Payrolling Benefits-in-Kind

A BiK is a non-cash benefit provided by an employer to its employees. Typical BiKs include private medical insurance, company cars or vans, interest-free or low-interest loans, free places for employees’ children in independent schools and living accommodation.

How are BiKs currently reported?

Under the existing rules, employers report taxable benefits to HMRC either:

• on Forms P11D, or
• through voluntary payrolling of benefits, or
• via a PAYE settlement agreement with HMRC.

When reporting taxable benefits on Forms P11D, the employer must prepare and submit the forms to HMRC by 6 July following the end of the income tax year in which the benefits were provided.

The employee pays the tax due on the benefits by a reduction to their PAYE tax code, or via their self-assessment tax return. The associated employer Class 1A National Insurance Contributions (NICs) due on the benefit is due for payment on 19 July annually.

Alternatively, if the employer has agreed with HMRC to voluntarily payroll benefits, the tax due is collected from the employee’s pay in real-time via the payroll. The employer must still report the Class 1A NICs due to HMRC, which remains payable on 19 July following the end of the income tax year.

There are complex rules for calculating taxable employer-provided loans and living accommodation BiKs. Those benefits could not be reported via the payroll, meaning employers must prepare a Form P11D for employees who receive them.

What is changing from 6 April 2027?

Currently, employers who wish to process certain BiKs through payroll instead of preparing a P11D form need to agree this with HMRC before the income tax year begins.However, from 6 April 2027, 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 P11D form after the end of the income tax year.

However, for the time being, employers will still be permitted to report complex BiKs such as living accommodation or beneficial loans on a P11D form. This will be optional as they can be payrolled if the employer wishes to do so.

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.

For example, if an employee’s company car becomes unavailable or is replaced for a part of the year, this must be reflected in real time to ensure the correct benefit amount is reported in the payroll for that year.

What does this mean for employers?

While the easing of administrative burdens are generally welcome, employers should assess how these changes may impact them and start planning for the changes. This could include:

understanding how payrolling benefits work and what your obligations are

• checking payroll software capabilities for the payrolling of benefits
• assessing your processes and adapting or implementing changes to ensure you can comply with the rules
• how the information for benefits in kind will flow between various stakeholders (e.g. HR, payroll and finance)
• how you will manage in-year changes to benefits provided
• ensuring that staff with payroll responsibilities fully understand the changes 
• communicating with your employees about the changes
• managing errors to reduce the exposure to PAYE penalties.

What more 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 and reporting are managed by different teams 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 has 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 clear how this will affect the BIKs already reported.

Although the introduction has been put back a year, employers need to use the time to ensure they are ready for the changes. We are expecting further HMRC updates during the Summer, so employers need to stay alert for these.

How can Crowe help?

The shift to mandatory payroll reporting for BiK is a substantial change, but at Crowe, our employment tax specialists can help to support schools 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 Robin Newman or your usual Crowe contact.