TAXguide 08/24: Payrolling of benefits-in-kind and expenses webinar Q&As

This TAXguide provides answers to questions asked in a webinar on payrolling of benefits-in-kind (PBIK) delivered by ICAEW’s Tax Faculty on 16 October 2024.

A recording of the webinar, which was presented by Ian Holloway and Peter Bickley, is available to watch on demand.

Registering for PBIK

Do we have to register to PBIK at the start of a tax year?
An employer (or their agent for 2025/26 onwards) must register prior to the start of the tax year for which PBIK will be undertaken. The deadline is 10pm on the last day of the tax year (5 April).

As an employer, if you choose to tax employees’ benefits and expenses through your payroll, you can tell HMRC online using HMRC’s payrolling benefits and expenses online service.

If you are an agent, you need to sign in to or set up an HMRC online services account to use the payrolling benefits in kind online service. This is explained further at How to use the PAYE for agents online service.
We outsource our payroll but we complete our own P11Ds, so who needs to register – us or our agent?
If your agent is running the payroll through which BIK will be payrolled then it is probably simplest if the agent registers via the PAYE for agents online service. This must be done prior to the tax year for which it is intended to PBIK.
A new PAYE scheme started part way through this current tax year, can payrolling benefits be used for 2024/25?
Not currently. Even for newly set up payroll schemes the employer or agent must register prior to the start of the tax year for which PBIK will be undertaken.

We have asked HMRC to enable employers and agents setting up a new payroll scheme to PBIK from the first payday.

Calculating the quantum of BIK to put into payroll

What if you don't know the value of the benefit at the beginning of the tax year?
And
If you do not get the numbers upfront, can you use what you have (maybe last year’s) and update / amend as and when received?
Ideally, as we emphasized in the webinar, you should have procedures to ensure that payroll has accurate data upfront. However, in the absence of accurate data, in order to reduce underpayments of tax and Class 1A national insurance contributions (NIC) which will need accounting for later, you should initially use an estimate (which must be able to be justified if the employee or HMRC raises a query) and, once accurate data is to hand, use the corrected figures as soon as possible in subsequent pay periods to ensure that tax and NIC is accounted for on the right value of the BIK over the year. The adjusted figure should be payrolled equally over the remaining months of the tax year after taking into account amounts payrolled in earlier months.

See HMRC’s guidance on how to work out the cash equivalent which covers estimates and what to do when the value of an employee’s benefit changes.

Alongside the October 2024 UK Budget HMRC published a policy paper confirming plans to mandate PBIK from April 2026 which indicated that HMRC would introduce an end of year process that will allow the amendment of values where it has not been possible to payroll the correct value (for tax and Class 1A NIC).

Medical insurance

If the employer pays for private medical insurance in one instalment does the premium for the whole year get payrolled in the month that it is paid or can it be payrolled over 12 months?
And
Our client pays medical insurance as a single payment midway through the tax year. What figures are used to account for this?
The cost of the benefit should be payrolled equally in each pay period over which the benefit applies. If the amount paid is not known to payroll until the following pay period, use an estimated figure and correct it as soon as possible (see previous question).
Do we need to payroll the exact amount paid to, for example, BUPA, split between each employee on a monthly basis? It is hard enough to get this information annually.
In order to ensure that each employee pays the correct amount of tax (and to avoid employees complaining to you about being charged tax on the wrong amount which would amount to an illegal deduction which is a criminal offence), you must allocate the exact amount of the benefit to each employee.

