Payrolling benefits is a streamlined way for employers to handle the taxation of employee benefits through their regular payroll system, rather than reporting them separately at the end of the tax year.
Registering Benefits for Payrolling
To payroll benefits, you must register them with HMRC before the start of the tax year.
For the 2026 tax year, only benefits registered before 6 April 2026 can be payrolled. Missing this deadline means those benefits must be reported using traditional methods instead.
How Payrolling Operates
Once a benefit is registered for payrolling, you’ll need to:
- Calculate the cash equivalent of each employee’s benefit
- Add this value to the employee’s regular pay
- Deduct tax through the payroll as part of their normal pay cycle
HMRC will automatically adjust employees’ tax codes to ensure the benefit is not taxed twice.
Reporting Requirements
If you payroll a benefit:
- You do not need to submit a P11D form for that benefit
- You must still calculate and report Class 1A National Insurance contributions using form P11D(b)
This ensures that employer National Insurance obligations are still being properly accounted for while income tax is handled in real time.
Excluding Employees
It’s possible to exclude certain employees from a payrolled benefit. However, there are important rules to keep in mind:
- You’ll need to report their benefits using a P11D form instead
- Once an employee is excluded, they cannot be readded to that benefit within the same scheme
Benefits That Cannot be Payrolled
Not all benefits are eligible for payrolling. You cannot payroll:
- Employer-provided living accommodation
- Interest-free or low-interest (beneficial) loans
These must always be reported using traditional methods.
Submitting Your Returns
Employers must submit their P11D and P11D(b) forms using one of the following:
- PAYE Online for employers
- Commercial payroll software
If all benefits for an employee are payrolled, you do not need to submit a P11D for them. However, you must submit a P11D(b) to declare and pay any Class 1A National Insurance owed.
Key Deadlines
For the 2025 to 2026 tax year, the deadline to submit both P11D and P11D(b) forms is 6 July 2026.
Missing this deadline can result in penalties, so it’s important to plan ahead and ensure all reporting is completed on time.
