Understanding Benefits in Kind and Payrolling: A Guide for Small Business Owners

As a small business owner, it’s crucial to understand the various aspects of employee compensation, including Benefits in Kind (BIKs). BIKs are non-cash perks provided to employees, such as company cars, health insurance, or gym memberships. These benefits are subject to tax and national insurance contributions, and managing them correctly is essential for compliance. 

In this blog post, we outline the details of Benefits in Kind, payrolling BIKs, P11Ds, and important deadlines, helping you navigate these requirements seamlessly.

What Are Benefits in Kind?

Benefits in Kind (BIKs) are perks provided by employers to employees in addition to their regular salary. These benefits can range from company cars and private healthcare to interest-free loans and free meals. While BIKs can enhance your compensation package and attract talent, they also come with tax implications.

Examples of Common BIKs

• Company cars
• Private health insurance
• Interest-free or low-interest loans
• Childcare vouchers
• Accommodation

Payrolling Benefits in Kind

Payrolling BIKs is an alternative to the traditional method of reporting these benefits through P11D forms. By payrolling, the cash equivalent of the benefit is added to the employee’s taxable pay each pay period, and tax is deducted in real time. This method simplifies the tax process for both employers and employees, ensuring that tax is paid on benefits throughout the year, rather than as a lump sum at the end.

Benefits of Payrolling BIKs

• Simplified Process: Reduces the administrative burden of completing and submitting P11D forms.
• Real-Time Taxation: Employees pay tax on benefits in real time, avoiding large, unexpected tax bills.
• Transparency: Employees have a clearer understanding of their taxable benefits and their impact on net pay.

HMRC has announced that reporting and paying income tax and Class 1A National Insurance Contributions (NIC) on benefits in kind through payroll will become mandatory from April 2026. This measure aims to simplify and modernise the tax system. Employers should ensure they have everything in place ahead of the next tax year to comply with these new requirements.

P11Ds: What You Need to Know

If you choose not to payroll Benefits in Kind (BIKs) before the mandatory deadline in April 2026, you will need to report them using P11D forms. A P11D form details the benefits and expenses provided to each employee during the tax year. Employers also need to submit a P11D(b) form, which summarises the overall Class 1A National Insurance due on all BIKs. This amount will be collected via changes to employees’ tax codes.

Key Points About P11Ds

• Submission: Employers must complete and submit a P11D form for each employee receiving benefits and a P11D(b) form to HMRC.
• Employee Copy: Provide employees with a copy of their P11D form so they can check their personal tax account.
• Accuracy: Ensure the information is accurate to avoid penalties for incorrect reporting.

Important Deadlines

Meeting deadlines for reporting BIKs and submitting P11D forms is critical to staying compliant and avoiding penalties.

Key Dates to Remember:

• 6th July: Deadline for submitting P11D and P11D(b) forms to HMRC and providing copies to employees.
• 19th July: Deadline for paying Class 1A National Insurance contributions.

How CJ Bookkeeping Can Help

At CJ Bookkeeping, we understand the complexities of managing employee benefits and staying compliant with HMRC regulations. Our expert team can assist you in:

• Identifying Taxable Benefits: Helping you determine which benefits are taxable and their cash equivalent values.
• Payrolling BIKs: Setting up and managing the payrolling process to streamline your tax obligations.
• P11D Preparation and Submission: Accurately preparing and submitting P11D and P11D(b) forms to ensure compliance.
• Advisory Services: Offering personalised advice on optimising your employee benefits package while minimising tax liabilities.

Conclusion

Managing Benefits in Kind and understanding the associated tax implications can be challenging, but with the right knowledge and support, it can be a smooth process. Whether you choose to payroll BIKs or use P11D forms, staying informed and meeting deadlines is key to maintaining compliance. At CJ Bookkeeping, we’re here to help you navigate these requirements and optimise your employee benefits strategy.

Get in Touch

At CJ Bookkeeping, we specialise in helping small businesses with Benefits in Kind, payrolling, and P11D forms.Our team of experts is ready to support you in achieving compliance and optimising your financial operations.

Remember, the information provided in this blog is for general guidance only and should not be considered professional advice. For personalised assistance, do get in touch.