The fact that information is hard to obtain on a weekly or monthly basis will be a common issue raised by employers and one that needs to be overcome. Accurate payrolling in real-time requires the real-time provision of benefits information.
Is the benefit when the company pays, ie a cash basis, or an accruals accounts basis?
The value of medical insurance BIK is worked out in the same way as for forms P11D, ie, the cost to the employer. This will normally be based on amounts paid. Payroll needs to be notified as soon as possible as to how much is attributable to each employee and members of their family. If the exact amount is unknown, use an estimate and as soon as possible once the correct value of the BIK is ascertained, payroll it in subsequent pay periods by deducting amounts already payrolled to date and allocating the difference equally over the remaining pay periods for the year. See HMRC’s guidance on correcting the taxable amount.
When payrolling benefits paid monthly, such as healthcare, do you have to wait until the benefit is taken from the employer by the supplier before adding the benefit on the employee's payroll?
The cost of the benefit should be payrolled equally over each pay period over which the benefit applies. If the amount has not yet been paid, that does not mean that the employee has received no BIK. If the exact amount is unknown, use an estimate and once the correct value of the BIK is ascertained, payroll it in subsequent pay periods by deducting amounts already payrolled to date and allocating the difference equally over the remaining pay periods for the year. See HMRC’s guidance on correcting the taxable amount.
We provide BUPA, the annual renewal being in September each year. For 2023/24, we reported the full cost of BUPA as per the annual renewal in Sept 2023 even though it relates in part to the 2024/25 tax year (ie from 6 April 2024 to 28 Sept 2024). We have always taken this approach. How should we deal with the year of change over to ensure we won’t double count?
And
How is calendarisation dealt with? For example, if the medical scheme runs 1 January to 31 December, how is this dealt with in tax years?
There is no requirement to align the benefit cover period to the tax year. It is common that a healthcare cover year will not align to the tax year, with premiums increasing / changing. The cost of the benefit should be payrolled equally over each pay period over which the benefit applies. If the exact amount is unknown, use an estimate and correct as soon as possible in subsequent pay periods as noted in the previous answer. See HMRC’s guidance on correcting the taxable amount.
Will payrolling benefits work in arrears? For example, for 2024/25, the P11D would use the April 2024 invoice for medical insurance. The tax would be recovered via the tax code in the 2025/26 tax year. If we payrolled benefits would we use the April 2024 or April 2025 invoice for payrolling benefits in 2025/26?
You are asking two questions here.

First, regarding what you as employer need to do, assuming that the April invoices cover the forthcoming year, eg the April 2024 invoice covers the 2024/25 tax year, you should continue to use the April invoices as a basis for calculating the BIK for each employee. If the invoice arrives too late to put the correct figure into the April payroll, use an estimate and correct as soon as possible in subsequent pay periods as noted in preceding answers.

Secondly, regarding your employees’ tax and code numbers, the end-of-the-tax-year reconciliation that HMRC undertakes behind the scenes for PAYE taxpayers (evidenced by form P800 and/or in some cases Simple Assessments that HMRC sends in the latter part of the calendar year to employees who have over- or underpaid tax and are not within self-assessment or have underpayments too large to be coded out), should include the BIK that you have reported in forms P11D, and employees’ code numbers for the subsequent year should contain a restriction for estimated BIK. For example, forms P800 for 2024/25 should include 2024/25 BIK based on 2024/25 forms P11D and code numbers for 2025/26 should contain a restriction for estimated taxable BIK for 2025/26 based on 2024/25 figures. (This applies to established BIK; for newly provided BIK the employee in year 2 may have a code number restriction to collect a tax underpayment in respect of the newly provided BIK in year 1 as well as a restriction for the estimated value of the BIK in year 2. This is because form P11D does not have space to report whether a BIK is continuing so HMRC normally assumes that it is. We have raised this with HMRC.)

If you register to PBIK in 2025/26 (you do not have to payroll all BIK for all employees – you can choose which BIK to payroll), HMRC will amend 2025/26 code numbers to take account of the fact that you will be payrolling specific BIK for the employees listed when you registered for PBIK. If you register to PBIK sufficiently in advance of the beginning of the tax year, HMRC should be able to amend your employees’ code numbers in time to take effect in your employees’ first payday in 2025/26.

Cars and car fuel / mileage allowances and mileage claims

For company car benefit, would you compute the annual benefit and divide over the months?
Yes, you must compute the annual benefit and each month divide the annual amount by the period for which provided. Note that strictly speaking the car BIK should be calculated based on the number of days that the car was available for non-business purposes, calculated by making a deduction for the period the car was unavailable. See HMRC’s guidance in the employment income manual at EIM25100.
For company cars, we have hundreds of employees with cars. How do you calculate the value of the benefit every month to go into the payroll. We normally use P11D software.

