What Is Payrolling Benefits and Why Does It Matter?

Payrolling benefits in kind (PBIK) is a system that allows employers to collect income tax on employee benefits through their regular payroll rather than reporting them annually via P11D forms. This method provides real-time tax collection, improving cash flow for HMRC and creating more accurate tax deductions for employees.

Key Update: HMRC has announced that mandatory payrolling of benefits will now come into effect from 6 April 2027, delayed from the original April 2026 date. This delay provides employers with additional time to prepare their systems and processes.

Current Status: Voluntary vs Mandatory Payrolling

Voluntary Payrolling (2025-2027)

For the 2025/26 tax year, employers can still voluntarily register to payroll benefits, but registration must be completed before April 2025. This voluntary approach allows businesses to:

• Test their systems before mandatory implementation
• Identify and resolve issues early
• Smooth the transition ahead of the 2027 deadline
• Gain operational experience with real-time benefit reporting

Mandatory Implementation from April 2027

From 6 April 2027, it will become mandatory for all employers to payroll benefits in kind provided to their employees. This represents a fundamental shift from the current P11D annual reporting system to real-time benefit taxation.

Benefits That Can Be Payrolled

Eligible Benefits

Most employment benefits can be included in payrolling, including:

• Company cars and fuel benefits
• Private medical insurance
• Gym memberships
• Professional subscriptions
• Mobile phones (where more than one is provided)
• Employer-paid personal expenses
• Assets made available to employees

Excluded Benefits

Currently, you can payroll all benefits apart from living accommodation provided by you as an employer and interest free and low interest (beneficial) loans. These require end-of-year calculations, so they’re currently excluded until legislative changes are made.

However, from April 2027, a registration service to register for voluntarily payrolling loans and accommodation is expected to open from November 2026.

Step-by-Step Registration Process

Prerequisites

Before registering, ensure you have:

1. Government Gateway Account: You need a Government Gateway user ID and password to enrol for PAYE online
2. PAYE Online Access: Established PAYE online services
3. Payroll Software Compatibility: Contact your accounting software provider to make sure your software can collect the correct tax due on the registered benefits directly from your employees’ pay

Registration Timeline

Critical Deadline: You need to register online before the start of the tax year you want to payroll for. Specifically:

• For 2025/26: Employers must have registered by 5 April 2025 in order to use PBIK for 2025-26
• Optimal Timing: 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

Registration Steps

Step 1: Access the Online Service

For Employers:

• Register and use the payrolling benefits and expenses online service
• Navigate to the HMRC Government Gateway
• Sign in with your PAYE online credentials

For Agents:

• Sign in or set up an HMRC online services account to use the payrolling benefits in kind online service

Step 2: Select Benefits to Payroll

During registration, you must specify which benefits you want to include. When selecting benefits to be payrolled, the benefits are grouped by HMRC in line with the P11D form, although not ordered in the same way.

Step 3: Choose Participating Employees

You can exclude employees from payrolling once you’re registered, but you’ll need to use form P11D to declare the non-payrolled benefits.

Step 4: Complete Registration

When registration is complete, for the employees selected, HMRC will adjust their tax codes to remove the payrolled benefits.

Service Availability

The online service is available 7am to 10pm, Monday to Friday, and 8am to 8pm, Saturday and Sunday.

Post-Registration Requirements

Ongoing Obligations

Once registered, employers must:

1. Calculate Benefit Values: Work out the cash equivalent of a benefit for payrolling in the same way as you do for a benefit that you report on a form P11D
2. Process Through Payroll: The annual benefit is broken down into equal amounts per pay period and processed through payroll
3. Submit P11D(b): You must still work out the Class 1A National Insurance contributions on benefits and complete form P11D(b)
4. Employee Communication: You must send notification by 1 June after the end of each tax year telling your employees that they will not be taxed twice

Tax Code Management

HMRC will make sure the value of the benefit is not included in your employees’ tax codes once registration is complete. This prevents double taxation on benefits.

Mid-Year Changes

If a benefit changes mid-year (resulting in a revised cash equivalent value) the amendment should be run from the next payroll date.

Advantages of Early Registration

For Employers

1. System Testing: The obvious advantage is that it gives you a head start to test systems, identify issues, and smooth the transition ahead of the mandatory deadline
2. Reduced P11D Requirements: If you use the service you will not need to use form P11D for payrolled benefits
3. Improved Cash Flow Management: Real-time tax collection provides better predictability

For Employees

1. More Accurate Tax Codes: Tax codes for individuals should change less frequently
2. Real-Time Tax Collection: Tax deductions in monthly payroll will be more accurate
3. No Year-End Surprises: Benefits are taxed as received rather than adjusted later

Common Concerns and Solutions

Double Taxation Fears

There is a misconception that employees will “double pay” tax when move from P11d to payrolling. Once registered the benefit will be excluded from tax code in relevant year so that payrolling takes over.

Cash Flow Impact

For those employers who provide multiple high value benefits to employees, the cash flow implications of having to account for NIC during the tax year rather than in the July after the end of the tax year will also need to be considered.

System Complexity

The process changes to enable accurate real-time benefit reporting will require careful planning particularly where responsibility for administering benefits lies across multiple stakeholders in HR, finance and tax.

Preparing for Mandatory Implementation (2027)

Technical Preparations

FPS fields need to be increased to match what’s reported on P11D and P11D(b) forms, it’s currently estimated that over 100 new fields will be required.

Software Updates

HMRC’s Basic PAYE Tools will be updated in time for April 2027, and commercial payroll software providers are working on enhanced functionality.

Timeline for Mandatory Implementation

It is expected that draft legislation and guidance will be published in autumn 2025 for further consultation until April 2026, and initial technical information made available to software developers in December 2025.

Best Practices for Registration

Before Registering

1. Audit Current Benefits: Review all benefits provided to employees
2. System Assessment: Ensure payroll software can handle benefit calculations
3. Staff Training: Prepare HR and payroll teams for the changes
4. Employee Communication: Plan how to explain changes to staff

During Registration

1. Choose Benefits Carefully: Start with simpler benefits before adding complex ones
2. Select Appropriate Employees: Consider excluding those with variable benefits initially
3. Document Decisions: Keep records of what benefits and employees are included

After Registration

1. Monitor Accuracy: Regular checks on benefit calculations and tax deductions
2. Employee Support: Be prepared to answer questions about payslip changes
3. Compliance Tracking: Ensure P11D(b) submissions remain accurate

Key Deadlines Summary

• Voluntary Registration 2025/26: By 5 April 2025
• Optimal Registration Window: Before December 2024 (to avoid multiple tax code changes)
• Mandatory Implementation: 6 April 2027
• Employee Notification: By 1 June following each tax year
• P11D(b) Submission: By 6 July following each tax year

Conclusion

Registering for payrolling benefits offers significant advantages for forward-thinking employers. With mandatory implementation approaching in April 2027, voluntary registration provides valuable experience and system testing opportunities.

The key to successful implementation lies in early preparation, comprehensive system assessment, and clear employee communication. Employers who register voluntarily before the mandatory deadline will be better positioned to handle the transition smoothly and efficiently.

For businesses considering registration, the extended timeline to 2027 provides an excellent opportunity to test systems, train staff, and refine processes before payrolling becomes mandatory for all employers.

This guide is based on the latest HMRC guidance and industry updates as of August 2025. Employers should consult with their tax advisors and monitor HMRC announcements for any further developments.