Article Summary
The ultimate P11D guide: 2025/26 tax year
P11D’s are often seen as a tedious and time consuming task. They’re a once a year task that HR and finance teams in businesses dread. This guide is designed for everyone, from beginner to expert, to guide you through everything you need to know about P11D’s now and how they’re changing in coming years.
What is a P11D?
A P11D is a form that businesses submit to HMRC to tell them if their employees receive ‘benefits in kind’. These are non-monetary employee benefits, such as a company car or health insurance. Employers are legally required to submit a P11D by the 6th of July each year, although this is changing from the 2027/28 tax year (LINK TO SECTION). If this deadline is not met, this will result in penalties for the employer of £100 per 50 employees per month late. P11D’s are important as it ensures the employer and employee are in compliance with tax laws.
The P11D will assess whether employees owe any tax on their non-monetary employee benefits. The employee may then need to pay tax on these benefits through self assessment or by having their tax code adjusted.
Benefit-in-Kind (BiK) explained
Definition : any non-cash benefit of monetary value that is provided to employees or directors (including their families)
Real world examples of these taxable benefits include (but are not limited to):
Company cars
Health insurance
Travel and entertainment expenses
Any gifts/ interest-free loans are also a benefit in kind.
Work from home equipment (if ownership transfers to the employee)
Provision of living accommodation
- Company cars
- Health insurance
- Travel and entertainment expenses
- Any gifts/ interest-free loans are also a benefit in kind.
- Work from home equipment (if ownership transfers to the employee)
- Provision of living accommodation
- Company cars
- Health insurance
- Travel and entertainment expenses
- Any gifts/ interest-free loans are also a benefit in kind.
- Work from home equipment (if ownership transfers to the employee)
- Provision of living accommodation
However, some benefits are exempt from being taxable. This includes:
- £150 per annum, per employee for entertaining (including VAT)
- £50 per individual trivial benefit (including VAT). For directors of “close” companies (a limited company that’s run by 5 or fewer shareholders) there is a yearly limit of £300 - a trivial benefit is meant rather literally, it’s anything so trivial that it effectively isn’t worth telling HMRC about
- Cannot be cash or cash voucher
- Isn’t in the terms of their contract
- Isn’t a reward for their performance
- Isn’t part of a salary sacrifice arrangement
- Contract terms. The wording of employment contracts may influence whether certain costs are a taxable benefit. Examples include (but are not limited to):
- Working from home allowances: If the employment contract explicitly states that employees must work from home regularly, reimbursed home office expenses (like broadband or heating costs) might be tax exempt.
- Relocation expenses: Costs covered by an employer to relocate an employee closer to their new contractual place of work can be exempt from tax (up to certain limits) as long as the employment contract requires them to move.
- Home vs office based: If the contract says home is the main workplace, travel to HQ can be tax-free
- Temporary workplaces: Travel to a temporary site (under 24 months) is usually exempt
- Living on-site: Required live-in roles (like caretakers) may qualify for tax-free housing
- Tools and equipment: If staff must provide their own, reimbursing them can be tax-free
- Training: Role-specific or contractually required training is usually exempt
- Uniforms: Distinctive or safety-critical clothing required by contract is not taxable
What’s included in a P11D?
PSA’s explained
A PAYE Settlement Agreement (PSA) allows you to make an annual payment to cover all the tax and National Insurance due on minor, irregular or impractical expenses or benefits for your employees.
Examples of minor benefits and expenses include:
- Incentive awards, non performance linked (could also be irregular if a one-off)
- Phone bills
- Staff entertainment (you do not need to include trivial benefits in your PSA)
Examples of irregular benefits and expenses can be:
- The cost of attending overseas conferences
- Use of a company holiday property
Impractical benefits and expenses can be:
- Any shared cars
- Personal care expenses
- Staff entertainment that is not exempt from tax or NI Contributions
You cannot include wages or high-value benefits like company cars.
If an item cannot be included in your PSA, and you are not paying for the benefit through payroll, you will need to submit a P11D form to report any other expenses or benefits.
If you get a PSA you will not need to put items through your payroll to work out tax and NI or include them in a P11D. You will instead pay Class 1B NI as part of your PSA. Once you have a PSA you will need to tell HMRC what you owe every tax year. If this isn't done HMRC will calculate an amount and you may be charged more if this happens.
How to get a PSA
You can apply for a PSA retrospectively for the tax year just passed. This will mean that you, the employer, pay the tax and NIC on behalf of the employees, so the employees don’t get taxed individually or need it reported on a P11D.
The deadline to apply for a PSA is 5th July following the end of the tax year in which the expenses or benefits were provided. For example, if the tax year is 2025/26, you can apply for a PSA for that tax year up until 5th July 2026.
The deadline to pay any tax and NI owed under the PSA is 22nd October after the tax year the PSA applies to (e.g. in the same 2025/26 tax year as above, you’d have until 22nd October 2026 to pay any outstanding costs).
To apply: Visit the GOV site and apply online. Alternatively, apply by post or via an agent.
How P11D’s are changing from 2027/28
From April 5th 2027, employers are required to payroll benefits. This was previously set for the 2026/27 tax year but was pushed back to 2027/28 as HMRC acknowledged more time was needed for the industry to prepare.
The switch is happening due to a push from HMRC to modernise the tax system, reduce burden on employers and make employees' finances easier to understand. HMRC claims that this change will stop 4 million people from having their Income Tax collected in arrears, making it simpler for employees to understand what they are paying tax on.
