Payrolling Benefits vs P11Ds: Which Route Is Simpler for Employers (and When)

If you provide employee benefits — things like private medical insurance, company cars, fuel, gym memberships, or subscriptions — the benefit itself is rarely the problem. The admin is.

Most employers still rely on P11Ds to report benefits after the tax year ends. But you can also pay payroll benefits (sometimes called payrolling benefits in kind), which means the tax is collected through payroll during the year instead of being picked up later through tax code changes.

So which route is simpler? It depends on what benefits you provide, how your payroll is run, and whether you’d rather handle admin “little and often” or deal with it all in one year-end push.

This guide walks you through the differences, the real-world pros and cons, and the situations where each option tends to be easiest.

What are P11Ds and payrolling benefits?

P11Ds (the traditional method)

A P11D is a form you submit after the tax year ends to report benefits and expenses provided to employees and directors.

With P11Ds, you typically:

Key deadlines after the end of the tax year include:

Payrolling benefits (tax collected through payroll)

Payrolling benefits means you put the taxable value of certain benefits through payroll during the tax year. Employees pay the tax in real time via PAYE, rather than later through a tax code adjustment.

To do this voluntarily, you must:

HMRC’s guidance confirms you must register before the start of the tax year, and that using the service means you generally won’t need to submit a P11D for payrolled items.

Why this decision matters more now

HMRC is moving towards more real-time reporting across the tax system, and benefits are part of that direction of travel.

From April 2027, the government plans that most benefits in kind and expenses will be reported through payroll (via FPS) rather than via year-end P11Ds, subject to the final rules and implementation.

In practice, that means many employers are choosing to start voluntary payrolling now, because it can be easier to embed the process gradually than to switch at the point it becomes the norm.

What “simpler” really means in day-to-day payroll

When employers ask which route is simpler, they usually mean one (or more) of the following:

Both routes can be “simple” — but the simplest option is the one that matches how you already operate.

If payroll is a friction point in your business, getting the basics running smoothly first (accurate processing, correct submissions, consistent timelines) makes everything else easier. That’s exactly where Payroll Services can take pressure off your team.

When payrolling benefits is usually the simpler option

1) Your benefits are regular and easy to value during the year

Payrolling works best when the figures are predictable and can be applied cleanly each pay period.

For example:

If you already keep tidy records (or want to), it’s far easier to payroll benefits when your day-to-day financial admin is under control. Strong Bookkeeping makes a noticeable difference because the data you need is easier to find, verify, and reconcile.

2) You want to reduce the “July scramble”

P11D season has a habit of creeping up. If your benefits data lives in inboxes, spreadsheets, and HR folders, the 6 July deadline can feel like a mad dash.

Payrolling spreads the work across the year. Instead of trying to gather 12 months of information after 5 April, you deal with it as you go.

3) You want fewer employee queries about tax codes

Under the P11D route, employees often see tax code changes later, because HMRC adjusts codes to collect tax due on last year’s benefits.

With payrolling, employees usually find it easier to understand because the tax is collected through their payslip during the year. That can reduce confusion and the “why has my take-home pay changed?” questions.

4) Your finance systems already support smoother workflows

If your payroll and finance processes are already joined up, payrolling is typically much less painful.

Where you’re using cloud software and want clean reporting, Xero Bookkeeping can help keep the numbers consistent across payroll, bookkeeping, and reporting — especially if you want fewer manual workarounds.

5) You want to get ahead of April 2027 changes

Even if you don’t have payroll benefits now, there’s a strong chance you’ll need to be comfortable with real-time benefit reporting by April 2027.

Voluntary payrolling can act as a controlled “practice run” before the wider reporting changes take effect.

When P11Ds are still the simpler option

1) Your benefits are irregular, complex, or only confirmed after the year ends

Some benefits are difficult to value accurately during the year, or the final figures only become clear after year end.

If the numbers are messy mid-year, forcing them through payroll can create more corrections than it solves. In those cases, P11Ds can be simpler because you calculate once, report once, and close it off.

2) Only a small number of people receive benefits

If just 1 or 2 employees (or only directors) receive a limited number of benefits, payrolling can feel like extra steps for not much gain.

A well-organised P11D process can be straightforward — particularly if your year-end reporting is already handled smoothly alongside Annual Statutory Accounts and other compliance tasks.

3) You provide benefits that aren’t straightforward under voluntary payrolling

Under the current voluntary system, some benefits are treated differently and may still require end-of-year reporting. HMRC’s preparations for April 2027 specifically flag loans and accommodation as areas with separate handling and exceptions.

