly, minimise disruption, and ensure compliance with HMRC requirements.
Reviewing existing benefit arrangements, updating payroll systems, and communicating effectively with employees will help make the transition as straightforward as possible.
If you have any questions please do not hesitate to contact us on 01473 276170 or email info@sos-hr.co.uk