From April 2026, all employers which offer benefits-in-kind (BIKs) to employees must report them for tax purposes via their payroll system – a reporting method known as payrolling.

Under current regulations, employers may report taxable BIKs to HM Revenue & Customs (HMRC) via either:

• Payrolling – Recording all taxable benefits through your payroll system, which enables tax to be paid on them throughout the year
• P11D – A form which tells HMRC what benefits you have provided to each employee, combined with a P11D(b) form, which reports your Class 1 National Insurance (NI) liabilities.

In order to simplify the tax system and reduce the rate of error in the current system, HMRC will require all employers to report BIKs through payroll from the start of the 2026/27 financial year.

You will still need to report any Class 1 NI owed on benefits via a P11D(b) form.

What benefits need to be reported?

Most benefits offered to employees by your business will be classed as taxable. These include:

• Company cars, taxed on the value to the employee
• Health insurance or medical provisions
• Loans over £10,000
• Accommodation
• Travel and entertainment which are not exclusively for business purposes
• Bonuses

There are a small number of benefits which are considered ‘trivial’ and therefore non-taxable, which include:

• A mobile phone
• Meals in a staff canteen
• Parking at the employee’s place of work

If you aren’t sure what benefits need to be reported, check in with your accountant or tax specialist before submitting your payroll.

How does tax work on BIKs?

Employees pay tax on certain benefits as if they were earnings, based on the value of the benefit and their tax band – including Income Tax and NI contributions.

In the same way as you do for employee salaries, you also pay employer National Insurance on taxable benefits, which is why they need to be reported to HMRC.

The decision to move BIK reporting to payrolling only was made because the current P11D system has, in the view of HMRC, created a compliance gap with frequent errors.

Payrolling, it hopes, will reduce the overall level of error and make it easier for employers to report, and therefore offer, benefits to employees.

What challenges might you face?

Despite its goal of simplifying the tax system for BIKs, payrolling may present a number of issues to businesses currently using the P11D system, such as:

• Reduced flexibility
• Incompatible software
• Non-compliance penalties

However, it is possible to navigate these new requirements with ease. Speak to your accounting team to understand your new obligations and how to process qualifying employee benefits through your payroll.

Need further advice on payrolling benefits-in-kind? Contact our team today to discuss your requirements.