How to Payroll Benefits in Kind from April 2027: Calculation Steps and Class 1A Rounding Rules
From 6 April 2027, employers must payroll certain benefits in kind (BiKs) and report the associated Income Tax and Class 1A National Insurance contributions in real time through the Full Payment Submission (FPS). Phase 1 covers company cars, car fuel, vans, van fuel and employer-provided medical benefits. Any other BiKs that an employer chooses to payroll voluntarily will also attract real-time Class 1A from the same date.
The process begins by establishing the annual cash equivalent (or a reasonable estimate) and dividing it by the number of pay periods remaining in the tax year. For a monthly-paid employee with private medical insurance costing £1,560 a year, this produces a taxable benefit of £130 per month. That amount is added to the employee’s taxable pay for Income Tax purposes only; it does not form part of gross pay for Class 1 NICs or pension calculations. The employer then calculates Income Tax on the combined figure using the employee’s tax code and the standard tax tables. In this example, a basic-rate taxpayer pays £26 of tax each month on the benefit. The £130 benefit value is reported on the FPS, and the tax is deducted through PAYE in the normal way.
Class 1A NICs are calculated separately on the same payrolled benefit values, currently at 15%. Where an employee has more than one BiK, the taxable amounts must be aggregated first. The Class 1A percentage is applied to the total, and a single rounding step is performed on the resulting figure. Separate rounding of each benefit before addition is not allowed. Rounding follows the long-standing Class 1 NIC rules in the National Insurance Manual (NIM11002): amounts are rounded to the nearest penny, and any figure below £0.005 is disregarded. Where the third decimal place is exactly 5, the amount is rounded down.
A weekly-paid employee with a company-car benefit of £250.00 and medical cover of £38.71 has a combined value of £288.71. Fifteen per cent of this is £43.3065, which rounds up to £43.31 because the third decimal place is 6. A monthly example of £380.00 car plus £59.63 medical totals £439.63; 15% produces £65.9445, which rounds down to £65.94 because the third decimal place is 4.
The rounded Class 1A liability for the pay period is reported on the FPS in data item 350 (“Total real-time Class 1A NICs due in Pay Period – payrolled benefits in kind”). The cumulative year-to-date figure is reported in data item 351 (“Total real-time Class 1A NICs amount YTD – payrolled benefits in kind”). These two fields replace the previous year-end Class 1A reporting for payrolled benefits and allow HMRC to collect the liability in real time alongside other PAYE and NIC payments.
If the cost of a benefit changes during the year, the outstanding amount is recalculated and spread over the remaining pay periods. Where the final value is only known after the last FPS has been submitted, the employer can amend the final submission or correct the position at year-end. Any underpaid Income Tax is normally recovered from the employee through a P800 or Self Assessment; additional Class 1A is collected from the employer, generally by 22 July of the following year without late-payment penalties if paid on time.
Software must therefore aggregate benefits correctly, apply the single statutory rounding step (including the “round half down” convention), and accurately populate data items 350 and 351. Getting these mechanics right from the first pay run of 2027/28 will keep both tax and NIC reporting compliant and avoid cumulative discrepancies.