In all the mandated examples, the Class 1A National Insurance contributions liability is assessed on the taxable value to payroll per pay period and reported through real time information (RTI). Employers should complete both:

• Data item 350 — Class 1A NICs PBiKs in Pay Period
• Data item 351 — Class 1A NICs PBiKs YTD

Where an employee receives more than one benefit in kind that is subject to Class 1A National Insurance contributions, the employer or payroll software can:

• add together the taxable values for those benefits for that employee for the pay period
• calculate the Class 1A National Insurance contributions liability on the total amount

The total Class 1A National Insurance contributions due for payrolled benefits in kind should then be reported through RTI.

In April 2027 an employer provided medical benefit to an employee as a benefit in kind. The employee is a basic rate taxpayer, which means they pay Income Tax at a rate of 20%. 

The annual cost to the employer of providing this benefit is £600. In order to calculate the value to be payrolled, the employer will divide the cost of the benefit over the remaining pay periods in the tax year. 

Step-by-step breakdown of calculation

1. Annual taxable benefit — cost of the medical benefit is £600 per year.
2. Monthly payrolling — the monthly taxable amount is £600 ÷ 12 = £50 per month. This £50 is added to the employee’s taxable pay each month (not their gross pay for National Insurance contributions or pension).
3. Monthly tax deduction — the employer or payroll software calculates the Income Tax due through PAYE using the employee’s tax code. In this example, the employee pays tax on the benefit at 20% (£50 × 20% = £10 per month). The actual amount of tax deducted may depend on the employee’s wider pay and tax position.
4. Payroll reporting — the employer includes the £50 in the employee’s taxable pay through RTI in the Full Payment Submission (FPS). The Income Tax is deducted through PAYE and reported alongside any tax due on the employee’s earnings. If the cost of the medical benefit changes, the employer should adjust the value in-year for the remaining pay periods where the change is known.
5. Monthly Class 1A National Insurance contributions calculation — the employer or payroll software calculates the Class 1A National Insurance contributions due on the monthly taxable amount of £50. In this example the employer pays Class 1A National Insurance contributions on the benefit at 15% (£50 × 15% = £7.50 per month). This is paid by the employer and is not deducted from the employee’s pay.
6. Different pay frequencies — payroll software should calculate the amount due according to the employee’s pay frequency. For example weekly, fortnightly, four-weekly or monthly payrolls. Where a manual calculation is needed, the employer should apportion the annual value across the relevant number of pay periods. For example, if the employee is paid weekly the amount of Class 1A National Insurance contributions is £600 ÷ 52 (£11.54) × 15% = £1.73 per week.
7. End-of-year process — in some cases, there may be a change to the cost of the medical benefit that was not reasonably known during the tax year. The employer will have the opportunity to correct this at the end of the year. For instance, if it is not known in April what the cost of the medical benefit is, the previous year’s cost could be used. Once the actual cost is known, the cash equivalent can be updated in subsequent pay periods. If the actual cost is not known until after the final FPS, the employer must correct this by amending the final FPS.

An employer provides an employee with private medical insurance in the 2027 to 2028 tax year. The employee is paid monthly. The annual cost to the employer for the insurance from January 2027 to December 2027 is £500. From January 2028, the annual cost increases to £600.  

From April 2027 to December 2027, the amount to be reported through payroll in each month is calculated as follows: 

£500 ÷ 12 = £41.66 

From January 2028, the amount to be reported through payroll in each month is calculated as follows: 

An employer provides an employee with medical benefit under a salary sacrifice agreement. The taxable value is £500 for the tax year. The employee is paid monthly. The amount to be payrolled in respect of the benefit in each month is therefore £41.66 (£500 ÷ 12). 

The provision of the benefit through a salary sacrifice arrangement does not affect how the taxable value is reported via payroll.

Replacing a company car during the year 

An employee is paid monthly. On 6 April 2027 the employee is provided with Car A, which has an annual cash equivalent of £6,000. 

The employer payrolls £500 (£6,000 ÷ 12) each month for April, May and June. 

On 1 July 2027 Car A is replaced by Car B, which has an annual cash equivalent of £12,000. The employer is notified before the July payroll is run. 

