Answers · UK 2025/26

How does payrolling benefits work and how does it replace P11D?

Payrolling benefits means adding the taxable value of a benefit in kind directly to an employee's payroll each pay period, so PAYE income tax is collected in real time. This removes the need to submit a P11D form for that benefit after the tax year ends, simplifying administration for employers.

Last updated: 27 June 2026Last reviewed: 27 June 2026How we verify

Full answer

Historically, employers reported taxable benefits in kind (BiKs) -- such as company cars, private health insurance, or interest-free loans -- on form P11D after the tax year ended. HMRC then adjusted employees' tax codes to collect the tax owed. Payrolling replaces this process by taxing benefits through payroll in real time. **How payrolling works** 1. The employer calculates the cash equivalent (taxable value) of each benefit. 2. This value is added to the employee's gross pay for each pay period. 3. PAYE income tax is deducted on the higher total -- collecting the benefit tax monthly rather than via a code adjustment the following year. 4. No P11D is required for payrolled benefits (though P11D(b) for Class 1A NICs may still be needed). **Registration** Employers register to payroll benefits through HMRC's online service (usually before the start of the tax year). From April 2026, HMRC intends to make payrolling of benefits in kind mandatory for most employers -- check current HMRC guidance for the confirmed implementation date. **What can be payrolled?** Most benefits in kind can be payrolled, including: - Company cars and fuel - Private medical insurance - Gym memberships - Non-cash vouchers Some benefits cannot be payrolled and still require a P11D -- notably living accommodation and interest-free or low-interest loans. **Worked Example** An employee receives private medical insurance with an annual P11D value of £1,200. Under payrolling: - Monthly addition to gross pay: £1,200 / 12 = £100 - Extra PAYE tax (basic-rate taxpayer): £100 x 20% = £20/month - Over the year: £240 extra tax collected via payroll Without payrolling, HMRC would collect the same £240 via a reduced tax code the following year, creating a lag and potential underpayment surprises. **Class 1A NICs** Payrolling does not remove the Class 1A NIC obligation. Employers still owe 15% on the annual value of most payrolled benefits, reported on P11D(b) by 6 July and paid by 19 July (22 July electronically).