Payrolling Employee Benefits
Your Guide to Payrolling Benefits in Kind: What Employers Need to Know for 2026
From April 2026, HMRC will require all employers to payroll most employee benefits. If your business provides benefits such as company cars or medical insurance, this guide will help you understand what’s changing, what you need to do, and how to prepare.
What Is “Payrolling Benefits”?
Currently, when you give employees benefits (like a company car or private medical insurance), you report them to HM Revenue & Customs (HMRC) at the end of the tax year using a P11D form. Your employee then pays the tax through their tax code, often in the following tax year.
From April 2026, this will change. You'll need to add the taxable value of most benefits directly to employees’ pay so that tax is deducted in real-time through payroll, just like salary. This is called payrolling.
Which Benefits Must Be Payrolled?
From April 2026, the following benefits in kind (BiKs) must be payrolled:
| Benefit | Description | Example |
|---|---|---|
| Company Cars | The taxable value of cars provided to employees | An employee given a car to use for work and personal use |
| Fuel for Private Use | If you also cover private mileage | The company pays for all fuel regardless of personal use |
| Private Medical Insurance | If you pay premiums for employee health cover | You pay for Bupa cover for your management team |
| Gym Memberships | If you pay or contribute | You offer gym subsidies as part of a wellness programme |
| Assets Available for Private Use | If you give items like laptops or TVs for personal use | You give an employee a tablet they can use outside work hours |
| Non-Cash Vouchers | Such as gift cards for shops | An employee receives a £200 John Lewis voucher as a bonus |
These will all be taxed through payroll each pay period.
📌 Important: You still need to submit a P11D(b) form at the end of the tax year to pay Class 1A National Insurance Contributions (NICs) on these benefits.
What Benefits Are NOT Being Mandated (Yet)?
For now, two benefit types are excluded from mandatory payrolling in 2026:
| Benefit | Description |
|---|---|
| Beneficial Loans | Interest-free or low-interest loans over £10,000 |
| Employer-Provided Living Accommodation | E.g. when you provide housing to an employee |
You may still choose to payroll these voluntarily, but it won’t be mandatory (yet).
Which Benefits Are Exempt Entirely?
You don’t need to payroll or report certain tax-exempt benefits, such as:
| Exempt Benefit | Example |
|---|---|
| Trivial Benefits | Occasional gifts like birthday chocolates, under £50, not cash |
| Staff Canteen Meals | Free or subsidised food in a canteen open to all staff |
| Workplace Parking | Parking at or near your business premises |
| Work-Related Training | Courses to help employees perform their job |
| Employer-Provided Childcare | Workplace nurseries or up to £55/week via childcare vouchers (if registered before Oct 2018) |
Benefits of Payrolling for Employers
- No more P11D admin (except for excluded benefits)
- More accurate tax deductions for employees—no nasty surprises
- Fewer tax code errors and less confusion
- Smoother onboarding—new hires don’t have to wait for tax code updates
What Do You Need to Do Now?
✅ Step 1: Review Your Current Benefits
- List all the benefits you provide to employees
- Categorise them: taxable, exempt, or excluded
✅ Step 2: Check Your Payroll System
- Speak to your payroll software provider
- Confirm your system can handle benefit payrolling and real-time reporting
✅ Step 3: Consider Voluntary Payrolling Now
- You can start payrolling benefits before 2026 on a voluntary basis
- This gives you time to adjust and fix any issues
✅ Step 4: Communicate with Staff
- Let employees know what benefits are being taxed through payroll
- Explain how it affects their payslip and tax