Simplifying Income Tax and National Insurance Reporting for Benefits in Kind

Navigating the intricacies of income tax and National Insurance can feel like a maze for many businesses, especially when it comes to benefits in kind (BIK). These non-cash perks, such as company cars or private health insurance, can add layers of complexity to tax reporting. However, by simplifying the reporting process, businesses can help to make things much more straightforward for themselves.  

In this blog post, we’ll take a closer look at the various ways businesses can report BIKs and discuss strategies to make the process more efficient and less of a headache. 

What are benefits in kind (BIK)? 

Benefits in kind (BIK) refer to non-cash benefits that employees receive from their employers. While salaries and wages are straightforward, BIKs can complicate tax reporting. Examples of BIKs include company cars, private medical insurance, gym memberships, and even interest-free loans. These benefits are valuable to employees but come with tax implications that employers must properly manage. 

To report these BIKs, businesses have two options: the P11D form and payroll deductions. 

  1. P11D Forms: This is a year-end declaration that employers complete for each employee who receives BIKs. It lists the value of the benefits provided throughout the tax year. The information from the P11D forms is used to calculate the employee’s tax liability for these benefits, which can lead to a lump sum payment due when tax returns are filed. 
  1. Payroll Reporting: Alternatively, businesses can opt to report BIKs through the payroll system. This method allows for the tax liability associated with BIKs to be deducted monthly throughout the year. As a result, employees won’t be faced with a hefty tax bill at the end of the year. 

 Payroll vs. year-end reporting 

When deciding between payroll and year-end reporting, many larger companies lean towards payroll deductions. Why? Because this method allows them to spread the tax cost evenly throughout the year. For employees, this approach is also much more manageable compared to facing a large tax payment all at once. 

 Take, for example, a company car that comes with a significant benefit-in-kind tax value. If reported solely via P11D at year-end, an employee might find themselves confronted with a hefty tax bill. On the other hand, if the employer chooses to deduct BIKs through payroll, the tax impact is minimised month by month, making it easier for employees to budget and manage their finances.  

Changes in legislation 

In January, HMRC announced that reporting Benefits in Kind (BIKs) through payroll will be mandatory starting in April 2026. This change aims to simplify the tax system by eliminating annual P11D and P11D(b) reporting, requiring real-time payroll reporting of income tax and Class 1A National Insurance Contributions on BIKs, such as company cars and medical insurance. While this will enhance transparency for employees and reduce administrative burdens, previously excluded benefits like loans and accommodation may also need to be reported.  

Draft legislation will be published later this year, with further guidance expected before 2026, so if this will affect your business, it’s a good idea to keep an eye out for it. Regularly reviewing government publications, consulting with tax advisors, and participating in industry forums can keep businesses in the loop about changes in legislation, and help you to avoid any headaches further down the line.  

Simplifying the process 

So, how can businesses simplify their BIK reporting processes? Here are a few things we’d recommend: 

Invest in technology 

Using payroll software that integrates BIK reporting can significantly reduce the administrative burden. Many modern payroll systems have features designed specifically for BIKs, making it nice and simple to report and calculate the associated tax liabilities. 

Educate employees 

Providing training or resources about BIKs can help employees to understand their benefits and the related tax implications. When employees are informed, they can plan their finances better and reduce confusion during tax season. 

Regular reviews 

Establish a routine for reviewing BIKs and their associated tax implications. Regular check-ins can help identify areas for improvement, ensuring that the reporting process remains efficient and compliant with current regulations. 

Consult professionals 

Partnering with tax professionals or accountants can help businesses navigate the complexities of BIK reporting. They can provide specific advice based on the unique circumstances of each business, ensuring compliance while minimising tax liabilities. 

 

Need some extra help managing BIK or any other aspect of your business finances? Talk to our friendly team today, we’d love to help! 

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