Payrolling Benefits — what does it mean?

What are Benefits in Kind (BIK)?

Benefits in kind are any benefits given by an employer to their employees or directors, which are not part of their salary or wages. Not all benefits are taxable, however, those that are must be properly declared to HMRC.

Some of the most common BIK examples include company cars, medical or dental insurance, and childcare vouchers. The UK government provides a list of all different benefits, detailing whether or not they are taxable.

Prior to April 2016, the only way to formally report company-provided benefits to HMRC was to submit P11Ds at the end of the tax year. Not only is this a fiddly and manual process, it's also time-consuming.

However, through changes that came in almost five years ago, companies now have the option to voluntarily use an HMRC online service named Payrolling Benefits in Kind (PBIK).

This new system has made declaring and paying tax on benefits easier.

What is payrolling benefits?

Payrolling benefits is the process that allows an employee to pay tax on a month by month basis through the salary they earn in the tax year that they received the benefit.

Previously, companies would have needed to fill out all of the information on a P11D at the end of each tax year, meaning employees paid the tax in the following year. HMRC would then collect the tax on benefits by reducing the employee's personal allowance.

The Registration Process

Companies that want to register for PBIK must do so voluntarily before the start of the tax year. The registration is ongoing, meaning that there's no need to reapply each year.  

The Deadline to sign up is no later than 5th April 2023 to use PBIK for the 2023/24 tax year. The application can be made by your own HMRC account.

Even if a company is signed up to PBIK, they will still need to submit a P11D form and mark the payrolled benefits as "payrolled" on the form. This is so that HMRC know not to collect tax on this benefit again.

 Should you ever wish to deregister, the same online service account would need to be used.

Simple transparent fee structure

The fee is just £2.00 + VAT per employee, per benefit, per month.

Fee example:

As a company benefit, Jenny has a company car along with private medical insurance.

Two separate benefits that are being payrolled each month.

£2.00 x 2 benefits = £4.00 + VAT

 IMPORTANT: What YOU need to know:

• You can only apply before the start of the tax year. Consequently, any benefits that are decided on or after the deadline can't be administered in this way.
• Once you've successfully applied for payrolling benefits, you must write to your employees to let them know what this means for them.
• At the end of each tax year, and before 1 June, you must write to your employees again to provide them with:
  • Details of the benefits you have payrolled
  • The cash equivalent of the benefit
  • Details of benefits you have not payrolled