Once PBIK is mandated you will need to have procedures to enable the monthly value of BIK for each employee to be available to payroll in time to be processed through payroll each month. Your P11D software could well provide a starting point for calculating BIK values but for PBIK purposes it will need to incorporate processes to enable it to access all relevant information, calculate BIK and provide values to payroll on a real time basis.
How does a monthly claim for business mileage at 45p per mile plus reimbursement of monthly business expenses get dealt with?
You will need to have processes which enable the monthly value of the BIK and expense for each employee to be available to payroll in time to be processed through payroll each month.

However, the 45p and reimbursement of genuine business expenses are not usually subject to tax (or Class 1A NIC). So, just like when completing form P11D, you are only looking at any element of reimbursement that gives rise to a tax and NIC liability.

BIK covering more than one year

My company pays for six years’ internet services. Is this taxed in the period paid or spread out on an accruals basis over the six years?
Where the employer arranges for the supply of and pays in advance for six years’ internet service to be provided to an employee’s home and the internet service is not employment related, we understand that the value of the benefit-in-kind is the cost of the internet service apportioned on a just and reasonable basis over each tax year for which the BIK is provided, not just one tax year (see s16, ITEPA 2003 and EIM40008).

BIK and expenses not liable to Class 1A NIC

What happens with benefits such as entertaining that are for business purposes and do not involve any Class 1A?
HMRC’s current guidance, for example Expenses and benefits: entertainment, instructs employers to report such expenses on form P11D (a “blue box” in section N). Post mandation of PBIK, employers will have to report them in real time via payroll. Payroll software should already include data entry boxes for different types of entertaining and other expenses not liable to Class 1A NIC.

HMRC have indicated that it will require detailed information of the payrolled benefit and expenses values (see the policy paper published after Budget 2024 in October confirming plans to mandate PBIK from April 2026). Whilst this has yet to be clarified, we believe that this may indicate that payrolled data items declared on the PAYE RTI full payment submission (FPS) may have to map to the equivalent P11D boxes.
Best guess as to how heat & light benefits to be dealt with after mandation please.
Payroll software should already include data entry boxes for different types of expenses whether liable to Class 1 or Class 1A NIC. Light and heat BIK are likely to be an element that would be subject to tax and Class 1 NIC.

Currently excluded BIK

What do you expect will happen in respect of benefits currently excluded from payrolling (living accommodation and loans)?
And
What happens with benefits that are currently excluded from being allowed to be taxed through payroll, eg, interest free loans?
And
How will loan benefits of more than £10,000 usually reported on a P11D be dealt with on a monthly basis through payroll?
The government announced at Autumn Budget on 30 October 2024 in its policy paper confirming plans to mandate PBIK from April 2026 that voluntary payrolling will be introduced for employment-related loans and accommodation from April 2026. The P11D and P11D(b) process will still be available for those who do not want to payroll these BIKs but “these forms will not be available to report any other BiK”. In the longer term the government intends to mandate PBIK of both and will set out a timeline in due course. We shall be discussing with HMRC as to how the valuation rules for loans and accommodation might be changed to make it practical to payroll them.

The Autumn 2024 Budget decision to allow in-year changes to the official interest rate will add another complication to calculating the values of these BIK in time to be processed in payroll in real time. For further information, see 2.9 of the government’s Overview of tax legislation and rates.

Changes to BIK after the payroll processing deadline has passed

We pay monthly salaries on the 15th of the month. what happens when changes to benefits occur too late for payroll to process, in particular between the 15th of March and the end of the tax year on 5th April?
If changes cannot be notified to payroll in time, use an estimate and correct as soon as possible in a subsequent pay period. See HMRC’s guidance on correcting the taxable amount.

Where an amount cannot be notified to payroll before the cut off for the final pay period, use an estimate and account for the difference in the first pay period of the following year. See HMRC’s current guidance on carrying forward a change to the next tax year.

In response to representations, HMRC has undertaken in its Autumn 2024 Budget Day technical note confirming plans to mandate PBIK from April 2026 to introduce an end-of-year process to amend the taxable values of any BIK that cannot be determined during the tax year. We shall be discussing with HMRC how such a process should work.

