Introduction to this document

Payrolling benefits in kind letter to employee

HMRC usually collects tax on benefits by adjusting an employees code number so that extra tax is collected, through the PAYE system, each time they are paid salary. Payrolling achieves the same result but without intervention by HMRC.

More accurate

Payrolling involves you adding a notional amount to your employee’s taxable pay each time you pay them. Because you determine the taxable amount based on up-to-date information about the benefits you provide your employees, payrolling is a more accurate way to collect tax on them.


Fred drives a company car. Under the P11D system, at the end of the tax year his employer works out the taxable benefit of it as £3,600, enters this on a Form P11D and submits it to HMRC. Using payrolling the employer would instead work out the taxable benefit before they pay Fred and add a twelfth of it, i.e. £300, to his taxable salary each month.

Registration and notification letter

If you want to use payrolling you must register with HMRC before the start of the tax year at: You must also tell your employees. You can do this using our Payrolling Benefits in Kind Letter.