From April 2027, there’s a big change coming to how businesses report employee benefits. Originally scheduled for April 2026, Payrolling Benefits in Kind is now due to come into effect in April 2027. If your business offers things like company cars, private health insurance or gym memberships, payrolling benefits in kind (’PBIK’) affects you.
Right now, many employers use P11D reporting. This means they tell HMRC about employee benefits once a year, after the tax year ends. But that’s about to change.
HMRC is moving to a system called Payrolling Benefits in Kind (PBIK). This means they’ll need to tax benefits at the same time as running payroll. Instead of reporting benefits later, the tax is taken in real time through PAYE.
This change will affect most employers. It means PBIK will replace P11D reporting for many types of benefits. Employers will need to update how they handle tax on things they give to employees.
Let’s look at what’s changing, why it matters and how to get ready…
Understanding the shift from P11D reporting to payrolling benefits in kind (PBIK)
For many years, employers have used P11D reporting to tell HMRC about benefits they give to employees. These are things like company cars, private health insurance, gym memberships or childcare. They’re all known as benefits in kind.
With the P11D reporting system, employers wait until the end of the tax year to report the benefits. They submit information showing what each employee has received. HMRC uses this information to adjust the employee’s tax code later. This process can be slow. It sometimes leads to confusion, delays or underpaid tax.
From April 2027, the system is changing. Employers will be expected to use PBIK (Payrolling Benefits in Kind) instead. This means tax will be calculated and collected as part of the normal payroll.
HMRC is making this change to:
- Make the system quicker and more accurate
- Help employees pay the right tax at the right time
- Reduce the need for separate paperwork like P11D forms
For employers, PBIK should make life easier. Once everything is set up, there’s less admin at the end of the year. You won’t need to send a P11D for each employee (although a P11D(b) for National Insurance will still be needed).
For employees, there’s no more waiting for their tax code to change. Their benefits are taxed through PAYE as they go - just like salary.
It’s a big shift, but one that should bring long-term benefits for both sides.
What employers need to know about PBIK and how to payroll benefits in kind
PBIK stands for Payrolling Benefits in Kind. It means the value of employee benefits is added directly to payroll. Payrolling benefits in kind means the right amount of tax is taken straight away through PAYE every time an employee is paid.
Here’s how it works:
- Payroll software works out the cash value of the benefit for the year
- The amount is divided across the employee’s pay periods
- The amount is added to their taxable pay
- HMRC collects the tax in real time, through payroll
Not all benefits can be payrolled. The benefits that can be taxed through payroll under PBIK include:
- Company cars
- Private medical insurance
- Gym memberships
- Subscriptions or season tickets
- Mobile phones or other devices
Some benefits, however, still need to be reported separately:
- Living accommodation
- Interest-free or low-interest loans (also called beneficial loans)
It’s important to use accurate values for each benefit. If the figures are wrong, it can lead to underpaid tax or reporting errors. Employers still need to submit a P11D(b) at year-end to pay Class 1A National Insurance on these benefits.
Employers also need to inform their employees about what’s being payrolled. You don’t need formal consent, but you must tell them in writing which benefits will be taxed through payroll.
PayCaptain’s outsourced payroll will help make the move to PBIK simple. Advanced AI payroll automates the process. It ensures accurate benefit values and helps keep everything in line with PBIK HMRC rules.
How to prepare for payroll benefits in kind effectively
Review your current benefits package for payrolling benefits in kind
The first step in getting ready for PBIK is to take a close look at the benefits offered. A report should be run for everything employees receive outside of their salary. This can be from company cars and private medical insurance to gym memberships or travel passes.
The benefits then need to be checked to see if they can be payrolled. Most common benefits can be included, but some still need to be reported the old way. These include living accommodation and low-interest loans. They must stay on P11D for now.
By identifying what’s affected, employers will know exactly what needs to change. And what doesn’t. This will help them plan and update their payroll system. It’ll help explain clearly to their team what’s going to happen. It also gives employers a chance to review which benefits are still useful and relevant and whether they’re valued by their team.
