Comparison · Payroll & Benefits in Kind · 2026
Payrolling Benefits vs P11D 2026: Should You Switch Before the Deadline?
From 6 April 2026, HMRC makes payrolling of most benefits in kind compulsory -- ending the old P11D process for the majority of employers. This guide explains what changes, what stays the same, and what you must do before the deadline: from employee tax code impacts to the new real-time Class 1A NI timetable.
TL;DR -- 30-Second Summary
- • April 2026: compulsory payrolling of most benefits in kind begins
- • P11D replaced: final P11Ds for most benefits due 6 July 2026 (for 2025/26)
- • Tax codes: BIK deductions removed from tax codes; tax collected via payroll
- • Class 1A NI: moves from annual lump sum to real-time monthly payment
- • Excluded benefits: employer housing and beneficial loans still need P11D
P11D vs Payrolling: Side-by-Side
| Feature | P11D (old method) | Payrolling (from April 2026) |
|---|---|---|
| How benefit tax is collected | PAYE code adjustment (reduces personal allowance) | Benefit added to gross pay each period |
| Year-end employer filing | P11D per employee + P11D(b) by 6 July | No P11D for payrolled benefits; P11D(b) may remain for Class 1A reconciliation |
| Class 1A NI timing | Annual lump sum by 19/22 July | Real-time monthly with regular PAYE payments |
| Employee tax code | Reduced by BIK value / 10 (BR taxpayer example) | No BIK deduction in code; simpler tax code |
| Employee payslip | No explicit benefit line; tax collected via code | Benefit value shown as addition to gross pay |
| Excluded benefits still needing P11D | All benefits reported via P11D | Employer housing, beneficial loans (and others) |
| Employee NI on benefits | None (Class 1A is employer only) | None (Class 1A remains employer only) |
| Mandatory from | N/A (was voluntary payrolling) | 6 April 2026 (2026/27 tax year) |
What Is a Benefit in Kind and How Is It Taxed?
A benefit in kind (BIK) is any non-cash benefit provided to an employee (or their family) by reason of employment -- for example a company car, private medical insurance, fuel card, gym membership, or mobile phone above the trivial benefit threshold.
The taxable value of the benefit is added to the employee's taxable income for the year. The employee pays income tax on that value at their marginal rate. The employer pays Class 1A NI at 15% on the total taxable benefits provided. Class 1A is an employer-only charge -- employees never pay NI on benefits in kind.
| Common BIK | Taxable value basis | 2026/27 example |
|---|---|---|
| Company car (petrol) | List price x CO2 percentage | £30,000 x 25% = £7,500 BIK |
| Electric car | List price x 4% (2026/27) | £40,000 x 4% = £1,600 BIK |
| Private medical insurance | Employer's cost | e.g. £1,200/year premium |
| Fuel benefit (car) | £27,800 x CO2 percentage | £27,800 x 25% = £6,950 BIK |
| Van benefit | £3,960 flat; £757 van fuel | £3,960 or £4,717 with fuel |
The Old P11D Process (2025/26 and Earlier)
Under the P11D system still in use for 2025/26, the employer's annual obligations are:
- Complete a P11D for each employee who received taxable benefits
- File all P11Ds with HMRC by 6 July following the tax year end
- Give each employee a copy of their P11D by 6 July
- File P11D(b) declaring total Class 1A NI liability
- Pay Class 1A NI by 19 July (cheque) or 22 July (electronic)
HMRC then adjusts the employee's tax code for the following year to collect the income tax due on benefits -- reducing their personal allowance by the BIK value, so more tax is deducted from salary over the year.
The New Payrolling Process (From April 2026)
Under compulsory payrolling from 6 April 2026:
- Register to payroll benefits before the start of the tax year (registration opens via HMRC's payrolling service)
- Add the benefit's cash equivalent value to the employee's gross pay each pay period (e.g. monthly for monthly-paid employees)
- Calculate PAYE and employee NI on the inflated gross (but the benefit itself does not attract employee NI)
- Report Class 1A NI monthly via RTI alongside regular employer NI
- No P11D to file for payrolled benefits -- but still notify employees in writing before year start
The employer must still file P11D (and P11D(b)) for any remaining excluded benefits such as employer-provided accommodation or beneficial loans.
Class 1A NI: Timing Impact for Employers
The shift from an annual Class 1A payment to monthly real-time payments is one of the biggest cash-flow implications for employers. Under P11D, an employer could provide company cars and private medical insurance throughout the year and pay the entire Class 1A bill in one July payment.
Under payrolling, that liability is spread across 12 monthly payments. For a company with £100,000 of annual taxable benefits, the Class 1A at 15% is £15,000 per year -- either £15,000 in July (P11D) or roughly £1,250 per month (payrolling).
For most businesses, monthly payments are easier to manage from a cash-flow perspective than a large July lump sum. However, payroll software and internal processes must be updated to handle the monthly Class 1A calculation correctly.
Employer Action Checklist Before April 2026
- 1.Identify all benefits in kind provided to employees
- 2.Confirm which benefits are on the excluded list (accommodation, beneficial loans) -- these still require P11D
- 3.Register to payroll non-excluded benefits through HMRC's online service before 6 April 2026
- 4.Update payroll software to add monthly BIK values to gross pay and calculate Class 1A
- 5.Notify affected employees in writing before 6 April 2026 -- state which benefits are payrolled and that their tax code will change
- 6.File final P11Ds for 2025/26 (last year under the old system) by 6 July 2026
- 7.Update internal finance processes for monthly Class 1A payments from April 2026