Payrolling benefits in kind means taxing employee perks, such as private medical cover or a company car, through your payroll in real time using PAYE, instead of reporting them on a P11D after the tax year ends. You register with HMRC before the year starts, add the taxable value to each pay run, and employees pay the correct tax as they go along. You still submit a P11D(b) and pay Class 1A National Insurance each year.
Most employers who provide benefits have historically reported them once a year on a P11D form. Payrolling offers a different route. Rather than telling HMRC about the benefit after the event, you fold its taxable value into the employee’s regular pay and collect the tax through the year. This removes a large annual admin job and stops employees carrying an unexpected tax bill into the next year. It is worth understanding the rules now, because the way benefits are reported is changing for everyone.
What does payrolling a benefit actually mean?
When you payroll a benefit, you work out its cash equivalent for the year (the same figure you would otherwise put on a P11D), divide it across your pay periods, and add that amount to the employee’s taxable pay. The employee does not receive extra cash. The added figure simply increases the pay that tax is calculated on, so the right amount of Income Tax is deducted through PAYE across the year. HMRC then does not need to adjust the employee’s tax code to claw back the benefit later, which is a common cause of confusing tax code changes. You can read the wider picture in our benefits in kind and P11D guide.
How does an employer register to payroll benefits?
You register through HMRC’s online payrolling benefits and expenses service, and you must do it before the start of the tax year in which you want to begin. The service closes for a given year on 5 April, so if you miss that window you cannot start payrolling until the following 6 April. You cannot change how you report benefits partway through a tax year. Once registered, the arrangement rolls forward automatically each year until you tell HMRC to stop, so you do not have to sign up again every April.
Do you still need a P11D and Class 1A National Insurance?
Payrolling replaces the individual P11D forms for the benefits you put through the payroll, so you do not file a P11D per employee for those items. It does not remove the employer’s National Insurance duty. You must still submit a P11D(b) by 6 July after the tax year ends and pay Class 1A National Insurance on the total value of the benefits provided, whether they were payrolled or not. Class 1A is an employer charge, so it is due even when the Income Tax has already been collected through the payroll. The payment deadline is 22 July if you pay electronically.
What is changing with mandatory payrolling and when?
Payrolling is currently voluntary, but the Government intends to make it compulsory for most benefits. The change was first announced to start in April 2026, and it has since been delayed. Mandatory payrolling of benefits in kind now begins from April 2027. From that point, most benefits, including company cars, car and van fuel, vans and employer provided medical treatment, will have to be reported and taxed through the payroll rather than on a P11D. Mandatory payrolling for employer provided loans and living accommodation is expected to follow and will be confirmed separately. If you already run a fleet, our company car tax guide explains how the benefit value is calculated.
Which benefits cannot be payrolled yet?
Two benefits are currently excluded from voluntary payrolling. These are employer provided living accommodation and beneficial loans (interest free or low interest loans). For now these must still be reported on a P11D even if you payroll everything else, so many employers run a mix of the two methods. Small tax free perks that qualify under the trivial benefits exemption do not need reporting at all, whether you payroll or not, because they are exempt from tax in the first place.
What are the pros and cons of payrolling benefits?
On the plus side, you avoid preparing an annual P11D for every affected employee, the tax is collected in real time so staff are less likely to face a surprise bill, and tax codes stay cleaner. It also gets you ahead of the 2027 mandatory rules. On the other side, there is setup work to register and to build the cash equivalents into your payroll software, and the taxable value appears on each payslip, which can prompt questions from employees who do not expect to see it. For most businesses the real time approach is simpler once it is running, and it is the direction HMRC is heading anyway. For more employer tax topics, see our accountancy and tax guide.
Employer PAYE and benefits reporting is one of the more common areas HMRC selects for a compliance check, and getting the payrolling and Class 1A treatment right matters. A Solar Protect tax investigation policy covers up to £100,000 of your accountant’s fees with no excess, so your adviser can handle an enquiry properly without the cost falling on you. Get a quote to protect your business.
Reviewed by Matthew Bartlett, Director, Solar Protect. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.