Benefits in kind are non cash perks that employers provide to employees in addition to their regular pay. Although these benefits are not paid in money, they still have a taxable value. Common examples include company cars, private medical insurance, fuel benefits, and employer-provided accommodation. Because these perks form part of an employee’s overall reward package, HMRC treats them as taxable income.
Employers must report benefits in kind to ensure the correct amount of tax and National Insurance is paid. HMRC uses this information to adjust employees’ tax records and to calculate Class 1A National Insurance, which employers pay on most taxable benefits. Accurate reporting helps businesses stay compliant, avoid penalties, and prevent unexpected tax bills for both employers and employees.
HMRC is now moving towards payrolling benefits in kind, where some benefits are reported through payroll instead of P11D forms. This guide explains the difference between P11D reporting and payrolling, and which benefits still need to go on a P11D in 2026.
Key Differences Between P11D and Payrolling
The main difference between P11D and payrolling is when and how tax on benefits is collected. With a P11D, benefits are reported at the end of the tax year, so any tax owed is calculated afterward. This can sometimes lead to unexpected tax bills for employees and excessive paperwork for employers.
Payrolling, on the other hand, adds the value of benefits directly to employees’ pay throughout the year. Tax is collected in real time, so employees’ take-home pay and tax codes are automatically updated. This reduces employee surprises and makes reporting much easier for employers.
Another key difference is the administrative workload. P11Ds require year-end preparation and are prone to errors, whereas payrolling spreads the work across the year, keeping calculations simpler and more accurate. Overall, payrolling provides a smoother, more manageable way to handle benefits. At the same time, P11Ds are mainly used for benefits that cannot be payrolled or for benefits employers choose not to payroll.
Benefits That Must Stay on a P11D vs Benefits That Can Be Payrolled
Not all employee benefits can be processed through payrolling. Some must still be reported on a P11D form because their tax calculations are more complex. Examples include employer provided living accommodation, such as a house or flat given to an employee, and beneficial loans, which are loans offered at low or zero interest. HMRC requires these to be reported separately on a P11D to ensure the correct tax and National Insurance contributions are applied.
On the other hand, many common benefits can be payrolled, making tax simpler for both employers and employees. Examples include company cars, private medical insurance, and other regular perks. When a benefit is payrolled, its taxable value is added to the employee’s pay each month, so tax is collected in real time. Once payrolled, these benefits no longer need to appear on a P11D, although employers still report the total value of all benefits on the P11D(b) form for Class 1A National Insurance. Payrolling reduces year-end paperwork, ensures accurate tax deductions, and keeps employees’ pay and tax codes up to date throughout the year.
Future Changes to Benefits Reporting
HMRC is changing how most employee benefits are reported, moving to a mandatory payrolling system. From April 2027 employers will report most taxable benefits in kind through payroll rather than on P11D forms. The change is intended to spread tax deductions more evenly throughout the year and reduce end‑of‑year paperwork. However, certain benefits like employer‑provided accommodation and beneficial loans will initially remain outside the mandatory payroll regime and may still be reported on P11Ds unless voluntarily payrolled.
Final Thought: Which Benefits Go on a P11D and How We Can Assist You
While common benefits like company cars, private medical insurance, and fuel can be payrolled, certain complex perks such as employer-provided living accommodation and beneficial loans can also be payrolled if the employer chooses to do so. Understanding which benefits must still be reported on a P11D and which can be payrolled is essential for complying with HMRC rules and managing payroll efficiently
For UK employers seeking guidance on benefits reporting, tax compliance, or payroll setup, we offers free consultancy to help businesses navigate these changes with ease.
