Payrolling benefits in kind

What Employers need to know

Following on from our previous article, and further to the announcement in the Autumn 2024 budget, HMRC has released guidance confirming plans to mandate the payrolling of Benefits-in-Kind (BIKs).

The proposed changes will affect all employers who provide employee non-cash benefits and will be of particular importance to businesses caught by the Senior Accounting Officer regime.

What’s changing?

Currently, employers who would rather process certain BIKs through the payroll instead of preparing a Form P11D must agree this with HMRC before the start of the tax year.

However, from April 2026, it will become mandatory for most BIKs - such as company cars, private medical or dental insurance - to be reported in the payroll.

This means that the income tax and Class 1A NIC liability on these benefits will need to be calculated and deducted in real time through Pay As You Earn (PAYE), rather than reported on a Form P11D after the end of the tax year.

However, for the time being, employers will be permitted to report complex BIKs such as living accommodation or beneficial loans on Form P11D.

Real-time reporting and the need for accurate adjustments

The move to mandatory payroll reporting will require employers to stay on top of the benefits provided to employees throughout the tax year, and ensure any adjustments are reflected promptly in real time.

Take the example of an employee who is provided with a company car. Where the car becomes unavailable for a part of the year, or there is a change of vehicle, this must be reflected in the payroll at the time of the change, to ensure the correct benefit amount is reported in the payroll.

What to think about?

Employers who process their payroll in-house will need to put in place processes to ensure that BIK data flows to the payroll function in real time. This is particularly relevant for more complex organisations where BIKs are managed by different functions within the organisation.

Similarly, where the payroll is outsourced, processes will need to be in place to ensure the relevant information flows to payroll bureaus in real time.

HMRC have suggested an annual ‘grace’ period to reconcile any in-year discrepancies although we await what this period would look like. However, employers could implement their own end of year review process to check they have reported BIKs correctly.

Under current legislation, employees may make-good for any BIKs provided within 90 days following the end of the tax year. It is not yet known how this will affect the BIKs already reported.

How can Crowe help?

The shift to mandatory payroll reporting for benefits in kind is a substantial change, but at Crowe our employment tax specialists can help to support you every step of the way. Our employment tax team can:

• Review processes and procedures to help you move benefit data across into the payroll efficiently and ensure compliance with the new rules.
• Assist with reviewing policies to ensure they are up to date and account for the requirements of real-time reporting.
• Help with end-of-year reconciliations, ensuring that the correct amount of tax has been paid throughout the year and identifying any discrepancies before they are raised by HMRC.

The changes to BIK reporting are fast approaching. To stay ahead of the curve and ensure compliance with the new regulations please contact Glen Huxter or your usual Crowe contact.