Payrolling Benefits in Kind (BiKs) Changes: What They Mean For You
At Linggard and Thomas, we know that tax changes can be the last thing you want to think about when you’re busy running a business. That’s why we’re here to break down the upcoming changes to how benefits in kind (BIKs) are taxed. Starting in April 2026, these benefits will need to be processed through payroll, and the old P11D form will be a thing of the past.
Don’t worry - we’ll guide you through what this means, why it’s happening, and what you need to do to prepare.
What Are Benefits in Kind (BIKs)?
Benefits in kind are non-cash perks that employers provide to employees. These can include things like:
- Company Cars – vehicles provided for work or personal use.
- Private Medical Insurance – health plans that cover medical expenses.
- Discounted Travel - money off plane, train and bus tickets.
- Flexible Working – the ability for employees to choose a different working pattern.
- Other Perks – gym memberships, subsidised meals, and more.
In simple terms, BIKs are extra benefits that form part of your overall compensation package, even though they aren’t paid as cash. A full A-Z list of expenses and benefits and how they are taxed can be found on the HMRC website.
Note: Almost all benefits in kind will be included, except for some like low-interest loans and accommodation, unless you choose to payroll these too.
What’s Changing with BIKs?
Currently, if you provide benefits to your employees, these are reported to HMRC at the end of the tax year using a P11D form. The tax on these benefits is then calculated and paid separately.
From April 2026, this process is changing. Employers will need to include the value of these benefits in their employees’ paychecks each pay period. This means the tax will be deducted in real time, just like income tax and National Insurance.
Why is This Happening?
HMRC is streamlining the tax system to make it more efficient and easier to manage. By moving benefits into the payroll process, they aim to:
- Reduce paperwork for employers.
- Make the system more transparent for employees.
- Minimise errors and delays in reporting.
What Does This Mean for Employers?
If you’re an employer, here’s what you need to know:
- Mandatory Payrolling of Benefits:
From April 2026, you’ll need to include the cash value of benefits in your employees’ paychecks each pay period. This means updating your payroll system to handle these calculations. - No More P11D Forms (Mostly):
The traditional P11D form will no longer be required for benefits that are payrolled. However, you’ll still need to submit a P11D(b) form to report and pay Class 1A National Insurance contributions on benefits.
- Prepare for the Transition:
If you don’t already payroll benefits, you’ll need to get ready for the switch. This might involve training your team, updating processes, and ensuring everything is in place by April 2026.
What Does This Mean for Employees?
If you’re an employee who receives BiKs like a company car or health insurance, here’s what you need to know:
- Your Tax Will Be Deducted in Real Time:
Instead of waiting until the end of the tax year to pay tax on your benefits, the amount will be deducted from your paycheck each pay period. - No More Year-End Adjustments:
The new system aims to make your tax deductions more accurate throughout the year, reducing the need for adjustments later. - Check Your Payslips:
Keep an eye on your payslips to ensure the deductions are correct. If you have any questions, don’t hesitate to ask your employer or accountant.
What Should Employers Do To Prepare?
Here are some steps employers can take to prepare for the changes with BiKs :
- Review Your Benefits:
List all the benefits you offer. Identify which ones will need to be payrolled and which might continue with the old method. - Review Your Systems: Employers should check their payroll software and processes to ensure they’re ready for the change.
- Communicate With Your Team:
Hold a meeting or training session with your payroll, HR teams. Make sure everyone understands the new rules and their roles in the transition. Communicate the changes clearly to your employees. - Keep Updated: Technical guidance and updates from HMRC on the BiK implementation changes are expected in mid to late 2025, so stay tuned to the HMRC website for more updates.
Confused about How to Implement the Changes in Payrolling BiKs? We Can Help!
Transitioning to a real-time payrolling system for benefits in kind is a significant change, but it will undoubtedly improve what has become a time-consuming process for both employers and employees. By understanding the changes you can prepare for the transition, avoiding any nasty surprises for your payroll team or employees.
At Linggard & Thomas Accountants, we are experienced chartered accountants that can help with everything from payroll to tax returns. Get in touch today to see how we can help empower your business to succeed using smarter finances.
