Paying tax on employment benefits
On this page, we look at how you pay tax on benefits-in-kind, also known as non-cash benefits, as an employee.
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If your employer provides you with a taxable benefit, such as use of a company car, the taxable benefit has to be valued. For most types of benefit-in-kind, the law sets out how you should work out the value. You pay tax on the taxable value of the benefit.
We describe how tax is calculated on our page Taxable benefits in kind.
You pay the tax on benefits in one of two ways, chosen by your employer:
- the P11D method, or
- the payrolling method.
Your employer may choose to use a mixture of the two ways for different benefits. We look at each method and what it means for employees below.
The P11D method
This is the method that was in use for all benefits before 6 April 2016 and continues unless your employer opts to use the ‘payrolling’ method (see below). If you receive taxable benefits, your employer gives you a form P11D by 6 July following the end of the tax year, for example, by 6 July 2024 for the tax year 2023/24. This summarises the type and value of the benefits that you have been provided with. The amount on the form P11D represents additional employment income and is taxable.
HMRC may try to collect the tax due on your taxable benefits through your tax code. If so, HMRC will amend your tax code to include the value of the taxable benefits. This adjustment for a taxable benefit will appear as a deduction from your tax allowances for the tax year and will mean that more tax is collected than would be the case on your wages or salary alone.
To understand more about this, see our page on PAYE coding notices.
When you are first provided with a benefit, there can be a time lag while HMRC process the relevant information. For example, HMRC are unlikely to be able to deal with benefits first provided to you in 2023/24 in your 2023/24 tax code unless you contact HMRC and let them know about the benefit. You are therefore likely to receive a P800 calculation showing an underpayment of tax for 2023/24, which HMRC will try to collect by adjusting your tax code during a later year. Alternatively, HMRC may issue you with a simple assessment and request the underpaid tax be paid in one lump sum.
If you are required to complete a tax return, you must include any P11D benefits on your tax return. Any tax due will normally be collected by 31 January following the end of the tax year.
Thereafter, HMRC try to include estimated amounts of benefit income in current year codes, so that they can try and collect the tax during the tax year in which you receive the benefit. In some instances where you receive benefits, you may find that your tax code is adjusted for a prior year underpayment and a current year estimated liability on benefits all at the same time.
It is therefore very important to check your coding notice to ensure that any benefits are being included properly and that any tax underpaid from an earlier year due to benefits is correctly shown.
The payrolling method
Your employer must tell you if this method is being used. Your employer calculates the value of the benefit being provided to you during the whole year and then collects the tax due on that benefit directly through the payroll. Before 1 June following the end of the tax year, so by 1 June 2024 for the tax year 2023/24, your employer must provide you with a statement showing the benefits that have had tax collected on them through the payroll.