Adjustments to BIK and correcting mistakes / information received late

Errors are bound to be made. How are corrections dealt with?
To put right a mistake, employers should take the correct valuation of the BIK, deduct the amounts that have already been payrolled in respect of that BIK, and include the difference in payroll equally over the remaining pay periods for the year. See HMRC’s guidance on correcting the taxable amount.

Again, refer to HMRC’s Autumn 2024 Budget policy paper confirming plans to mandate PBIK from April 2026 which appears to suggest that government recognises that mistakes will occur and that an end of year process will be needed to enable corrections to be made. We are seeking clarification.
In Month 2, would the additional spouse medical insurance be split over 11 months as opposed to 12? So the taxable benefit will be 219 instead of 200? Or does the spouse has a different cover period?

The example showed, for information only, that the example employee’s medical cover changed mid-way through the tax year:
- single cover £1,200 for April 2024 (at £100 per month); and
- married cover £2,400 from May 2024 (at £200 per month).
For ease of displaying the information, the effective date of the increase was aligned to the pay reference period, always recognising that it is unlikely an employee’s benefit value will change exactly in line with their pay reference period!

Over the course of the tax year, the medical benefit that would be reported on the P11D is:
- 1 month at £100 per month = £100.00; and
- 11 months at £200 per month = £2,200.00
The employer would aim to match via payrolling what would have been declared on the P11D.

The example does highlight the complications that could be caused if the payroll department is advised of changes late, demonstrating that real-time payroll processing requires real-time provision of information.
In the example at Month 3, can you exclude an employee from payrolling part way through the year, even though you started the tax year having their expenses on the payroll? What happens to the previous months at Month 3?
In answer to the first question, currently, whilst payrolling is voluntary, an employee whose tax liability cannot be collected owing to breaching the 50% of pay rule can be excluded for the remainder of the tax year. See HMRC’s guidance Employee’s tax is more than 50% of their pay.

Replying to the second question, the RTI reports for the previous months stand unchanged and the amount of BIK to include on form P11D will not include the values already payrolled. The total amount of income tax, taking account of that already paid on payrolled BIK, will be computed either by HMRC in its employee end-of-year reconciliation or by the employee in their self-assessment calculation. The Class 1A NIC to be accounted for by the employer via form P11D(b) will be the combined total of payrolled BIK and BIK reported on form P11D.
What happens if we want to introduce a new benefit mid-year?
At present, you cannot do this. You must state which BIK you want to payroll when registering your payroll scheme to report BIK via payroll prior to the tax year.

We trust that under PBIK, mandation it will be possible to add a newly provided BIK in year, as well as when a new payroll scheme is set up, and we have put both of these recommendations to HMRC.

BIK provided via salary sacrifice

With electric car salary sacrifice, usually calculated the benefit at year end, how do I get a monthly figure for this
The method of calculating will be the same save that the calculations will need to be undertaken much earlier to enable the correct amount of BIK to be processed in each weekly/monthly/etc pay period.

Leavers

If a benefit is paid as an annual charge (eg gym membership) and under payrolling a proportion is treated as taxable on a monthly basis, what happens when the employee leaves part of the way through the tax year? The cost to the company is the full annual membership but only part will have been taxed up to the date of leaving.
And
What would happen if we have a leaver and they have extended medical cover but Payroll is not informed until after the employee has left?

See HMRC’s current guidance: Employee has left and no further paydays to payroll the benefit.

If an employee has left but there is still a part of a benefit to be taxed, employers currently have two options. HMRC will contact the employee for the unpaid tax, whichever option is selected.
- Option 1: include the balance in FPS: Report the taxable amount in taxable pay to date in FPS and tell HMRC that the employee has left if you’ve not already done so.
- Option 2: include the balance on form P11D: Include the untaxed balance on form P11D for the period that the employee had the benefit that was not included in payroll.
How to operate Option 1 is explained in more detail in HMRC’s guidance on what to do when an employee leaves. HMRC needs to contact the employee because, unless cash earnings are being paid at the same time, the employer is unable to pay HMRC any income tax on the BIK owing to the 50% of gross pay rule, and as the employee has left it cannot be carried forward to be collected from future earnings paid to the same employee.