Taking account of the number of days each car was available to the employee during the tax year, the employee’s expected cash equivalent of the car benefit for 2027 to 2028 is calculated as: 

• Car A: £6,000 × 86/366 = £1,410 
• Car B: £12,000 × 280/366 = £9,180

2027 to 2028 is a leap year tax year, so 366 days are used in the calculation.

Total expected cash equivalent = £10,590. 

By the end of June, £1,500 has already been reported through payroll. The remaining expected cash equivalent (£9,090) is spread evenly across the remaining pay periods in the tax year.  The employer therefore reports £1,010 per month from July to March so that the total amount reported through payroll for the year equals the expected cash equivalent of both cars. 

An employee is paid monthly. On 6 April 2027 the employee is provided with Car A, which has an annual cash equivalent of £6,000. 

The employee and employer agree that the employee will make private use payments of £1,000 in respect of Car A. The payments can be made at any time before 6 July 2028. 

The employer therefore expects the cash equivalent to be reported through payroll for the year to be £5,000 (£6,000 − £1,000) and payrolls £416.67 per month (£5,000 ÷ 12) for April, May and June. 

On 1 July 2027 Car A is replaced by Car B, which has an annual cash equivalent of £12,000. The employee and employer agree that private use payments in respect of Car B will be £2,000 for a full tax year.  

Taking account of the number of days each car was available during the tax year, the employee’s expected cash equivalent for 2027 to 2028 is calculated as: 

• Car A: £6,000 × 86/366 = £1,410 
• Car B: £12,000 × 280/366 = £9,180

2027 to 2028 is a leap year tax year, so 366 days are used in the calculation. 

Total expected cash equivalent = £10,590 

The employer also recalculates the employee’s expected private use payments for the tax year: 

• Car A: £1,000 × 86/366 = £235 
• Car B: £2,000 × 280/366 = £1,530 

Total expected employee contributions = £1,765 

Expected cash equivalent to be reported through payroll: 

By the end of June, £1,250.01 has already been reported through payroll (£416.67 × 3). The remaining expected cash equivalent (£7,574.99) is spread evenly across the remaining 9 monthly pay periods in the tax year. 

The employer therefore reports £841.67 per month from July to March, so that the total amount reported through payroll for the year equals the expected cash equivalent of £8,825. 

For more detailed guidance on calculating the taxable value of company car and fuel benefits, including capital contributions and making good of fuel, see HMRC’s Employment Income Manual from EIM23000 onwards.

An employee is paid monthly. On 6 April 2027 the employee is provided with a company car and free fuel for private use. The employee’s expected cash equivalent of the fuel benefit for 2027 to 2028 is £8,000. 

The expected cash equivalent is spread evenly across the 12 monthly pay periods. The employer therefore reports £666.67 (£8,000 ÷ 12) each month from April 2027 to March 2028. 

The total amount reported through payroll for the tax year is £8,000, which equals the employee’s expected cash equivalent of the fuel benefit for the year.

An employee is paid monthly. On 6 April 2027 the employee is provided with a company van that is available for private use throughout the tax year. The employee’s expected cash equivalent of the van benefit for 2027 to 2028 is £4,200. 

The employer payrolls the van benefit for the 2027 to 2028 tax year. 

The expected cash equivalent is spread evenly across the 12 monthly pay periods: 

The employer therefore reports £350 per month through payroll from April 2027 to March 2028. 

The total amount reported through payroll for the tax year is £4,200, which equals the employee’s expected cash equivalent of the van benefit for the year. 

An employee is paid monthly. On 6 April 2027 the employee is provided with a company van and free fuel for private use throughout the tax year. The employee’s expected cash equivalent of the van fuel benefit for 2027 to 2028 is £800. 

The employer payrolls the van fuel benefit for the 2027 to 2028 tax year. 

The expected cash equivalent is spread evenly across the 12 monthly pay periods: 

£800 ÷ 12 = £66.67 

The employer therefore reports £66.67 per month through payroll from April 2027 to March 2028. 

The total amount reported through payroll for the tax year is £800, which equals the employee’s expected cash equivalent of the van fuel benefit for the year.

