How to Report and Pay Employee Benefits to HMRC: A Simple Step-by-Step Guide
Do you provide your employees with perks like company cars, private health insurance, or interest-free loans? If so, it’s important to understand how to report and pay tax on employee benefits to HMRC.
It might sound complicated at first, especially if you’re new to it, but don’t worry—we’re here to make things easy. In this guide, we’ll break it all down for you in simple terms so you know exactly what to do, when to do it, and how to avoid HMRC penalties along the way.
Why Does Reporting Benefits Matter?
HMRC wants to make sure that your employees are paying the right amount of tax—not just on their salary, but also on the extra benefits you provide. That’s where reporting benefits-in-kind comes in. It’s about being transparent with HMRC and keeping things above board.
From gym memberships to company cars, if you’re giving more than just a wage, HMRC likely wants to hear about it.
Step-by-Step: How To Report and Pay Employee Benefits to HMRC
Let’s walk through the process in simple, manageable steps. Whether you’re a small business owner or someone handling HR and payroll, these steps will help you stay compliant.
Step 1: Know What Counts as a Benefit
First things first—what exactly is a reportable benefit?
- Company cars and fuel
- Private medical or dental insurance
- Interest-free or low-interest loans over £10,000
- Living accommodation
- Non-business travel or entertainment
These are just a few examples. If you’re unsure whether something counts, it’s better to double-check with your accountant or through the official HMRC guide.
Step 2: Choose How You’ll Pay Tax on these Benefits
You have two main options when it comes to taxing benefits. You can either:
- Payroll the benefits – tax them through your payroll and report them in real time throughout the year
- File a P11D form – submit this at the end of the tax year if you didn’t include the benefits in payroll
Let’s take a closer look at each option.
Option 1: Payrolling Benefits
This method involves including the value of the benefit in your employees’ taxable pay. It means:
- Your employees pay tax on their perks as they go, rather than at the end of the year
- You still need to report details to HMRC, but it simplifies year-end admin
If you choose this method, you must register with HMRC before the start of the tax year (by 5 April). You can do this through your HMRC online account.
Option 2: Filing Form P11D
Didn’t payroll benefits? Then you’re required to submit a P11D form for each employee who received perks during the tax year. Along with that, you must submit a form called P11D(b), which tells HMRC how much Class 1A National Insurance you owe on those benefits.
Step 3: Submit Forms on Time
Timing is everything when it comes to HMRC. Here are the key deadlines to remember:
- 6 July: Submit P11D and P11D(b) forms to HMRC for the tax year that ended on 5 April
- 22 July (or 19 July if paying by post): Pay any Class 1A National Insurance due
Missing these deadlines can lead to penalties, so mark them in your calendar—or better yet, set reminders in your accounting software.
Step 4: Give a Copy to Your Employees
If you send a P11D to HMRC, you also need to give a copy to the affected employee. This helps them understand their tax position and declare any additional liabilities in their tax return.
What Is Class 1A National Insurance and Who Pays It?
Here’s where things get a bit technical—but we’ll make it super simple.
Class 1A National Insurance is a type of NI that employers pay on most employee benefits. It’s calculated as a percentage of the benefit’s value (13.8% for most employers).
The employee does not pay this—it’s your responsibility as the employer, and it’s separate from the usual National Insurance paid on earnings.
Common Mistakes Employers Make (and How to Avoid Them)
We all make mistakes—but when reporting benefits, even small errors can come back to haunt you. Here are some common pitfalls:
- Missing the deadline – Late submissions can lead to fines.
- Failing to register for payrolling – You must register before the tax year starts, or you’ll need to use P11Ds.
- Incorrect calculations – Use HMRC’s calculators or get help from an accountant if unsure.
- Not giving employees a copy of their P11D – It’s their legal right to see it.
Taking a few extra minutes to double-check everything can save hours of admin—and potentially money—later on.
Helpful Tools and Resources
Here are a few tools and links to help you stay on track:
Conclusion: Make Reporting Benefits a Breeze
It might seem daunting at first, but once you get your head around the rules, reporting and paying tax on employee benefits to HMRC is totally manageable.
Start by understanding what benefits you offer, pick the right method—payrolling or P11Ds—stick to deadlines, and use HMRC’s tools whenever you can. Doing so keeps your business compliant, your employees happy, and HMRC off your back.
Looking for more help? Consider using an accountant or payroll software to make things easier. Trust us—trying to wing it with tax is never fun!
Don’t Forget!
- Register for payrolling before 6 April each year
- Submit P11Ds by 6 July if not payrolled
- Pay Class 1A NI by 22 July
Staying ahead of HMRC requirements isn’t just about avoiding penalties—it shows professionalism and builds trust with your employees, too.
Need more easy-to-follow tax guides like this one? Subscribe to our blog and get practical finance tips straight to your inbox!