Whenever an employer offers benefits to an employee or a director, either for free or at a reduced cost, they’re referred to as benefits in kind. His Majesty’s Revenue and Customs (HMRC) mandates that employers declare benefits by the end of the tax year through the P11D form.
However, HMRC offers you an alternative when reporting the benefits you pass on to your employees. You can payroll your benefits. This entails processing benefits through the payroll in real time and collecting tax deductions for every pay period, which are then submitted to HMRC throughout the year, as opposed to waiting for the end of the tax year.
Currently, payrolling benefits is optional. But starting in April 2026, this will be mandatory for all employers. It is, therefore, crucial that your organisation understand how the process works.
What Benefits Can Be Payrolled?
The following employer benefits can be payrolled:
- Company car
- Fuel allowance
- Company shares
- Private health insurance
- Mobile phone allowance
- Gym membership
- Relocation costs
Not all benefits you provide can be payrolled. For example, you can’t payroll beneficial loans or living accommodations.
Importance of Payrolling Benefits
Payrolling has several advantages for your organisation:
- Reduces the burden of P11D compliance
- Helps employers plan out their expenses and taxes throughout the year
- Simplifies the process, therefore reducing errors
- Reduces the frequent changes in the tax code of an employee
Deadlines for Payrolling Benefits
You must register your organisation for benefits payrolling with HMRC no later than April 5 before the start of the following tax year. You’ll then be required to file monthly alongside the payroll.
Once your organisation decides to payroll the benefits, you must inform HMRC of the decision and list out the benefits you’ll be payrolling. You also need to inform your employees about the benefits that have been payrolled.
Note that while payrolling your benefits eliminates the need for you to complete Form P11D, HMRC still requires you to submit Form P11D(b) by 6 July following the end of the tax year to declare and pay Class 1A National Insurance contributions on the previous tax year’s benefits.
What Tax Do Employees Pay on Their Benefits?
Your employees are expected to pay tax on some benefits. As an employer, you can facilitate the process by deducting the tax they owe right from their paychecks through the Pay as You Earn system. To do this, you must have a payroll system approved by HMRC. You can also get the service from experts such as our payroll manager, Faye Lusted (flusted@pragermetis.com).
Payroll Your Benefits With Prager Metis
Voluntarily switching to payroll benefits will help your organisation embrace compliance ahead of the April 2026 mandatory deadline. Prager Metis can assist you in registering and filing payroll benefits for your company.
All we need from you is a list of the current benefits you provide your employees and any premiums you pay. With this data, we’ll calculate the cash equivalent of the benefits and help you migrate your reporting from P11D forms to payroll. Contact us today to get ahead.
