How to report a benefit in kind in real time
Setting out the general principles of how to report different benefits in kind (BiKs) in real time and how to apply those general principles to various specific situations.
This section sets out the general principles of how to report different benefits in kind (BiKs) in real time and how to apply those general principles to various specific situations. The collection of tax liability on BiKs will follow the principles of payrolling other pay and rewards from employment.
For each BiK provided to each employee, employers will first need to identify the cash equivalent or relevant amount for a BiK or expense and divide this by the number of pay periods in the tax year for the employee. This figure will then need to be rounded down to the nearest 2 decimal places. The resulting figure is included alongside employee earnings in each pay period so that the Income Tax due on the BiK is calculated and deducted from the employee’s pay and shown on their payslip.
For example, if a monthly paid employee receives a BiK which has a cash equivalent of £2,100 for the tax year 2027 to 2028, then the employer would add £175 to each month’s earnings to calculate the Income Tax and Class 1A National Insurance contributions due and payroll the £175 BiK each month that the employee is paid.
If a change to the cash equivalent occurs in year, the employer must work out the revised taxable amount (the cash equivalent or relevant amount) to payroll for the remaining pay periods for that tax year. Employers will need to identify what has been payrolled so far for that BiK and deduct this from the revised taxable amount. The balance should be divided equally and added to the employee’s earnings across the rest of the tax year.
For example, a 4-weekly paid employee, with 13 pay periods in a tax year, is provided with a BiK with a cash equivalent of £2,600 for the whole of the tax year. This BiK changes in September 2027, after 6 pay periods, so the employer recalculates the total cash equivalent for the entire tax year (now £2,800) and then deducts what has been payrolled so far (£1,200). The balance of £1,600 is payrolled over the remaining 7 pay periods.
We are aware that sometimes it will be difficult to accurately determine the taxable value of BiKs. This may be due to insufficient information or knowledge of BiKs being provided to employees
If you’re not sure what the value of the benefit is at the start of the tax year, you can make an estimate of the cash equivalent of the benefit. You can then adjust it later in the year when you know the exact value. An updated Full Payment System (FPS) can be submitted in the next pay period if information about a BiK is received too late for the current payroll run. BiKs values can be updated anytime during the tax year.
You can use known taxable values, from previous years, for similar BiKs if accurate information is not available. Every effort must be made to make a reasonable estimate. It is your responsibility to ensure that employees are paying the correct or as close to the correct amount of tax as possible on the BiKs provided. Whilst it is expected that there will be small amounts of under or over paid tax, employees should not be put in a position where they owe too much tax and have difficulties paying it.
If an employer does not know the value of a BiK at the beginning of the tax year or is made aware of the provision of a BiK much later in the year, then we expect employers to:
- report BiKs either when they become aware of the provision of a BiK and its taxable value or are able to estimate the value
- take reasonable care when reporting BiKs information through payroll software when estimating taxable values
- report BiKs as close to the relevant pay period as possible and not wait until the end of the year to do so
- comply with current record keeping requirements as HMRC may ask for evidence of how you accounted for each expense or benefit at the end of the tax year
You’ll need to:
- record the date and details of every expense or benefit you provide
- keep any information needed to work out the amounts you report to HMRC
- record any payment your employee contributes to an expense or benefit
- keep any correspondence you have with HMRC
- keep records for 3 years from the end of the tax year they relate to
Making good is where an employee makes a payment in return for a BIK they receive. This can reduce the taxable value of it, often to zero.
If an employee intends to make good on a BiK provided to them, employers should always payroll the cash equivalent taking into account what the employee reasonably expects to make good. For example, if a BiK has a cash equivalent of £1,000 and the employer reasonably expects that the employee will make good £400 in March during the tax year, then the employer will payroll the difference (£600) across the tax year.
If making good does not occur, is overpaid or made good early, corrections can be made in subsequent pay periods. Employees have until 6 July, following the end of the tax year, to make good.
Employers will have until 22 July following the end of the tax year (if they have not already done so in year) to adjust taxable values of BiKs. The employer should report this by revising the final FPS for the tax year in line with the end of year BiKs update process.
Some worked examples for payrolling BiKs in different scenarios have been included in Annex 1.