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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: expenses, benefits and pecuniary liabilities: benefits in kind

In addition to cash emoluments an employer may provide his employees with benefits in kind, for example a car or private health cover.

A more detailed explanation of benefits in kind can be found at EIM21000.

Voluntary payrolling of benefits

From 6 April 2016 employers can account for the tax on expenses and benefits through their payroll by adding the value of the expenses and benefits to their employees’ taxable income rather than reporting the benefits on the form P11D.

If an employer wishes to payroll expenses or benefits they must

  • register using the online service
  • specify which benefits and to which specific employees/group of employees they will be payrolling.  

Note: For tax purposes the benefit is treated as PAYE income and the tax is accounted for via the Full Payments Submission (FPS).

If the benefit is liable to Class 1A National Insurance (NICs) the employer must still report and pay the Class 1A NICs on the form P11D(b).  

Current Employees

You should be satisfied that the employer has correctly

  • accounted for tax and Class 1 NICs (if the benefit is liable to Class 1 NICs) where voluntary payrolling of benefits is operated on their FPS
  • returned the expenses and benefits in kind on the form P11D where they have not registered for payrolling (this includes employers who informally payroll but have not registered), and
  • calculated and paid the relevant Class 1 or Class 1A NICs.

Where there are any discrepancies you should

  • take them up with the employer
  • give any necessary current year instruction
  • explain how to deal with future benefits in kind
  • consider corrective action or recovery for previous years depending on the circumstances below.

Settlement procedures

When you have established inaccuracies relating to benefits in kind, how you settle these liabilities, calculate penalties etc will depend on whether or not the employer

  • has registered to payroll benefits and
  • provides a specified benefit to a specified employee or group of employees under chapter 3A.

For payrolled benefits:

If the employer has registered to payroll benefits and the inaccuracy relates to a specified benefit for a specified employee or group of employees the benefit is treated as a payment of PAYE income. You should consider Schedule 24 penalties for incorrect returns for both the tax and NICs liabilities.

Note: The employer can carry forward the amount of the taxable benefit to the following tax year (year 2) in certain circumstances, see Payrolling, tax employees’ benefits and expenses through your payroll on

In these circumstances the PAYE tax should be included in the FPS for year 2 and any recovery of the PAYE tax, for example regulation 80, will be in respect of year 2.


In 2016/17 the employer had an agreement with their employee that they would make good the actual cost of private fuel to avoid a fuel benefit tax charge on a company car.

They might not know how much fuel has been purchased by the end of the tax year because either:

  • they are waiting for the bill for the fuel from their supplier or
  • their employee may not have been in a position to calculate their private miles by 5 April

The employee has until 1 June 2017 to make good all or part of that cost. If they fail to do so, the employer should

  • work out the fuel benefit charge
  • add the fuel benefit charge as a taxable amount to the next wages payment on or after 1 June 2017
  • calculate and account for the addtional PAYE tax due on their FPS

If you need to raise a regulation 80 for this liability, this will be for the 2017/18 tax year.

For Tax Purposes

The tax is settled either by

  • the employer submitting a corrective FPS or Earlier Year Update (EYU) or
  • a regulation 80 determination (see note above regarding carry forward of liability to year 2)

For NIC purposes

You should seek recovery from the employer for all employees including directors.

For non-payrolled benefits:

If the inaccuracy relates to

  • an employer registered for payrolling benefits and the expenses or benefits are
    • not specified
    • not provided to specified employees or group of employees
  • an employer not registered for payrolling benefits and they should report the benefits on the P11D

For tax purposes

If the employee is a director you should see COG930060.

For employees (or where the limits outlined in COG930060 are not met) you should

  • explain to the employer that any liability is strictly that of the employees but
  • invite the employer to volunteer to settle on their behalf.

There are sound business reasons for HM Revenue & Customs to invite payment and for employers to volunteer settlement, for example:

  • it avoids the probable employee dissatisfaction arising from receiving S9A enquiries when their belief was ‘my employer deals with my tax’.
  • in extreme cases, it avoids the loss of employees, leaving to work elsewhere as a result of that dissatisfaction.
  • while the amount of the tax is ‘grossed up’ to reflect (and only to reflect) the fact that by paying the employees’ tax the employer is giving them a further benefit, nobody is charged interest for the late payment of the tax
  • except in the most serious cases - see COG914080 - penalties are not imposed on the employer in connection with the P11D error/failure or against the employee in connection with SA returns
  • the grossed up tax can be deducted in calculating the employer’s profits for tax purposes.

From HM Revenue & Customs point of view, the Department is spared the cost of possibly uneconomic S9A enquiries.

Where the employer agrees to meet the liability see COG908060.

Where the employer refuses to meet the liability see COG908070.

For NIC Purposes

You should seek recovery from the employer for all employees including directors.

Where the employer pays tax on a grossed up basis you must also calculate Class 1 NICs payable on the grossed up tax.

Note: Recovery action should not be delayed pending any S9A enquiry.

Retired Former Employees

With effect from 6 April 2006 most non-cash benefits provided to retired former employees are liable to Income Tax. More detailed information can be found at EIM15000 to EIM15438.

PAYE does not apply to the provision of these benefits so the former employer has to report the non-cash benefit to HMRC - see EIM15200. If the former employer has not made a return of non-cash benefits to HMRC a penalty under S98 TMA70 is due.

Where you identify that benefits have been made available to former employees but have not been returned you may take action to

  • recover the underpayment of tax in the same manner as you would for current employees.

The advantages to the employer in agreeing a voluntary settlement may be less obvious when there are no ongoing employment issues. In such circumstances you should remind the employer that a potential penalty offence has been committed by failing to return the non-cash benefits to HMRC.

Note: Non-cash benefits provided to former employees do not attract Class 1A NICs but Class 1 NICs are payable on any grossed up tax depending on the circumstances of the individual or individuals - see NIM08410 for guidance on calculating Class 1 NICs for former employees.

Pre April 2009 please go to COG914080.