Payrolling Benefits in Kind

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 different benefits, detailing whether or not they are taxable.

Which benefits are taxable?

Employers often choose to give their staff and directors a range of different benefits, either as a reward for their service or to make the role more attractive at the recruitment stage. Because such benefits can be considered as additional salary, both employees and employers might need to pay tax or National Insurance on them. Some of the most popular taxable and non-taxable benefits in kind include:

Taxable

• Company cars for private use
• Fuel provided for personal use
• Medical insurance
• Company shares

Non-taxable

• Living accommodation
• Removal expenses (up to the value of £8,000)
• Training
• Interest-free/low-interest loans

What is payrolling benefits?

Including benefits in kind in payroll is a relatively new scheme that was introduced by the UK government in 2016. The purpose of it was to make declaring and paying tax on benefits easier, in comparison to the previous method of submitting annual P11D forms.

When an employee’s taxable benefit is payrolled, the taxable value of that benefit for the pay period is added to their taxable pay in the payroll. The income tax due is deducted from their gross pay in real time and paid to HMRC.

If you opt to payroll all the benefits supplied to all of your staff, you will not need to prepare P11Ds for individual staff at the end of the year. However, you will need to prepare a P11D(b) to pay your Employer’s Class 1A National Insurance on relevant benefits.

If you choose not to payroll all of the benefits you provide, then any benefits not payrolled need to be reported on individual P11Ds in the usual manner.

What are the advantages of payrolling benefits?

• Tax is deducted from the employee’s pay in real time, so it smooths the tax impact to the employee, particularly in the first year of providing the benefit when HMRC will not have included the benefit in the employee’s PAYE code.
• Saves time by removing the need for you to complete P11Ds on behalf of your employees
• You can plan regarding which benefits you wish to process in this way
• Reduces the risk of manual errors
• All benefits visible on employees’ payslips
• No surprising tax codes issued the following year

What are the deadlines?

To start payrolling benefits in kind, employers must register with HMRC before the start of the tax year they want to begin payrolling from. The application can be made via their HMRC account.
If this deadline is missed, HMRC may agree that the employer can informally payroll benefits providing that they can justify the reason for missing the initial cut off point.

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.

Employers who would like to formally payroll benefits for the 2024/25 tax year, for the first time, must register with HMRC before 6 April 2024.

Important PBIK information

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

They will also be required to inform HMRC via their online service about which benefits they want to put through payroll and if they would like to exclude any specific employees from the PBIK scheme.

After registration has taken place, employers must inform their employees because it means their tax code, and consequentially their take-home pay will be altered. They need to be made aware of which benefits will be going through the payrolling system, the cash equivalent of the benefits, and details of benefits that will not be payrolled. The deadline for this is 1 June 2024 for tax year 2024/25.

Companies will still need to submit a P11D(b) form to report and pay Class 1A National Insurance contributions (NICs) due on the benefits.

Should a company ever wish to deregister, they can use the same online service.

However, it is worth noting that this must be completed before the start of the tax year and can’t be done halfway through.

How to register

Employers can register to payroll benefits by logging on to HMRC using their User ID and Password. The registration is restricted to employers only, and agents will NOT be able to register on behalf of their clients.

Please contact payroll@finerva.com once registration is complete so that the benefits are included within payroll.