Benefits in Kind guide

Non-cash benefits, or Benefits in Kind, are a great addition to your total rewards package. Typical benefits vary, but they can include private medical insurance, company cars, gym memberships, or access to a third-party benefits platform. These are all separate from salary, bonuses, and commission.

Employees must pay taxes on these benefits.

Before you begin

Here are some key dates and deadlines to keep in mind when filing benefits paperwork.

How to report Benefits in Kind

Employee benefits can be reported to HMRC through a P11D, payrolling, or a PAYE Settlement Agreement. Additionally, if Class 1A National Insurance Contributions are required, you need to file a P11D(b).

P11D vs. Payrolling

Employers can choose which method they use to report benefits to HMRC. Reporting through P11Ds or payrolling will result in different payment deadlines on the same amount of tax.

Reporting through P11Ds results in tax paid the following tax year, after HMRC has received and processed an employee’s form. HMRC usually collects the tax by changing the employee’s tax code to account for the unpaid tax on a received taxable benefit.

Payrolling means that taxes are taken in real time. The value of the benefit is added to the employee’s salary within each applicable payroll cycle, increasing their immediate taxable income.

If an employer switches from P11Ds to payrolling, employees may be subject to double taxation during the first year after the transition. They will be taxed in real-time (payrolling) and will have to pay tax based on the P11D information for the previous tax year.

P11D

A P11D is a form that is completed annually on a per-employee basis. It’s essentially an end-of-year declaration of any benefits and expenses you have given to the employee throughout the year, which is why it’s super important to keep track of the benefits provided. To learn how to report a P11D in UK Payroll, see Submit your P11D/P11D(b).

Payrolling

Instead of reporting benefits through a P11D, you can report benefits via your payroll every payroll period.

To payroll, employers must sign up for payrolling before the beginning of the tax year. Once registered, HMRC can be informed of the benefits given to employees each pay period through the Full Payment Submission. This eliminates the need to generate P11D forms for employees at the end of every tax year.

To learn how to payroll benefits in UK Payroll, see Add Benefits in Kind.

Certain benefits can’t be processed through payroll, such as employer-supplied housing and interest-free and low-interest loans. These benefits must still be reported on a P11D, even if other benefits for that employee or the company as a whole are being payrolled. Employers can decide to do a mix of payrolling and P11Ds or submit all benefits on a P11D.

To learn more, see HMRC’s Payrolling: tax employees’ benefits and expenses through your payroll.

PAYE Settlement Agreement

You can apply for a PAYE Settlement Agreement to make one annual payment to HMRC to address all tax and National Insurance due on minor, irregular, or impracticable expenses or benefits for your employees.

To learn more, see HMRC’s PAYE Settlement Agreements.

P11D(b)

In some cases, benefits may also result in them having to pay Class 1A National Insurance Contributions. This is paid in addition to the employee's NI contribution.

The total of any benefits provided to employees that are subject to Class 1A NI is totalled up and reported on a P11D(b), along with the value of the Class 1A NI that is due. Only one P11D(b) form is filed per tax year, and should be filed even if you’re payrolling benefits.

After submission, employers must pay the Class 1A taxes.

Reporting benefits platforms

Benefits offered through a third-party platform must be declared to HMRC, usually as a Benefit in Kind. This can be reported through a P11D or through payrolling.

The amount the employer pays for the benefits platform per employee is reported as the benefit in kind. Additionally, if Class 1A National Insurance contributions are paid for certain benefits, then a P11D(b) form should be submitted.