Payrolling Benefits and Expenses Through Payroll

Payrolling benefits and expenses allows you to tax employee benefits through your regular payroll instead of reporting them on form P11D at the end of the tax year. This simplifies your reporting obligations and spreads the tax cost throughout the year for your employees. You must register with...

What is payrolling benefits?

When you provide benefits to your employees — such as private medical insurance, gym memberships, or company cars — they normally pay tax on these benefits through an adjustment to their tax code. HMRC makes this adjustment after you submit form P11D following the end of the tax year.

Payrolling benefits means you tax these benefits in real-time through your regular payroll instead. You calculate the value of the benefit, add it to your employee's pay each pay period, and deduct the tax through PAYE. This means you don't need to submit form P11D for those benefits.

Registering to payroll benefits

You can only payroll benefits that you registered to payroll before 6 April 2026. You cannot change how you report benefits for the current tax year — you must register before the tax year begins.

If you registered before 6 April 2026, you can use HMRC's payrolling employees taxable benefits and expenses online service to:

View which benefits you're registered to payroll for the current tax year
View employees who have been excluded from a payrolled benefit
Exclude specific employees from a payrolled benefit for the current tax year

When you register to payroll a benefit, HMRC will automatically amend the tax codes for all employees receiving these benefits, unless you exclude them using the online service.

Which benefits you can payroll

You can payroll most benefits, but not all. You cannot payroll:

Employer provided living accommodation
Interest free and low interest (beneficial) loans

You must still report these on form P11D, even if you're payrolling other benefits for the same employees.

If you payroll company car benefits, you don't need to submit a P46 (Car) form.

If you stop payrolling a benefit

If you registered to payroll a benefit but are no longer providing it or decide not to payroll it, you must use the online service to exclude your employees from the payrolled benefit.

How to calculate the value of benefits

You work out the cash equivalent of a benefit for payrolling in exactly the same way as you would for form P11D.

If you're unsure of the exact value at the start of the tax year, you can estimate the cash equivalent and adjust it later when you know the precise figure.

To calculate benefit values, you can use:

HMRC's online company car and car fuel benefit calculator
Your own payroll software for company cars and car fuel
Company vans and fuel guidance
The expenses and benefits A to Z guidance for other benefits

Example: payrolling health insurance

An employer pays £600 per year per employee for private health insurance. They choose to payroll this benefit.

When the tax year starts, HMRC automatically changes the employees' tax codes to remove the adjustment for this benefit.

During the tax year, the employer calculates the taxable amount and adds it to the employees' actual monthly pay:

£600 ÷ 12 = £50 per month

The employees pay tax on this additional £50 each month through PAYE.

Optional remuneration arrangements (salary sacrifice)

Optional remuneration arrangements (OpRAs) — commonly called salary sacrifice — are when an employee gives up part of their earnings in return for a non-cash benefit.

From 6 April 2017, for new OpRAs you must calculate the value of the benefit using the higher of:

The amount of salary given up
The earnings charge under normal benefit in kind rules

Exemptions from OpRA rules

The following benefits are exempt from these rules:

Payments into pension schemes
Employer provided pensions advice
Childcare vouchers, workplace nurseries, and employer contracted childcare
Cycle to work scheme
Cars with CO2 emissions of 75g/km or less

OpRAs set up before 6 April 2017

If you set up an OpRA before 6 April 2017, you can continue to calculate the benefit value as you did before. However, most arrangements became subject to the new rules from 6 April 2018 unless they were varied, renewed or modified before that date.

For cars with emissions over 75g CO2/km, living accommodation, or school fees, transitional rules applied for longer — the new rules didn't apply until 6 April 2021.

Telling your employees

You must give your employees written notification explaining that you're payrolling benefits and what this means for them. You can do this by payslip, email, or letter.

You must send this notification by 1 June after the end of each tax year.

The notification must:

Tell employees they won't be taxed twice because you're payrolling their benefits with HMRC
List the benefits you've payrolled (including their value and which ones have been subject to PAYE tax)
State the amount you've payrolled for optional remuneration
List any benefits you've not payrolled

First year notification

In the first year you payroll benefits, explain to employees that:

Their tax code will change to remove the adjustment for their benefits in kind
You'll put the adjusted amount through payroll each month and they'll pay tax on that amount
At the end of the year you'll tell them how much taxable benefit they've had and what it was for

New employees

When a new employee joins who will receive payrolled benefits, tell them:

Their tax code may be amended to adjust benefits from previous employments
The new benefit won't be included in their tax code
Any underpaid tax from their existing tax code will still be collected

Class 1A National Insurance contributions

Even when you payroll benefits, you must still:

Calculate Class 1A National Insurance contributions on the cash equivalent of the benefits
Complete form P11D(b)
Submit this and pay the Class 1A National Insurance by 6 July after the end of the tax year

Keep accurate records of benefits you provide throughout the tax year so you can complete your P11D(b) correctly.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.