It also means HMRC doesn’t need to receive millions of end of year returns, easing pressure on them.
Understanding payrolling benefits
Payrolling benefits means no more P11D and involves reporting the tax monthly via payroll. Hence the term payrolling.
Payrolling benefits will work for most benefits, but P11D’s will still be required for interest free/cheap loans and employer provided accommodation. If you don’t provide either of those benefits, then you’ll only need to payroll your benefits for all employees.
Payrolling benefits works via your payroll software, essentially adding the value of the benefits to an employee's monthly pay. This allows them to be taxed monthly via PAYE, meaning employees pay for their benefits as they use them.
Payrolling benefits also comes with other pros.
Preparing for the changes
The main thing you’ll need to do as a business is ensure that your payroll software is able to process employee benefits (BiK value). Most big payroll software should be able to, and many will be adding it to comply with the new changes.
Most of the bigger payroll names for Enterprise and SME already support this:
If your payroll provider does not support payrolling benefits you should reach out to see if it's in their short term roadmap. If not, it’s worth beginning the migration process to a platform that does support it.
Getting ahead
Employers have been able to voluntarily payroll benefits for a while now. This could be a good way to get ahead and help employees and teams adjust ahead of time.
For the mandatory transition in April 2027, you do not need to register payrolling benefits with HMRC as this will be a requirement. The deadline for voluntarily payrolling benefits for 2025/26 has now passed (5th April 2025).
Employers are able to register to voluntarily payroll benefits in 2026/27 until 5th April 2026. When switching to payrolling benefits, you’ll need to confirm the benefit that you wish to payroll (only required when voluntary, this will not be required from the mandatory 2027/28 tax year).
Things to remember when switching to payrolling benefits
- There is a requirement to communicate the change to payrolling benefits to employees.
- Review management information to ensure that all benefits are recorded correctly and this information is up to date on a weekly/monthly basis.
- There's a PAYE risk as reporting on the BiK through payroll requires the employer to report in real time, reacting quickly to changes in the benefits provided, their cost or movement in employees. If employers withhold the incorrect tax, this could result in penalties or additional liabilities.
Automating benefit reporting
Automations can remove the heavy lifting from benefits reporting via P11D and payroll. They also help to reduce risk through human error. Happl takes the heavy lifting out of benefits management. With smart automations, AI-powered answers, and expert consultants on hand, even the most complex benefit strategies become simple and manageable.
Happl provides employers with a taxable benefit cost breakdown per employee, allowing employers to upload this data to their payroll software and sort payrolled benefits with speed and ease.
Launching in the future, Happl will integrate with your payroll system to automatically push through employee benefits to payroll, meaning that nearly all of your benefits strategy can be managed from one platform, automatically.
The pro's of automating your benefit tax reporting
The cons of automating your benefit tax reporting
Reducing Risk & ensuring compliance
Conducting regular audits and reconciliations can identify discrepancies before they become a bigger issue at year end. You can automate reconciliations of benefits data against payroll and HR records, ensuring that all taxable benefits are included in the P11D.
To reduce risk and ensure compliance, it's crucial to secure employee data and meet HMRC’s standards for data handling. The P11D automation system should be compliant with data protection such as GDPR. The software should also meet all HMRC guidelines.
Wrap up
With the mandatory changes coming in April 2027, businesses have plenty of time to prepare. The main takeaways are as follows:
- From April 2027, businesses will be required to payroll most benefits, meaning the end of P11D’s
- P11D’s (as of writing) will still be required for interest free/low-cost loans and employer sponsored accommodation still
- The window for registering for voluntary benefit payrolling for 2025/26 has passed.
- To prepare, ensure your payroll software supports payrolling benefits, if it doesn’t check if it will in time or begin migrating to one that does
- This is overall better for businesses and employees as it eliminates the large workload of P11D’s and makes payslips easier to understand for employees.
Bonus: Questions for your team to ensure compliance, process and accuracy
Have all taxable benefits been identified?
Ensure that all benefits-in-kind provided to employees during the tax year are correctly identified, including cars, private medical insurance, and any other fringe benefits.
Are the values of the benefits accurate?
Confirm that the monetary values assigned to each benefit are correct, based on the fair market value or HMRC guidelines.
Have any exemptions or thresholds been applied correctly?
Check if any benefits are exempt from tax or if they fall under any thresholds that affect their taxable value.
Are employee details up to date?
Make sure that all employee information (e.g., name, National Insurance number, job title) is current and correctly recorded.
Have the correct amounts for Class 1A National Insurance been calculated?
Ensure the correct National Insurance contributions are calculated for both the employer and employee, based on the BiKs provided.
Have voluntary payrolling options been considered?
Ask whether the employer intends to voluntarily payroll any benefits and, if so, ensure that the necessary registration and communication have been completed.
Have the deadlines been met?
Confirm the submission deadline for P11Ds and P11D(b) forms, which is typically July 6th following the end of the tax year.
Are there any special circumstances or one-off benefits to report?
Check for any irregular or one-off benefits that might require special reporting, such as relocation allowances or termination payments.
Is there clear communication with employees about the benefits?
Ensure that employees have been informed about the benefits they’ve received and any tax implications that apply.
Are records being kept to support P11D submissions?
Make sure that all necessary documentation, such as receipts or contracts, is retained in case of future audits or inquiries from HMRC.
