Payrolling benefits in kind FAQs

Following our recent Preparing for Payrolling Benefits in Kind webinar, we have compiled answers to the questions that were asked during the session. We believe these insights will be particularly useful as you prepare for the mandatory payrolling of benefits in kind starting in April 2026.

Registration and compliance

If we are already doing this voluntarily in tax year 24/25, do we need to re-register for 25/26?
Registering may be automatic for all employers from April 26/27 (this is what we are expecting from HMRC at present), but notification may be required with respect to any remaining P11D benefits (employer provided living accommodation and/or beneficial loans). If you have registered for 24/25, then you should not need to re-register to continue voluntarily for 25/26

I just went onto https://www.tax.service.gov.uk/payrollbik/start-payrolling-benefits-expenses and registered for payrolling benefits, is that all I need to do to register to payroll for 06/04/25?
Yes, to register with HMRC, the process is all undertaken online. You should also consider your internal processes/systems and ensure that your employee communication is in hand

It immediately came back with registration complete but you said it might be too late to register for 25/26?
It should be physically possible to register to voluntarily payroll benefits in kind for 2025/26 up to April 2025, however we ask employers to exercise caution in this respect to ensure that they have the processes and systems in place to handle the change, as it is generally not as straightforward as some might think. As HMRC are in the process of handling tax code notices, registrations after December 2024 are likely to result in employees receiving a number of different tax codes in a short period which may cause some issues and/or confusion. We would be happy to discuss this further if it would be helpful

Will PSA agreements continue after 2026?
Yes, the PSA should be unaffected by the payrolling BIK rules. You can continue to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your employees

When this becomes mandatory, will HMRC remove all current benefits as payrolling is mandatory, or will employers need to tell HMRC which benefits to remove?
It is expected that the system will ‘roll over’ but HMRC are yet to confirm. We would strongly advise keeping an eye on the payrolling benefits account to ensure the correct benefits are included. Notification may be required with respect to any remaining P11D benefits (employer provided living accommodation and/or beneficial loans)

Under the current voluntary payrolling of benefits, can we add a new different benefit during the tax year to the ones we registered for at the beginning of the tax year?
Yes, provided this is a new benefit then it should be possible to add to the list of payrolled benefits during the year. It is not possible to voluntarily register to payroll benefits in kind mid year

Are there any fines in place?
HRMC have suggested said that they will not give out fines for the initial ‘bedding in’ period. We expect this to be around a 1-2 year grace period, but there is no set guidance/legislation in place.

Benefits and clarifications

Can we have clarification of benefits? We have health assured, where we pay per employee per month to have access to a phone line for mental health and other support. Is this a benefit, or is there a minimum amount? What about coffee? We do not do medical benefits.
It would first be necessary to ascertain whether the benefits being provided are taxable or if they could fall under the ‘trivial benefits’ rule (namely is each benefit at or below £50 in value, not cash/voucher, not a reward for work/performance or isn’t a term under contract). We would be happy to discuss this with you directly if it would be useful. Coffee is generally not a taxable benefit provided it is reasonable and available / provided to all employees as refreshments.

What about staff anniversary or birthday vouchers, gifts?
It would first be necessary to ascertain whether the benefits being provided are taxable or if they could fall under the ‘trivial benefits’ rule (namely are they under £50 in value). We would be happy to discuss this with you directly if it would be useful.

How does this work for social events that are not eligible for an exemption?
The amount in excess of the limit could potentially be processed through the PSA (for the company to pay tax on) or should be payrolled for each individual employee as a taxable benefit from April 2026

What happens if staff have work phones provided by us?
If the phones are strictly for business use then no taxable benefit should arise, even if there is some private use. This is based on just one company phone being available and it being provided primarily for business use

How is private fuel factored in for mileage reclaims?
If the employer provides/pays for any fuel used for private usage then this is a taxable benefit (which should be payrolled from April 2026) unless the amount is ‘made good’ by the employee. We would be happy to discuss this in more detail

What would happen with a fuel card/company card where the invoice/statement is received in the following month? Can you estimate the month’s fuel usage and true-up from the estimate to the actual in the following month to ensure all the benefit is taxed?
Yes, the monthly payroll run should include the ‘best estimate’ at the time and any amendments required should be processed in the following month

What happens if you have PAYE settlement agreement also in place with a P11D?
The PSA should be unaffected by the payrolling BIK rules. You can continue to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your employees.

Payroll and tax codes

If a benefit value changes mid-year, why can’t you just amend the value on your next monthly payroll?
Apologies for any confusion here, however this is the process that should be undertaken. If a benefit changes mid-year (resulting in a revised cash equivalent value) the amendment should be run from the next payroll date. An example is available in the webinar handout but do let us know if you need any further guidance on this

If the value of the payrolled benefit is recorded on the payslip as a to-date value, would you still need to write to an employee to confirm this?
Provided it is clearly set out on the payslip (the value and what the benefit is) then this should be sufficient in terms of communication to employees. Some employers may want to issue an official statement by way of letter (by 01 June) in addition to ensure that the employee understands

Am I right to believe HMRC will send us new tax codes where it changes, or will it be the responsibility of the payroll department to make amendments to the tax code where benefits change?
When registration is complete, for the employees selected, HMRC will adjust their tax codes to remove the payrolled benefits.
HMRC will amend the employees tax code to collect any additional tax due, using deductions from the employee’s personal allowance for the tax year. In time, HMRC’s intention is that less will be included in tax codes and everything is dealt with via payrolling

We have decided to payroll benefits from April 2025. Will HMRC send new tax codes for all employees? Will employees be double taxed once they receive the P11Ds for 24-25?
Depending on when the registration was made, HMRC should update the relevant employees tax codes automatically. This could result in multiple tax code amendments if the registration was made after December 2024.

