If you give employees anything beyond their salary, from a company car to private medical cover, you may have a reporting and National Insurance obligation. This article explains benefits in kind, the P11D and P11D(b), Class 1A National Insurance, payrolling, and the changes coming from April 2027, for the 2026 to 2027 tax year. A companion article, "Company cars, vans, loans and other benefits: how they are valued," explains how to work out the value of specific benefits.
What is a benefit in kind?
A benefit in kind (BiK) is something of value you provide to an employee or director that is not part of their normal cash salary, such as a company car, private medical insurance, an interest-free loan, living accommodation, or assets you give them to use. Because these have a cash value, HMRC generally treats them as taxable employment income even though no extra money passes through the payslip. Some benefits are exempt or covered by a relief, but where no exemption applies you must report the benefit and usually pay employer National Insurance on it. The amount you report is normally the cash equivalent, broadly the cost to you of providing the benefit, less anything the employee pays towards it.
What is the difference between an expense and a benefit?
For reporting purposes an expense is usually a payment to reimburse an employee for a cost they incurred, while a benefit is something you provide directly. Many routine business expenses, such as genuine business travel and subsistence, are covered by an exemption and do not need to be reported at all. Where a payment or reimbursement is not covered by an exemption, it is treated like a benefit and reported on the P11D. The key question is always whether an exemption applies; if it does not, the item is reportable and may attract Class 1A National Insurance.
What is a P11D?
A P11D is the form you use to report the cash equivalent of expenses and benefits provided to an individual employee or director during the tax year, where those items have not been taxed through payroll. You complete one P11D per employee who received reportable benefits, and you must give each of them a copy of the information reported. The form is divided into lettered sections, each covering a type of benefit. P11D and P11D(b) forms can only be submitted to HMRC online; paper forms are no longer accepted, and the full set for the PAYE scheme must be submitted together.
What is a P11D(b)?
The P11D(b) is the employer's declaration that does two things: it confirms all the required P11Ds for the PAYE scheme have been completed and submitted, and it reports the total Class 1A National Insurance you owe on the benefits provided across all employees. It carries the total benefit figure, the Class 1A rate and the amount payable, with a declaration that the contributions are due or are not due. You must submit a P11D(b) even where you have payrolled all your benefits, because payrolling deals with the employee's tax but does not remove the need to report and pay employer Class 1A National Insurance. The P11D(b) and the related P11Ds must be sent in a single submission.
What are the standard P11D benefit categories?
HMRC structures the P11D into lettered sections, and each reportable benefit belongs in one. They are: Section A, assets transferred; Section B, payments made on behalf of the employee; Section C, vouchers and credit cards; Section D, living accommodation; Section E, mileage allowance payments not taxed at source; Section F, cars and car fuel; Section G, vans and van fuel; Section H, interest-free and low-interest (beneficial) loans; Section I, private medical treatment or insurance; Section J, qualifying relocation expenses and benefits; Section K, services supplied; Section L, assets placed at the employee's disposal; Section M, other items such as subscriptions and professional fees; and Section N, expenses payments made on behalf of the employee, including travel and subsistence.
What is Class 1A National Insurance?
Class 1A National Insurance is an employer-only contribution due on most taxable benefits in kind. Unlike Class 1, there is no employee deduction; the charge falls entirely on the employer. For the 2026 to 2027 tax year the Class 1A rate is 15.00%, an increase from the previous 13.80%. You work out Class 1A on the total cash equivalent of the benefits that attract it, then report and pay that total through the P11D(b) process. Not every benefit attracts Class 1A: items already subject to Class 1 National Insurance through payroll, and items covered by an exemption, are excluded.
How is Class 1A calculated and reported?
Class 1A is calculated by adding up the cash equivalent of all the benefits that attract it and multiplying that total by the Class 1A rate. For 2026 to 2027 that means the total benefits figure multiplied by 15.00%. You report the total benefits, the rate and the resulting Class 1A figure on the P11D(b), which serves as both your declaration and your statement of what is owed. Because the calculation runs off the same cash equivalents you report on the individual P11Ds, accuracy on the P11Ds feeds directly into the Class 1A figure.
When are the P11D and P11D(b) due?
For the 2026 to 2027 tax year you must report your expenses and benefits to HMRC and give your employees their copies by 6 July 2027, and submit the P11D(b) reporting the total Class 1A National Insurance by the same date of 6 July 2027. Missing the P11D(b) deadline triggers a penalty of £100 per 50 employees for each month or part-month the return is late, so it is worth diarising the date well in advance. The P11Ds and the P11D(b) must be filed together in a single online submission.
