Payrolling most benefits in kind (PBiKs) will be mandatory from April 2026, with company cars among the most challenging benefits for employers to administer.
Though some employers already process company car benefits through payroll voluntarily, most currently don’t because of the complexity. Instead, company cars are included on the Form P11D submitted to HMRC and provided to the employee at the end of each tax year. But that will no longer be possible from April 2026, when company vehicles and most other benefits in kind must be processed through payroll.
Even if you already voluntarily payroll company car benefits, you will still need to change your processes from April 2026 to pay Class 1A NIC through payroll, instead of once a year (when you file Form P11D(b)).
Map your route to success
Transitioning company cars to the payroll requires careful and extensive planning and stakeholder co-ordination – which needs to begin now.
You’ll need to implement suitable controls, and make sure the required data is flowing into your payroll system and Full Payment Submission (FPS) in real time. Some of the data sources will be internal (such as HR); others external (e.g. your fleet provider).
To get started, consider going through these four fundamental steps:
- Find where you are on the map – Look at how you currently process your company car benefits and work out what must be done to comply with PBiKs ahead of April 2026. This means identifying and reaching out to the stakeholders: your finance, HR and payroll teams, your external payroll provider (if you use one), and your fleet provider (more on which below). Begin those discussions as soon as possible;
- Engage your fleet provider – They are particularly important to your PBiKs preparations. It’s essential that you know which employees they’ve delivered vehicles to, and collected them from, and when. Establishing that real-time data feed into your payroll system will be crucial;
- Prepare your systems - Assess what’s needed to get your HR and payroll systems ready for PBiKs. You’ll need to set up new pay elements in your payroll system to process company cars and make the associated tax calculations. That will mean working closely with your payroll provider if you have one. It's important to recognise that not all payroll systems allow you to report more than one vehicle per employee. Make sure yours (or your provider’s) supports this if required; and
- Plan your employee communication strategy - The change to how you process company cars should be part of your wider PBiKs communications strategy and plan.
Know the Highway Code
Processing company car benefits through the payroll will be challenging for several reasons:
- Calculating the benefit in kind value – and the income tax due – is complicated. It depends on multiple factors, including the vehicle’s list price, fuel type, emissions level and battery range (for electric vehicles), the employee’s tax bracket, and more. Some employers offer cars under optional remuneration arrangements (e.g. salary sacrifice or car/cash alternatives) which adds complexity to the PBiK calculation;
- Employers with large fleets will need to deal with multiple vehicle changes each year – for example, employees returning an old car or taking delivery of a new one, which affects the benefit in kind that must be processed through payroll. Additionally, some employees could have more than one company car. Payroll needs to capture these changes and ensure that any new benefit value is processed, for each eligible worker, from the moment a new car is delivered, or a vehicle change takes place (e.g. a new start or promoted employee receiving a car for the first time or a leaver returning their company vehicle);
- Staff on periods of long-term leave (e.g. maternity, paternity, adoption, sick or unpaid leave) might retain their company car whilst on reduced pay – and the tax due on a company car can be high. This heightens the risk of the 50 percent regulatory limit applying - deductions cannot exceed more than half of an employee’s income. Missing these details could lead to your workers paying too much or too little tax – leaving them out of pocket, or with an unexpected tax bill. Either way, that will hit their cashflow, possibly causing financial stress and employee relations issues.
For the employer there’s also a significant compliance risk, as anything missing from your payroll won’t be on your FPS to HMRC and could mean a compliance failure resulting in penalties.
How KPMG can help
Please contact Caroline Laffey, Jim Findlay, Natalie Shingler, or your usual KPMG in the UK contact if you’d like to discuss how we can support your transition to mandatory ‘PBiKing’ of benefits in kind and ongoing compliance. You can also join our Payrolling Benefits in Kind Community to network with your peers and KPMG specialists.
For further information please contact: