Payrolling Benefits in Kind (BIKs): Employer Obligations (+ Notification Letter Template)

In an increasingly competitive job market, offering Benefits in Kind (BiK) has become a way for businesses to attract and retain top talent and stand apart from the competition. But with employee perks come important tax responsibilities that businesses need to make sure they’re addressing. 

And we get it, tax is never simple. So if you’re a business owner, leader or HR manager trying to navigate the complicated world of tax compliance and wanting to learn about payrolling Benefits in Kind (PBiK), we’re here to help you out. 

Download the employee payrolling of Benefits in Kind letter template now. 

What is payrolling of Benefits in Kind (BiKs)?

Starting off with the basics, BIK’s are non-cash perks which employees receive from their employer on-top of their salary. Think of them as “extras” that can be offered to your team to sweeten the deal alongside a competitive salary. They often include:

• Company car or a car allowance
• Private medical insurance
• Gym membership

Although these are not part of an employee’s wages, they do still hold value and HMRC treats these perks as a form of income, meaning they are subject to tax. 

There are currently two ways in which employers can report perks to HMRC, through filling out a P11D or through payrolling of Benefits in Kind. 

PBiK vs P11D

P11D

Traditionally, employers would report perks once a year to HMRC using P11D forms at the end of the tax year. To remain compliant, businesses are required to complete a P11D form for each employee that has been provided with taxable expenses or benefits that were not payrolled. 

Keep in mind that as a business owner, leader or HR professional, you must also submit a P11D (b) form at the end of the tax year for any Class 1A National Insurance you owe. 

Want to learn more about P11D’s? Check out our P11D guide.

PBiK

Payrolling of Benefits in Kind is another way for businesses to collect tax on any perks they offer. However, this way of doing it allows companies to collect tax in real-time, through their free payroll system and pay tax on them throughout the year. This means that the value of the perk is added to the employee’s taxable income each pay cycle and tax is deducted at the same time as standard wages. 

The advantage of this approach is that you don’t need to worry about reporting on perks for each employee at the end of the tax year. However, you must still report the Class 1A National Insurance you owe by submitting an online form called a P11D(b).

Feature	PBiK	P11D reporting
Reporting frequency	Real-time (each pay cycle)	Annually (after tax year ends).
Tax collection	Deducted via payroll immediately	Tax code adjusted retrospectively.
Employee transparency	Higher, visible on payslips.	Lower, only seen after P11D submission.
Still requires a P11D (b)	Yes.	Yes.
Deadline to register	5th April (before the tax year).	Not required.

What’s changing: mandatory BiK payrolling by 2026–2027

Up until now, payrolling Benefits in Kind has been voluntary, meaning businesses were able to choose if they wanted to submit a P11D or use BiK. But this is all about to change. 

HMRC has announced that PBiK will become mandatory starting from April 2026, with full implementation required by April 2027. 

This change applies to all UK employers who offer taxable perks to their employees, regardless of business size or sector. It will impact:

• Business owners or leaders
• HR teams
• Finance teams 
• Accountants and tax agents
• Payroll providers and bureaus 
• Employees

HMRC’s 2023-2024 guidance

Although the updates are a hot topic of conversation now, HMRC formally announced the changes back in its 2023-2024 updates. HMRC outlined:

• That payrolling will become the default mechanism for reporting most BiKs. 
• It encouraged employers to prepare early by adopting voluntary PBiK, testing their payroll software and reviewing benefit structures.
• It signalled future updates to P11D(b) requirements and NICs processes as part of the shift. 

More detailed guidance on how the rollout will impact employers reporting on obligations are expected in HMRC’s upcoming technical consultations. 

Why is this happening now?

If it’s not broken, don’t fix it, right? So why is this change happening now? It appears that the shift is part of a wider strategy by HMRC to modernise tax collection and improve real-time accuracy in employee tax records. It also aligns with the digital initiatives under the Making Tax Digital program. 

For businesses, it also reduces the admin burden of year-end reporting and helps avoid tax code errors or employee confusion caused by P11D delays. 

The Roadmap: From Voluntary to Mandatory

So it’s happening, but what exactly are the timelines? Here’s a roadmap to outline key dates. 

• Now until April 2026:  Employers can continue to opt-in voluntarily through the HMRC portal before the start of each tax year.
• April 2026:  Voluntary registration remains open; HMRC encourages early adoption, but mandatory requirements start from April 2027.
  April 2027: All remaining BiK reporting (including those currently reported via P11Ds) must transition to PBiKonly.

In effect, the P11D will be phased out for most payrollable benefits, it’s important to keep in mind that a small number will still require P11D reporting. This makes a significant shift in how businesses manage their year-end reporting obligations.

Which benefits can and cannot be payrolled?

It’s important to keep in mind that not all perks can be payrolled. Whilst HMRC allows the most commonly offered BiKs to be payrolled, some are excluded and must still be reported via a P11D. 

Here’s a breakdown of what is and isn’t included for payrolling Benefits in Kind. 

Benefit	Payrollable	Notes
Company car	✔	Must include private use.
Fuel for company car	✔	Taxed separately from the car itself.
Private medical insurance	✔	Commonly payrolled for administrative ease.
Living accommodation	✘	Still requires P11D reporting.
Low- interest or interest-free loan	✘	Loans >£10,000 are excluded from PBiK.
Gym membership	✔	Payrolled if paid directly by the employer.
Season ticket loan >£10,000	✔	Season ticket loans over £10,000 may trigger a BiK, but are not eligible for PBiK and must be reported via P11D.
Cash benefits	✘	Direct cash payments are typically subject to PAYE already and are not classified as PBiKs for registration purposes with HMRC.
Non-cash vouchers	✔	Must be included in payroll as taxable benefits.
Relocation expenses >£8,000	✔	Anything above the exempt threshold must be payrolled.

Employer obligations: what you need to do now

With payrolling Benefits in Kind set to become mandatory by April 2026, business owners, HR managers and payroll professionals should start preparing now to ensure a smooth transition. But, we understand that with so much change, it can be hard to know where to start. 

To start payrolling Benefits in Kind, businesses must first register with HMRC. This can be done through the PBiK online service. You can use your Government Gateway account to access the service. 

Don’t forget, registration must be completed before the 5th April of the tax year you want to start PBiK in. You will be unable to register mid-year, so if you miss the deadline you will need to continue reporting  benefits via P11D for that tax year.

How to notify employees

Swapping from submitting to P11D’s to PBiK is not just a payroll related task, it’s a HR and communication priority. HMRC requires that employers notify all affected employees in writing before the start of the tax year in which perks will be done via payroll. 

Our best advice is to communicate the change clearly and with advance notice. This will help your employees understand how their perks will be taxed and ensures there are no surprises when they check their payslips moving forward. 

Providing an update in writing should be approached as more than just a compliance requirement. This is your opportunity to: 

• Ensure transparency: Giving your team a heads-up means they will know what to expect when they see their payslip. 
• Reduce confusion: Helps avoid misunderstandings about net pay and perceived “extra” taxes.
• Improve tax accuracy: When employees are well-informed, they’re less likely to face tax code errors or miscalculations.

What should an employee notification letter include?

Employee notification can be done via either letter or email and should outline: 

• The specific benefits that will be taxed via payroll.
• The value of each benefit (or how it’s calculated).
• The start date from which PBiK will apply.
• A note that tax will be collected in real-time through PAYE rather than adjusted at year-end.
• Confirmation that the benefit will not appear on a P11D (if applicable).
• A point of contact within HR or payroll for any questions.

While this notification doesn’t need to get into the nitty gritty of the changes, it should be accurate, informative and focus on what the changes mean for your employees. 

Download your free PBiK employee letter template. 

Benefits of payrolling BiKs for employers

Although switching to PBiK is going to be a compliance requirement from April 2027, it is a move that has significant benefits for employers. 

Reduced admin 

One of the biggest benefits, especially for business owners, HR professionals or payroll professionals is the reduced admin workload, leading to simplified internal processes. It is also likely to reduce end-of-financial-year reporting pressures as there will be no need to submit individual P11D forms for each employee. By moving benefit taxation into your regular payroll cycle, you eliminate one of the more complex, manual aspects of tax year-end.

Real-time tax alignment

A major drawback of submitting P11D’s is that there is a lack of real-time tax alignment, which can lead to the risk of under or over-taxation. But with PBiK, tax on perks is able to be deducted in real time through PAYE, this means that:

• Employees are taxed in the same pay period the benefit is received
• Tax codes are more accurate (no waiting for HMRC updates)
• Fewer surprises or corrections needed at year-end

Improved employee understanding of benefits

As an employee, it can be really difficult when you’re left in the dark about tax. And there is an increasing expectation for visibility from employees into their total rewards package. Payrolling Benefits in Kind helps business owners, HR teams and payroll teams deliver this by:

• Showing benefit values and tax on regular payslips.
• Eliminating confusion about P11D forms and backdated tax.
• Helping employees understand the true value of their perk.

Stay payroll compliant with Employment Hero

Getting to grips with upcoming changes can feel daunting, but our best advice is to stay up to date with upcoming changes. And fear not, we will be updating this resource to keep you in the loop with PBiK. 

But we can be far more helpful than just providing information. Our Employment Operating System takes the traditional isolated elements of employment and puts them all in one place. And with our intelligent payroll features, you can streamline compliance, reduce admin and avoid costly mistakes. 

Download your free PBiK employee letter template.