In practical terms, many employers end up with a mixed approach (payrolling some benefits, and using P11Ds for others).

Don’t forget the employer cost: Class 1A National Insurance

A common misunderstanding is that payrolling benefits removes the employer’s National Insurance obligation on benefits. It doesn’t.

Even when you payroll benefits (collecting the employee’s tax through PAYE), employers still need to:

HMRC’s deadline for paying Class 1A NIC on work benefits is 22 July (or 19 July if paying by post).

And for the 2025/26 tax year (6 April 2025 to 5 April 2026), the Class 1A rate on expenses and benefits is 15%.

So, if you provide £10,000 of taxable benefits across your team in a tax year, the Class 1A NIC cost is typically £1,500 (15%) — and that’s separate from the employee tax side.

A practical comparison: what’s genuinely simpler?

If you want less year-end admin

Payrolling usually wins, because it reduces the need to compile, calculate, and submit individual P11Ds for payrolled benefits.

If you want fewer moving parts during the year

P11Ds can be simpler, because benefits stay out of payroll. You deal with them after the year ends, rather than maintaining benefit values month to month.

If you want fewer mistakes

This depends more on your systems than your reporting method.

Most errors happen because:

If you want fewer errors, it helps to treat payroll, bookkeeping, and reporting as one joined-up workflow. A lot of growing businesses choose an Outsourced Finance Department approach so payroll and reporting stay consistent and nobody is guessing what’s been provided.

The hybrid approach: payroll some benefits, use P11Ds for others

In reality, many employers land on a hybrid approach because it balances simplicity and practicality.

A common setup looks like this:

The key is clarity. If you use a hybrid approach, you need a clear internal process so the right items end up in the right place — and so your year-end submissions match what’s actually been provided.

If you’re already managing multiple year-end reporting obligations, it’s also worth keeping your wider compliance tidy — for example, ensuring your Company Tax Returns align with your records, and your VAT Return Services aren’t being rushed at the last minute.

Why employee expectations matter (and why it affects admin)

Benefits are a retention tool, but they can become an admin headache when employees don’t understand how they’re taxed.

HMRC’s published statistics show how widespread certain benefits are — for example, company car benefit was reported for 760,000 individuals in the 2022/23 tax year, with a total taxable value of £3.60 billion.

When benefits are common, questions are common — especially if take-home pay changes due to tax code adjustments. Payrolling can reduce those “surprise” adjustments, but only if the payroll values are accurate and applied consistently.

If you’re looking for smaller, controlled perks (particularly for directors), you may also want to understand the rules around low-value benefits and what can be treated as tax-free in the right circumstances. The Navigating Notional Benefits guide is a useful starting point.

A simple decision checklist you can use today

Payrolling benefits is often simpler if:

P11Ds are often simpler if:

If you’re stuck between the two, a short review of your benefits list and payroll process usually makes the answer obvious — especially once you identify which benefits are predictable monthly figures and which ones are “year-end only” by nature.

FAQs

Do you still need to submit P11Ds if you have payroll benefits?

If you payroll specific benefits using HMRC’s service, you generally do not need to submit P11Ds for those payrolled benefits.

However, if you provide benefits that you’re not paying (or that require separate end-of-year handling), you may still need P11Ds for those items.

When do you need to register for payroll benefits?

You must register with HMRC before the start of the tax year for the benefits you want to pay.

What are the key P11D deadlines?

HMRC sets the main deadlines after the end of the tax year as:

Do you still pay Class 1A NIC if you have payroll benefits?

Yes. Payrolling affects how employee tax is collected, but employers still need to report and pay Class 1A NIC on most taxable benefits.

What is the Class 1A National Insurance rate for benefits?

For the 2025/26 tax year, the Class 1A rate on expenses and benefits is 15%.

Is payrolling benefits becoming compulsory?

HMRC’s published guidance sets out plans for most benefits in kind and expenses to be reported through payroll from April 2027.

Next steps: make the choice that reduces friction in your business

The “simpler” option is the one that reduces friction in your real workflow — not the one that sounds best in theory.

If your benefits are predictable and your payroll process is steady, payrolling can take a lot of pressure off year end and reduce employee confusion. If your benefits are irregular or complex, P11Ds can still be the cleanest option — as long as you keep your records in order throughout the year.

If you want help deciding which route fits your business (and setting it up properly so it stays compliant), speak to our team. You can reach us via Contact Us and we’ll help you put a clear, simple process in place.