Based on HMRC’s Autumn Budget policy paper, it would appear that Option 2 will not be available under mandatory PBIK. HMRC’s policy paper says that “the P11D and P11D(b) process will still be available for those that do not want to payroll [beneficial loans and accommodation]” but “These forms will not be available to report any other BiKs”. We have asked HMRC to clarify this point in the context of leavers and others who have no or insufficient cash payments out of which tax can be collected via payroll.

50% of gross salary protection

What does one do when BIK provided but insufficient income to cover the tax owing to the 50% rule?
And
We pay our directors minimal tax efficient pay. They also have company cars. On this basis there will never be enough pay to cover the benefit. How will that work?
And
How will the underpayment of tax be handled following mandation? Specifically where directors take a nominal salary but have large BIK values.

HMRC’s guidance Employee’s tax is more than 50% of their salary says that employers have two options.
- Option 1 is to remove the employee from PBIK and report the balance of their BIK on form P11D. However, based on HMRC’s Autumn 2024 Budget policy paper, it would appear that Option 1 will no longer be available under mandatory PBIK. HMRC’s policy paper says that “the P11D and P11D(b) process will still be available for those that do not want to payroll [beneficial loans and accommodation]” but “these forms will not be available to report any other BiKs”. We have asked HMRC to clarify this point in the context of employees who breach the 50% rule and others who have no cash payments out of which tax can be collected via payroll, as well as leavers.
- Option 2 is to keep the employee in payrolling and carry forward the taxable amount of the benefit into future pay periods in that tax year, having regard to the 50% rule in subsequent pay periods. HMRC’s current guidance adds that “if there are insufficient pay periods to recover the uncollected tax, then once the final FPS is made, any underpaid tax will be included in an end-of-year tax calculation and sent to the employee by HMRC.”
As Option 1 will not be available once payrolling becomes mandatory, Option 2 will be the default, and directors who are unable to pay the tax liability when they are paid will have this carried forward for HMRC to resolve directly with the employee.
So a casual worker who doesn’t earn much month to month but is provided with a big value benefit might be in a situation where the tax owing carries forward in perpetuity?
Picking up the point in HMRC’s guidance referred to at the end of the previous answer, the employee in question is likely to receive an end-of-year reconciliation form P800, under which the underpayment will be collected either by way of a coding restriction in a subsequent year or a Simple Assessment. If the employee is in self-assessment, the underpaid tax will come to light in the SA tax calculation and be due for payment on 31 January following the tax year end.

BIK provided but no payroll

How to deal with a business where there is no payroll but there are benefits currently reported via P11Ds?
And
How will you deal with shareholder/ directors who do not receive a salary but do get BIK?
And
I have a director who has benefit but no salary. How does this work after mandation?
And
I have a director with benefit but no salary. How is this dealt with after mandation?
And
You mentioned to add non exec to payroll to tax benefits but without salary would tax collection not be restricted?
Currently BIK that cannot be payrolled owing to there being no or insufficient cash pay to enable the tax to be paid without breaching the 50% of gross salary rule can be reported on form P11D. However, as noted in answers above, HMRC in its technical note published on Autumn 2024 Budget Day has said that, come mandation of PBIK, forms P11D will be able to be submitted only by employers who choose not to payroll beneficial loans and accommodation. We await clarification from HMRC as to how employers will be expected to report BIK for employees who are not paid any earnings in cash. As there will be no P11D on which to report the benefit, we assume that this will mean the FPS must be completed, i.e. establishing them as an employee on the payroll.

Cost of benefit refunded to employer

How would a refund, say Medical, be reported for a payroll leaver? We often receive the value in the following month after the leaver/ P45 has been processed and reported to HMRC

We await clarification from HMRC on this point.

Trueing up after the year end

What would happen with benefits where we only get a value for BIK from the company after the end of the tax year
And
If the Month 3 issues in your example were to happen instead in Month 12 (so there are no remaining months to collect the underpaid tax), would this be resolved through adjusting the following year's tax code?

Where the BIK is not accounted for in the year in which it was provided, HMRC’s current guidance on carrying forward a change to the next tax year says: “If you’ve made your final FPS, you can carry forward the amount that has not been payrolled to the next tax year. Add the amount still to be payrolled to the first wage payment in the next tax year. If any change means the taxable amount has reduced, the employee will pay less tax or get a refund”.

