HMRC issued new guidance in January – which they are describing as ‘simplification’. The guidance is advance warning that, as of April 2026 all benefits in kind (BIKs) will be required to appear on monthly payroll.

Currently, a P11D is issued annually showing the taxable value of benefits in kind for each employee during the previous year. Any adjustments are then made to the employee’s and the employer’s tax and national insurance payments or to the relevant tax code in retrospect.

Employers can payroll most BIKs so they’re taxed under Real Time information (RTI), but, at present, it’s not mandatory. Many employers find it easier to report annually, so there’s no need to do much working out. As of April 2026 payrolling BIKs will be mandatory – with the exception of accommodation benefit or loans with interest charged at less than the current base rate.

While HMRC haven’t actually stated that P11Ds will be discontinued, the implication is there.

Pros and Cons

Payroll will have a separate line for BIKs and, by definition, it’s not actual payments you get, but it is taxable so it will impact on the tax each employee pays, it’s only making the timing more accurate, but the change may come as a surprise to some. And it applies even to the small amounts of tax currently applicable to things like electric vehicles.

On the plus side it will get rid of inaccurate tax codes, avoiding unexpected adjustments for the individual.

It will also contribute to the Making Tax Digital (MTD) campaign, which, despite being pushed back, is not going to go away. A random annual form being introduced to what will, essentially, be a monthly process, could cause all kinds of problems, so this looks like HMRC trying to line everything up to make MTD work efficiently.

On the downside, it will require extra admin to make sure that records regarding staff BIK’s are up to date and processed correctly each month. One more thing for a director to worry about when preparing the payroll figures.

There are other potential hazards, that are still to be clarified. Adding BIKs to payroll will push some employees’ earning up and may, subsequently, affect any statutory benefits they can claim. The ruling in relation to this is yet to be issued by HMRC.

Also, as currently, the means of applying additional tax on BIKs is annual, there is the potential for employees to find they’re due to pay a big lump sum at once. While they aren’t actually paying any more, it’s all about timing. Employers who start planning towards the deadline now will be able to manage the situation so they don’t put their employees in difficult financial situations.

It’s all about streamlining to make life easier – although whether that’s for HMRC or employers is a matter of perception!