If your business provides employees or directors with benefits such as company cars, private medical insurance or interest-free loans, these are known as Benefits in Kind (BiKs).

These benefits have tax implications and must be reported to HMRC correctly. With significant changes coming from 6 April 2027, now is the ideal time for employers to understand how payrolling benefits works and prepare for the new rules.

What Are Benefits in Kind?

Benefits in Kind are non-cash benefits provided by an employer in addition to an employee’s salary or wages.

Common examples include:

• Company cars.
• Private medical insurance.
• Interest-free or low-interest loans.
• Employer-provided accommodation.
• Gym memberships.

Although employees do not receive these benefits as cash, they usually have a taxable value.

What Is Payrolling Benefits in Kind?

Until 5 April 2027, employers can choose to payroll most Benefits in Kind.

This means the taxable value of the benefit is included within the employee’s payroll throughout the tax year, allowing Income Tax to be collected through PAYE as the benefit is received.

From 6 April 2027, the Government intends to make the payrolling of most Benefits in Kind mandatory, subject to limited exceptions.

How Does It Work?

When a benefit is payrolled:

• The taxable value is spread across the payroll during the year.
• Income Tax is deducted through PAYE.
• Employees generally avoid later tax code adjustments.
• A P11D is usually not required for benefits that have been correctly payrolled.

However, employers will generally still need to submit a P11D(b) where Class 1A National Insurance contributions are due.

Example

An employee receives private medical insurance worth £1,200 per year.

Instead of reporting the benefit after the end of the tax year:

• £100 of taxable benefit is included in each month’s payroll.
• PAYE is calculated on the employee’s salary plus the taxable benefit.
• The employee pays the tax gradually during the year, making deductions more predictable.

What Employers Should Remember

Even where benefits are payrolled:

• Class 1A National Insurance contributions may still apply.
• Certain benefits cannot currently be payrolled.
• Payroll software must calculate taxable benefits accurately.
• Good payroll records remain essential.

Incorrect reporting can lead to additional tax, interest and penalties.

How Business Management Consultation Can Help

At Business Management Consultation, we help employers stay compliant with HMRC’s payroll and employment tax requirements.

Our services include:

• Reviewing employee benefits.
• Advising which benefits are taxable.
• Assisting with payrolling Benefits in Kind.
• Preparing P11D(b) returns where required.
• Supporting businesses with the transition to the mandatory rules from April 2027.

Preparing early can make the transition smoother and reduce the risk of reporting errors.

Conclusion

The way Benefits in Kind are reported is changing, with mandatory payrolling due to begin from 6 April 2027 for most benefits. Employers who understand the new rules now will be in a stronger position to remain compliant and minimise year-end administration.

Reviewing your payroll processes before the new requirements take effect can help avoid unnecessary complications later.

Call us today on 01273 777 333 to discuss how the upcoming Benefits in Kind changes could affect your business.