However, in the circumstances cited in the question, it will be too late to account in the first pay period of the next tax year for an addition to or a reduction in the value of the BIK. We therefore assume that employers will be allowed to account for the BIK in the earliest possible pay period of the next year rather than having to correct Month 1. We have asked HMRC to clarify what employers should do.

We have already suggested to HMRC that there needs to be a Month 13 or similar option, not least because in many small companies, a lot of benefits and expenses that should have gone through payroll only come to light when the accounts are prepared. Given the complexities of the tax system, employees, directors and book-keeping staff may be completely unaware that certain items are benefits or should have been put through payroll. We are pleased that HMRC in its Autumn 2024 Budget policy paper confirming plans to mandate PBIK from April 2026 has confirmed that there will indeed be an end-of-year process introduced to amend the taxable values of any BiK that cannot be determined during the tax year. We shall be discussing with HMRC how this will work in practice.

Making good

What about benefits made good to the company by the employee at the end of the tax year?
We are seeking clarification from HMRC on the issues surrounding employees that do make good on their BIK, either reducing the value of the BIK to zero or reducing the amount of pay on which tax is due (and Class 1 NIC).

In its simplest form, making good does reduce the value of taxable pay, therefore, the advent of payrolling will require this reduction to be reflected in the payroll. Where HMRC’s policy paper refers to an end of year process it intimates that this can be used to reflect values that have been made good. We are seeking clarification on this point.

Common sense would suggest that if the employer is sufficiently large and the refund / making good is made in year, the employer should follow HMRC’s guidance on what to do when an employee leaves and create a repayment of tax, with any over and under being picked up in the HMRC end of year reconciliation / employee’s self-assessment. However, smaller employers which do not have the capacity to offset tax overs and unders should not be expected to self-fund repayments of income tax to employees.
I presume if we debit a director's account for part of the benefit on a monthly basis we only process the monthly net benefit?
We are taking forward with HMRC queries about benefits and directors’ loan accounts

Class 1A NIC

Is it mandatory to report and pay Class 1A via RTI each month? I was under the impression this wasn’t clear on the Jan 24 notice, ie you could still report it at the end of the year via P11D(b)
And
Once the benefit is payrolled, Is the class 1A NIC simply paid to HMRC monthly along with the usual tax/NIC?
And
Do we just pay this separately and what would the payment reference be?
Where a taxable benefit or expense is payrolled post-PBIK mandation in 2026 (everything except loans and accommodation), employers will be obliged to account for and pay Class 1A NIC on a monthly basis at the same time as normal PAYE (ie 19th or 22nd of the month depending on whether paid by cheque or electronically).

HMRC’s October 2024 policy paper confirming plans to mandate PBIK from April 2026 says that software will be required to report more information as a result of Class 1A becoming a monthly reporting and payment liability. We have asked HMRC whether this will require a separate reference to be quoted for each monthly payment of Class 1A NIC so that they can be allocated against the appropriate monthly Class 1A liability in HMRC’s enterprise tax management platform (ETMP) PAYE liabilities & payments records.
Should the Class 1A go on the payslip?
Class 1A NICs is an employer cost and, therefore, there is no obligation to show this on the payslip, just as currently there is no obligation on employers to tell employees the amount of Class 1A NIC paid on BIK that are reported on form P11D. This is the same as other employer-only costs such as the value of employer pension contributions and apprenticeship levy.

However, the employer can show this information if they want to make it available to the employee. Employers will be restricted in their ability to do this not only by payslip size but also software capability.

Employees’ code numbers and tax

If payrolling becomes mandatory, won’t tax codes automatically exclude benefits?
Yes. When an employer registers to PBIK, HMRC adjusts the code numbers for affected employees to remove BIK for the year from which PBIK commences; this procedure will continue under mandation. The code number may contain a restriction for tax underpaid on prior year’s BIK to the extent that HMRC did not restrict the code number for the prior year to take account of estimated BIK for that year based on prior year’s BIK reported via form P11D.
In the first year of implementation, the employee would pay tax on the prior year’s medical insurance plus tax on the medical insurance for the current year. Correct?
The employee’s code would include a restriction for tax underpaid on the previous year’s BIK to the extent that HMRC has not restricted the code number for that year to take account of estimated BIK based on prior years’ BIK, and the employee would pay tax via PAYE on the current year’s payrolled BIK. This is not double taxation, ie paying tax on the same benefit twice.