When do I pay the Class 1A National Insurance?
Class 1A National Insurance for 2026 to 2027 must reach HMRC by 22 July 2027 if you pay electronically, or by 19 July 2027 if you pay by post. The reporting deadline of 6 July and the July payment deadline are separate, so submitting the P11D(b) on time does not by itself settle the liability; you still need to make the payment. Late payment can attract interest and penalties, so allow time for the payment to clear by the relevant date.
What is payrolling benefits in kind?
Payrolling benefits in kind means putting the taxable value of a benefit through your payroll so the employee pays the income tax on it in real time, rather than the tax being collected later through a tax code adjustment. You divide the annual cash equivalent across the pay periods and add it to taxable pay each time the employee is paid. Where a benefit is payrolled, you do not include it on that employee's P11D, but you must still work out the Class 1A National Insurance and complete a P11D(b). Payrolling does not change the overall tax due; it changes when and how it is collected.
Do I need to register before payrolling benefits?
Yes. To payroll benefits voluntarily under the current rules you had to register with HMRC before the start of the tax year in which you wanted to payroll them, because you cannot change the way you report a benefit partway through a tax year that has already started. For the current arrangements, you can only payroll benefits you registered to payroll before 6 April 2026, and the older registration service is being wound down ahead of mandatory payrolling. Two benefits cannot be payrolled under the voluntary rules and still require a P11D: living accommodation and beneficial loans.
Is payrolling of benefits becoming mandatory?
Yes. HMRC has confirmed that real-time reporting of income tax and Class 1A National Insurance on most benefits in kind and taxable expenses will be mandated through payroll software, phased in with Phase 1 from 6 April 2027 and Phase 2 from 6 April 2028. From April 2027 most benefits and expenses will be reported through the Full Payment Submission (FPS), the same real-time submission you use to report pay, so both income tax and Class 1A National Insurance are reported as the benefit is provided. Keep your payroll software up to date and watch HMRC's employer communications for the detailed rules as the start date approaches.
What happens to loans and accommodation under mandatory payrolling?
Beneficial loans and living accommodation are treated differently because they are harder to value in real time. Under the published plans they are excluded from the initial mandation: HMRC will retain the P11D and P11D(b) route for employment-related loans and accommodation for a temporary period, with voluntary payrolling of these benefits available from April 2027. So while most benefits move to mandatory real-time reporting, loans and accommodation can continue to be reported on the P11D until further notice. Employers who provide these benefits should expect to keep using the P11D process for them beyond the point at which other benefits move fully onto the FPS.
Will there be penalties during the transition?
HMRC has indicated a soft-landing approach for the first year. For 2027 to 2028, customers who make an error related to mandatory payrolling in their real-time returns will not be charged inaccuracy penalties, unless there is evidence of deliberate non-compliance. This recognises that real-time reporting of benefits is a significant change to payroll processes. It does not remove the obligation to report correctly or pay what is due; it simply protects against penalties for genuine mistakes while employers adapt. You should still take reasonable care to get the figures right and correct errors promptly.
Which benefits attract Class 1A National Insurance?
Most taxable benefits in kind reported on the P11D attract employer Class 1A National Insurance at 15.00% for 2026 to 2027. This includes company cars and car fuel, vans and van fuel, private medical insurance, beneficial loans above the exemption, living accommodation, and qualifying relocation support above the £8,000 limit. Items already subject to Class 1 National Insurance through payroll, such as cash payments and most vouchers exchangeable for cash, do not attract Class 1A because National Insurance has already been collected. Exempt benefits, including trivial benefits and items covered by a specific relief, attract neither Class 1A nor a reporting requirement. The test is whether the benefit is taxable and not already within Class 1; if so, Class 1A is usually due.
What records should I keep for expenses and benefits?
Keep clear records of every reportable benefit and expense, including how you arrived at each cash equivalent, any amounts the employee paid towards a benefit, and the dates a benefit such as a car or accommodation was available. Good records make the year-end P11D and P11D(b) much easier to complete accurately and support the figures if HMRC asks questions. For cars you will need details such as list price, accessories, CO2 emissions, fuel type, capital contributions and, for the lowest-emission cars, the zero-emission mileage. As payrolling becomes mandatory from April 2027, accurate in-year records become even more important, because the values will need to be reported through payroll as benefits are provided rather than once a year. For how to value specific benefits, see the companion article "Company cars, vans, loans and other benefits: how they are valued."