Let’s talk Benefits in Kind
They’re more than just a workplace perk. From company cars to private healthcare and gym memberships, Benefits in Kind (BiK) are a powerful way to reward and retain talent. But, like most things in tax – they come with their own set of rules.
With changes coming in 2027, instead of the originally planned date of April 2026, we recommend making sure you’re up to speed with what to expect and adopt the process early. This blog covers how BiKs are taxed, what’s changing, and how payrolling could simplify everything.
What are Benefits in Kind?
Benefits in Kind are non-cash perks that add value to your employees’ package. Common examples include:
- Company cars
- Private medical insurance
- Employer-provided accommodation
- Interest-free or low-interest loans
- Work-use mobile phones (with personal use allowed)
They’re not part of an employee’s salary – but HMRC still treats them as taxable benefits. That means they can affect employee tax bills and trigger employer National Insurance (NI) obligations.
How are BiKs taxed?
Each benefit has its own method of valuation. For example:
- Cars: Taxed based on CO2 emissions and list price
- Accommodation: Based on rental value
- Loans: Based on the difference between the interest charged and HMRC’s official rate
- Private Medical Insurance: If an employer pays for an employee’s private medical insurance, the premium cost is considered a taxable BIK
While HMRC provides the rules, it’s the employer’s responsibility to apply them correctly. Reporting is typically done through a P11D. Mistakes can lead to penalties and interest.
What’s changing from April 2027?
From April 2027, payrolling of most Benefits in Kind becomes mandatory.
Initially, the mandatory payrolling of Benefits in Kind was due to come into effect from April 2026, however HMRC has since made the decision to delay this until April 2027. This delay provides businesses with another opportunity to adopt the process early if they missed their chance to voluntarily adopt payrolling BiK for the 2025/26 tax year.
Currently, employers report taxable benefits and expenses using P11D and P11D(b) forms. But from April 2027, all BiKs – except employment-related loans and accommodation – must be reported via payroll.
Key points:
- You’ll still need to submit a P11D(b) and pay Class 1A NIC
- Voluntary payrolling is available for loans and accommodation
- Consider early adoption for the 2026/27 tax year
This shift is designed to benefit everyone:
For employers:
- No more P11Ds (for payrolled benefits)
- Real-time tax collection
- Fewer errors and queries
For employees:
- No more surprise tax bills
- Better budgeting with real-time deductions
- Clear visibility on payslips
How to payroll benefits
The process is simple, but must be done correctly:
- Register with HMRC before the tax year begins
- Add the benefit values into your payroll system
- Submit everything through Real Time Information (RTI)
- Submit a P11D(b) at year-end to account for Class 1A NIC
What should employers do now?
Preparation is everything. Here’s how to get ahead:
- Review your current benefit structure
- Identify where benefit data sits (HR, payroll or finance?)
- Test your payroll software
- Keep an eye on legislation
- Start educating employees
Communication is key
Once registered for payrolling, let your team know:
- Which benefits are affected
- How their tax code may change
- That they’ll receive an annual statement (before 1 June)
- Not to double-report benefits on self-assessment
“Managing Benefits in Kind doesn’t need to be a headache. With the right systems and advice, it becomes just another (very manageable) part of running a smart, compliant business.” – Bobby Battu, Head of Payroll
Need support reviewing your benefit structure or getting payrolling set up correctly? Get in touch with the Wilson Partners Payroll team today.