Perhaps employers should encourage employees with new benefits to report this information to HMRC via their personal tax account (PTA) so that their tax code can be adjusted as soon as possible. We will ask HMRC about promotion of the PTA and the HMRC app so that employees are in a position to do this.
How long will it take for HMRC to change employee tax codes. It feels like employees may pay too much tax during transition
Normally HMRC amends code numbers to take account of registration for PBIK quite quickly.

We trust that, come mandation, HMRC will speedily amend code numbers to remove current year BIK.
If, for example, existing medical benefits currently taxed through a tax code (2024/25) are moved into the payrolling regime from 6 April 2025 (2025/26, ie before it becomes mandatory), will HMRC automatically remove medical benefits from an employee's tax code, or will employees need to ask for their tax codes to be updated from 6 April 2025?
HMRC automatically amends code numbers of affected employees on receipt of an employer’s application to register for PBIK. If there is an existing medical benefit and the employer tells HMRC that they will be payrolling this from, say, 2025/26, the benefit will be removed from the 2025/26 tax code (thereby increasing allowances to be set against pay) and the employee will pay increased tax each time payroll processes the payrolled benefit.
How will HMRC claw back any tax owed from the previous year’s benefit if taxable value of benefits is removed from the tax code?
For taxpayers with PAYE income HMRC normally restricts code numbers to collect underpaid tax relating to previous year’s income including BIK, provided the tax owed is less than £3,000. If the tax is £3,000 or more the tax may be collected via self-assessment or simple assessment.

We assume you are referring to an example where, say, HMRC codes out a value of £2,000 which would be based on the previous year’s P11D declaration or the employee’s declaration via the PTA or HMRC app. If the taxable value turns out to be £2,500 rather the £2,000, the employee will have £500 on which there is a liability to pay tax. What HMRC’s systems should do on mandation (or voluntary registration before that) is remove the £2,000 from the tax code but retain the £500 as a reduction to personal allowances to collect the underpaid tax.
The tax code is collecting tax from the prior year P11D submission. Surely there would be an overlap year? So in 2025/26 it would be collecting tax on 2023/24 P11D benefits, and then also the 2025/26 benefits monthly (if voluntarily registered). So the tax code would need to change in 2026/27 instead?

Where a BIK continues from year to year and the employer is not registered for PBIK, so it reports BIK using form P11D (and accounts for Class 1A annually using form P11D(b) and pays the Class 1A on 19th or 22nd July after the year end), employees’ code numbers should contain:
- an estimate of the BIK for the year based on prior years’ BIK; and
- an allowance or restriction to refund or collect respectively overpaid or underpaid income tax for the previous year where the actual BIK returned on P11D differed from the estimated BIK.
If this employer registers to payroll this BIK in 2025/26, HMRC will adjust the affected employees’ 2025/26 code numbers to remove the estimated BIK for which the employer has registered for 2025/26 (because the tax thereon will be collected via payroll). In this case, if there are no other BIK which will continue to be reported on form P11D, the code should include only the restriction/allowance to refund/collect overpaid/underpaid tax, if any, on the 2024/25 BIK.

The tax code does not recover tax on the previous year's benefit; it uses last year’s benefit as an estimate. The correct tax is calculated by HMRC in the end of year reconciliation and set out on form P800 and collected either through the code in a subsequent year or by way of a simple assessment, or for self-assessment taxpayers calculated in the self-assessment calculation.

If a BIK does not continue from year to year or is unpredictable, then the employee’s code number in the following year will include a restriction to collect tax on the BIK reported via P11D.

See HMRCs guidance Tax payments and underpayments and for more detail, HMRC’s PAYE manual, beginning at PAYE12070.

Payslips

Wouldn’t you show the £100 on the payslip as a deduction as well? Otherwise the payslip does not show the amount actually paid to employee
This is another thing that employees will have to consider and their software product may have already decided how things will be displayed. When payrolling becomes mandatory, employers will have to decide the best way of displaying this information to employees and explaining it to them.

