Income tax is paid by the employee, and NICs by the employer, on some types of non-cash BIK made available to the employee by the employer. Common BIKs include private medical insurance, the use of a company car and interest-free loans of more than £10,000.

What is the current position?

Currently, most employers report BIKs for a tax year (eg, 6 April 2025 to 5 April 2026) to HMRC on form P11D. This is done after the end of the tax year, with any NICs due paid around the same time. 

HMRC will then amend the employee’s tax code so that any income tax due is collected from the employee’s pay going forward. Depending on the circumstances, HMRC also may seek to collect the tax by issuing a P800 or a simple assessment, or the tax may be paid through self assessment. 

It is possible for the employer to payroll some BIKs. In this case, income tax is collected during the tax year from the employee’s pay by way of an adjustment to their tax code. The employer must still complete a form P11D, and pay any NICs due, after the end of the tax year. 

An employer who wants to payroll BIKs for a tax year must register with HMRC before the start of that tax year (ie, by 5 April 2025 for 2025/26). Registering to payroll BIKs is currently voluntary and employers can choose to payroll selected BIKs for selected employees.

What will change?

At the Autumn Budget 2024, the government confirmed that it would proceed with plans to mandate the payrolling of most BIKs from April 2026. Mandatory payrolling had first been announced by the previous government in January 2024.

Under the government’s plans, employers must payroll all BIKs from April 2026. An exception is made for loans and accommodation, which employers can choose to payroll. This is because loan and accommodation BIKs can be difficult to value within the tax year. Both income tax and NICs will be collected through PAYE. Employers will only need to complete forms P11D if they provide loan and/or accommodation BIKs and choose not to payroll them.   

How will it affect employees?

The transition from the form P11D process to payrolling will not increase the amount of income tax due on BIKs. However, it will mean that tax is paid earlier than would have been the case. This is because income tax is paid in arrears under the P11D process and close to real time under payrolling of BIKs.

The government says that mandatory payrolling will benefit approximately 4 million employees, making it “simpler for employees to understand what they are paying tax on as the information relating to this will be more accurate and clearer to understand”.

What will it mean for employers?

Similar to employees, employers will move from paying class 1A NICs as an annual payment after the end of the tax year to during the tax year in line with their payroll runs. 

The employer will need to update their systems and processes for the transition to payrolling. This may be more challenging depending on the size of the organisation, the nature of the benefits provided and the circumstances of the employee, for example, BIK arrangements can be particularly complicated for internationally mobile employees and where significant data must be collated from third party benefit providers. 

What happens next?

The government has said that it will publish further updates and draft legislation in 2025. 

In February 2025, we set out our concerns with mandatory payrolling and identified areas of uncertainty in a representation to HMRC.