There should be no double tax for the employees in light of the above, as the payrolled benefits should ultimately be removed from the relevant employees tax code.  There may be some historical underpayments that will remain in tax codes for the next couple of years.

If the employees are ‘making good’ on their company car benefit then this should be taken into account when calculating the cash equivalent value of the benefit. If the full cost is made good, there is no taxable benefit.

If it would be useful to discuss this further please do get in touch directly.

Will an employee who is currently paying the tax through their tax code have an overlap when moving to payrolling the benefit in April? Will there be a double hit for a period of time?
The only instance of ‘double’ taxation that should occur is when the employee is compensating for an underpayment from the previous year, which would have occurred regardless. This often happens to benefits reported on P11D during the second year, as the first P11D is not submitted until 6 July after the year the benefit was enjoyed. Over the duration of the benefit, however, the appropriate amount of tax should be deducted, whether through payrolling or traditional forms

Does this change mean that employees will effectively pay tax on benefits for two tax years in one in 2026/2027? This will potentially have a significant cash flow impact for the employees which will need to be communicated.
The only instance of ‘double’ taxation that should occur is when the employee is compensating for an underpayment from the previous year, which would have occurred regardless. This often happens to benefits reported on P11D during the second year, as the first P11D is not submitted until 6 July after the year the benefit was enjoyed. Over the duration of the benefit, however, the appropriate amount of tax should be deducted, whether through payrolling or traditional forms

If using P11Ds for tax year 2025-2026, would the tax code change along with payrolling benefits so in effect the employee would have a larger amount of tax in the 2026-2027 tax year?
We would expect employees’ tax codes to change prior to the mandatory payrolling in benefits, in that the benefits should be removed from their tax code prior to the system ‘going live’. As such, this should avoid any double tax but employees will be paying tax on their benefits on a monthly basis (assuming they are paid monthly) from April 2026

If tax is owed from a previous year, who would be responsible for calculating that figure, or would HMRC still notify of that in a tax code change?
The responsibility would remain with HMRC in this respect to collect any underpayment of tax (likely via the tax code)

Many of our directors receive medical benefits and are on K tax codes. They currently process the self-assessments and pay them as one-off payments rather than through their tax codes. What would be your advice in preparation for moving payrolling?
The medical benefits should be payrolled from April 2026 rather than included in the Directors’ tax returns at the end of the year. We would be happy to discuss this further with you if it would be helpful.

Payroll processing

We pay weekly currently, so I am assuming this needs to be done each week?
Yes, this is correct.

You said their net pay shouldn’t change; however, if we go live in April 2026, would this not be impacted because of 2025 as well?
The only instance of ‘double’ taxation that should occur is when the employee is compensating for an underpayment from the previous year, which would have occurred regardless. This often happens to benefits reported on P11D during the second year, as the first P11D is not submitted until 6 July after the year the benefit was enjoyed. Over the duration of the benefit, however, the appropriate amount of tax should be deducted, whether through payrolling or traditional forms.

If someone falls below the regulatory limit, for example, off sick from December to March, how do we deal with the deficit going into the new year?
Under the voluntary option, you could exclude these employees from payrolling benefits and provide a P11d at the end of the tax year. This means HMRC will manage the tax due with the employee.  We are waiting for additional guidance for 26/27 onwards.

I assume we can payroll beneficial loans before April 2026 on a voluntary basis?
Before April 2026, there is no mechanism to voluntarily payroll beneficial loans and this would have to be notified to HMRC by P11D.  From April 2026 this can be done on voluntary basis (within the mandatory process) or there will be a shortened P11D.

Will annual statements to employees be prospective or retrospective figures?
The annual statements (due by 01 June following the tax year end) will be retrospective figures to show what has been payrolled during the previous tax year.

If we are already offering a cash allowance through payroll for a vehicle, I assume we don’t have to do anything different as they are already being taxed for this through their monthly pay, am I correct?
That is correct. By providing a cash allowance this is effectively extra salary subject to PAYE and national insurance. You may wish to consider whether there could be savings for the company/employee by providing a company car directly.

Miscellaneous

What does making good mean exactly?
HMRC’s view is that, to make good the expense, ‘the employee will give money, or something which can be measured in money’ to the employer as compensation for the benefit received. Essentially we are referring to where an employee contributes (generally financially) to a benefit that is provided to them by their employer. For example, paying back the employer for any private use of a company car or paying back for private fuel provided. If the private part is fully ‘made good’ there should be no taxable benefit to report.

Does your team offer any kind of payroll audit or PAYE health check service?
Yes we do offer PAYE health checks and would be very happy to discuss things further.

Please contact us directly for more information.