Depending on the software product, there are only two main columns: payments and deductions. As we pointed out during the webinar, the value of the payrolled benefit is a notional item for tax and (post mandation) Class 1A NICs only. So, for a payslip that will display this accurately to an employee, maybe there is a need for another column, for example, “notional payments”.

We are not expecting legislation or guidance to dictate how the employee must display this information to the employee, though there will be legislation that dictates how the information is reported to HMRC.

In direct answer to your question, therefore, if it makes sense to you and the employee to show both +£100 and -£100; this is perfectly acceptable. Or, perhaps, name the pay element as “medical benefit (notional)”.

We would say that employers are going to be beholden to their software product and how they decide information will be displayed. What is important to HMRC (the tax and Class 1A) is not always what is important to employers and employees (visibility).
We offer BUPA paid by the employer for employee only. If an employee wants to add a family member then they must pay the full cost of that, and therefore there is no taxable benefit. Would this need to be reported on a payslip showing total value of benefit in the "Payments" section, and then the amount paid by the employee within "Deductions"?
In this case, think about the taxable benefit value that is declared on the P11D which will only be the employee’s portion. There is no P11D or payrolling implication for a family member that is added in the way postulated in the question.

So, come payrolling, we suggest that the payslip will read:
- “Notional medical benefit” (added to taxable pay); and
- “Family member cover” (not added to taxable pay but taken as a net deduction).

Employees’ tax returns

How do I put the benefits on a self assessment tax return when they are shown as one figure on the P60?
Currently employees need to obtain their final payslip for the tax year or ask their employer for the figures. In our view, forms P60 should cite the gross value of individual BIK.

HMRC in its Autumn 2024 Budget policy paper confirming plans to mandate PBIK from April 2026 said that: “We are expecting to require more data to be reported than is currently required through the voluntary system, both to reflect the introduction of Class 1A NICs on BiKs reporting in the payroll system and to provide a more granular breakdown of the BiKs being reported through payroll”. We await clarification as to whether this means that government will introduce a specific requirement for forms P60 to show the gross value of each BIK, which will make it easier for taxpayers to complete their tax returns as they will not need to download their final payslip for the year or ask their employer.
This impacts student loan calculations on the self assessment tax return as the benefit figure is not separated in forms P60.
Student loan repayments are not due on employment earnings that are not liable to Class 1 NIC. As highlighted in article Tax return fix for student loan deductions, see HMRC’s guidance If you have payrolled BIK for an explanation of how to complete a tax return if you have payrolled BIK. HMRC is aware of this complication and is working on a fix.

Interaction with PAYE settlement agreements (PSA)

How would mandating this impact upon PAYE settlement agreements?
And
How will mandatory payrolling interact with having a PAYE Settlement Agreement covering certain benefits?
And
Will PSAs no longer be allowed? PBIK will not affect PSAs which allow employers to make one annual payment to cover all the tax and NIC (Class 1B) due on minor, irregular or impractical to value or divide up between individual employees expenses or benefits. PSAs will continue to be available to employers.

Form P11D(b)

Is a P11D(b) still needed before PBIK becomes mandatory in 2026/27?
Form P11D(b) must be used to account for Class 1A NIC on any BIK that are not payrolled.

Pension contributions

Will payrolled medical insurance be treated as "salary" with the employer and employee having to pay pension contribution?
The definition of “qualifying earnings” for auto enrolment does not include BIK. Included in qualifying earnings are, in broad terms, salary, wages, commissions, bonuses, overtime, and most statutory payments including sick pay and maternity, paternity, adoption and other similar payments.

However, pension contributions are based on earnings as per the rules of the scheme of which the worker is a member and it is worth checking these rules. If, for example, the rules say that contributions are calculated on pay subject to income tax, then, come payrolling, the values will be bought into taxable pay and contributions should be taken. Check the scheme rules to ensure that payrolled taxable benefits and expenses are not bought in when there was never an intention.

HMRC’s payroll software

Will HMRC’s basic PAYE tools cover this?
As this is an HMRC-provided product, we would expect that its functionality will be upgraded to allow the payrolling of expenses and benefits in line with the specifications that HMRC will provide to commercial payroll software developers.