This step is the foundation of a smooth transition to PBIK.
Not sure which benefits can be payrolled? Speak to our payroll experts today
Update your payroll software to support PBIK
To payroll benefits in kind correctly, payroll software needs to be up to the job. Not all systems are ready for PBIK, so it’s important to check now. You’ll need HMRC-recognised software that can:
- Adds benefits to payroll in real time
- Handles multiple types of benefits
- Calculates tax correctly across each pay period
- Produces accurate payroll reports for HMRC
If your current software can’t do this, you’ll need to upgrade or switch before the 2027 deadline.
PayCaptain is fully set up for PBIK and ready for the upcoming payroll benefits in kind changes. It makes it easy to add benefits to payroll. It ensures the correct tax is applied and keeps all records tidy and compliant. PayCaptain also helps with employee communication, so team members understand what’s being taxed and why.
Getting the right software in place now will save time and stress later.
How to get employee consent for payrolling benefits in kind (PBIK)
When employers start to payroll benefits in kind, employees need to know what’s changing and how it will affect their pay. While employers don’t need formal, written consent from each person, HMRC expects business to inform their teams clearly and in advance.
That means explaining:
- Which benefits will be payrolled
- How these will appear on their payslips
- That the value of the benefit will be taxed through PAYE
- That they won’t need to wait for a tax code change or P11D form
It’s important the team understands that their take-home pay might go down slightly. This isn’t because they’re being paid less, but because tax is now being collected at the same time as their salary. Doing it this way means there won’t be nasty surprises at year end.
This can avoid confusion, questions or frustration later. A simple letter or email before the start of the tax year is usually enough.
Being open and clear helps build trust, keeps employees informed. It helps ensure payroll processes run smoothly.
How to keep accurate records for HMRC PBIK
As employers move to payroll benefits in kind, keeping clear and accurate records becomes even more important. They need to track the value of each benefit, how it’s been calculated and when it was added to payroll. These figures must be correct so the right amount of tax is collected. This helps avoid any issues with HMRC for PBIK.
Accurate records are needed for:
- Benefit valuations
- Taxable amounts added to payroll
- Employee payslip breakdowns
- End-of-year Class 1A National Insurance reporting (via P11D(b))
If there’s a mistake or discrepancy, HMRC may ask to see how these figures were calculated. Being able to provide clear records will help resolve any questions quickly.
PayCaptain helps take the stress out of this process. It records all benefit data automatically, applies the right values in payroll and keeps everything in one secure place. Employers can easily generate reports and check past adjustments. Accurate information can be shared with employees or HMRC when needed.
With PayCaptain, there’s no need for spreadsheets or guesswork. Everything is stored, tracked and ready - giving employers confidence that benefits are being handled correctly and payroll stays compliant.
The long-term benefits of switching from P11D reporting to PBIK
While moving from P11D reporting to PBIK may feel like a big change, it brings long-term advantages that will make payroll simpler and more accurate for everyone.
By collecting tax on benefits in real time, delays and confusion that can come with annual reporting is avoided. Employees pay the right amount of tax at the right time. There’s no need to wait for updated tax codes or worry about underpayments later.
For employers, PBIK means less admin in the long run. Once the transition has been made, there’s no need to complete and submit a P11D form for every employee each year. This can save a huge amount of time, effort and cost. And because the process is automated, there’s less risk of error.
This shift is also part of HMRC’s wider move to digital systems. It aligns with their goal of creating a faster, more joined-up tax process. Their aim is information flowing smoothly and handled in real time.
PBIK isn’t just another new rule. It’s a step towards a more modern, efficient way of managing benefits and payroll. Starting preparation now means businesses will be ready ahead of the 2027 deadline, with less disruption and more control.
Final thoughts from PayCaptain
The move from P11D reporting to PBIK is a big shift, but it’s a hugely positive one. It brings payroll and benefits together. It makes tax more accurate, more efficient and easier to manage.
This change is a chance for employers to simplify their processes and reduce admin in the long term. And with the right payroll system in place, PBIK doesn’t have to be complicated!
