Helen Kingdon explains what’s changing and what employers need to action regarding payrolling benefits in kind. <\/h2>\n
Does your business provide employees with benefits?\u00a0<\/p>\n
Things such as company cars, private medical insurance, or even accommodation?\u00a0<\/p>\n
If so, there’s an important tax change incoming and we’re finding many owner managers haven’t yet prepared for it!<\/p>\n
From 6 April 2027, the UK government will require most employers to payroll benefits in kind<\/a><\/span><\/span>\u00a0 instead of reporting them at the end of the year using the traditional P11D process<\/span>.<\/p>\n Sure, 2027 may sound a long way off, but the businesses that start thinking about payrolling benefits in kind now will likely have a far smoother transition than those who leave it until the last minute.<\/p>\n In this blog post we break this all down into simple terms so that you can get to grips with what’s changing\u00a0and know the exact next steps you need to take before the deadline.\u00a0<\/p>\n Quick links to sections covered in this blog post include:<\/span>\u00a0<\/p>\n <\/p>\n Benefits in kind (BIK)<\/a><\/span><\/span>\u00a0are non-cash benefits that employers provide to employees in addition to their salary. Common examples include:<\/p>\n You need to understand that these benefits still have a taxable value<\/span>, which means employees have to\u00a0pay Income Tax on them.<\/p>\n Traditionally, the process for this works whereby employers report these benefits to HMRC using a P11D form after the end of the tax year<\/span>. HMRC then adjusts the employee\u2019s tax code so the tax can be collected the following year.<\/p>\n While that system works, it can also create confusion for employees as they can suddenly see adjustments to their tax several months after receiving any\u00a0benefit.<\/p>\n <\/p>\n Payrolling BIK is the new process of taxing employee benefits through your payroll in real time<\/span>. This is as opposed to the current method of reporting them at the end of the tax year using a P11D form.<\/p>\n From April 2027, this approach will become mandatory<\/span> for most UK employers.<\/p>\n Common questions employers are asking right now include:<\/p>\n We’ll walk you through the answers and scenarios to these question as we go. HMRC is now moving (somewhat gradually) towards a real-time tax reporting system<\/span>.<\/p>\n This means there’s a shift whereby payrolling BIK will become compulsory from April 2027<\/span>, and this is with the aim of phasing out most of the P11D reporting aspect of the process.<\/p>\n The result of this is that employers will soon need to process most benefits through their payroll<\/a><\/span> instead of reporting them after the tax year.<\/p>\n However, here\u2019s the important point, you don\u2019t need to wait until 2027<\/span> to start preparing. As an employer you\u00a0can already register with HMRC and\u00a0payroll benefits voluntarily before the deadline.<\/p>\n The benefit of this for many businesses is that trialling the process early can make your transition that bit easier<\/span>. We\u2019re already seeing businesses begin to trial payrolling benefits ahead of 2027 so they can test systems and processes early, rather than rushing things closer to the deadline.<\/p>\n <\/p>\n We’ll use a simple scenario for this.\u00a0<\/p>\n Consider that your member of staff receives private medical insurance as part of their salary package and this costs an additional \u00a31,200 per year.\u00a0<\/p>\n By payrolling your benefits in kind, the following applies:<\/p>\n So, your employee pays tax in real time on the benefit as they receive it<\/span>, instead of the following year under the current system.\u00a0<\/p>\n <\/p>\n1. What are benefits in kind?\u00a0<\/h2>\n
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2. What is payrolling benefits in kind?\u00a0<\/h2>\n
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<\/p>\n3. Why payrolling benefits in kind is becoming mandatory<\/h2>\n
4. How payrolling benefits in kind works, an example<\/h2>\n
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5. Payrolling vs P11D at a glance<\/h2>\n
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\n Feature<\/strong><\/td>\n Traditional P11D<\/strong><\/td>\n Payrolling benefits<\/strong><\/td>\n<\/tr>\n \n When the tax is paid<\/td>\n The following tax year<\/td>\n In real time<\/td>\n<\/tr>\n \n Reporting method<\/td>\n P11D form<\/td>\n Through payroll<\/td>\n<\/tr>\n \n Impact on employees<\/td>\n Delayed tax adjustment<\/td>\n Immediate visibility<\/td>\n<\/tr>\n \n Admin timing and processing<\/td>\n Year-end<\/td>\n Spread across the year<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n