Currently the value of a classic car is worked out at the end of the year when reporting a classic car benefit in kind using a P11D. From April 2027, in order to simplify the calculation and reporting for payrolling, the market value of a classic car will need to be determined at the beginning of the year.

Example — current s.147 classic car rules, MV determined at year end

On 1 May 2027 a company buys a car for £15,000 and provides it for private use to the director. It was first registered in 1981 and had a list price then of £2,800 (assume this can be established with reasonable certainty). At year end on 5 April 2028, it has a market value of £17,500.

In this example, the market value of £17,500 determined on 5 April 2028 is to be used at step 3 of s.121(1) ITEPA.

Normal calculation: steps 1 to 4 for 2027 to 2028

Step	Method	Amount	Running total
Step 1	List price in 1981	£2,800	£2,800
Step 2	Accessories — assume that renovations simply involve provision of replacement accessories (read the Employment Income Manual (EIM24255)) and that no additions are necessary at step 2	£0	£2,800
Step 3	Less capital contributions from the director	Not applicable	£2,800
Step 4	Interim sum (figure at step 4 without the classic car rules, and amount carried forward from step 3 from 2011 to 2012)	Not applicable	£2,800

Consideration of classic car rules

You also need to consider classic car rules for this calculation. The conditions in section 147(2) are fulfilled: 

• the age of the car at 5 April 2028 is at least 15 years 
• its market value on this date is assessed as £17,500, which is more than £15,000 
• that market value exceeds the amount carried forward from step 3 of section 121(1) (£2,800)

The car is therefore a classic car within section 147 (read the Employment Income Manual (EIM24400) onwards). Section 147(2) therefore specifies the action for the amount carried forward from step 3 of the normal calculation. Substitute the market value of the car for the year less any deductions under subsection (6), capital contributions to classic cars.

Calculation using classic car rules: steps 1 to 4 for 2027 to 2028

Section 121, step 3 — substitute the amount carried forward from step 3 under section 121(1) with the market value of the car less any capital contributions (£17,500). This figure is the interim sum (final figure at step 4).

Example — New s.147 classic car rules, MV determined at beginning of year

On 1 May 2027 a company buys a car for £15,000 and provides it for private use to the director. It was first registered in 1981 and had a list price then of £2,800 (assume this can be established with reasonable certainty). The employer plans to renovate the car during the year and it is estimated that come 5 April 2028 the car will then have a market value of £25,000. 

In this example, the employer purchased the vehicle at its market value price. Therefore, the market value determined on 1 May 2027 of £15,000 is to be used at step 3 of s.121(1) ITEPA.

No changes are required to the calculation as the market value is now determined on the first day of the year or the first day it is made available to the employee (whichever is later).

Normal calculation: steps 1 to 4 for 2027 to 2028

Step	Method	Amount	Running total
Step 1	List price in 1981	£2,800	£2,800
Step 2	Accessories — assume that renovations simply involve provision of replacement accessories (read the Employment Income Manual (EIM24255)) and that no additions are necessary at step 2	£0	£2,800
Step 3	Less capital contributions from the director	Not applicable	£2,800
Step 4	Interim sum (figure at step 4 without the classic car rules; amount carried forward from step 3 from 2011 to 2012)	Not applicable	£2,800

Consideration of classic car rules

You also need to consider classic car rules for this calculation. The conditions in section 147(2) are fulfilled: 

• the age of the car at 1 May 2027 is at least 15 years 
• its market value on this date is assessed as £15,000, which meets the £15,000 or more test 
• that market value exceeds the amount carried forward from step 3 of section 121(1) (£2,800)

The car is therefore a classic car within section 147 (read EIM24400 onwards). Section 147(2) therefore specifies the following action for the amount carried forward from step 3 of the normal calculation. Substitute the market value of the car for the year less any deductions under subsection (6), capital contributions to classic cars.

Calculation using classic car rules: steps 1 to 4 for 2027 to 2028

Section 121, step 3 — substitute the amount carried forward from step 3 under section 121(1) with the market value of the car less any capital contributions (£15,000). This figure is the interim sum (final figure at step 4).

Example — new s.147 classic car rules, MV determined at beginning of year or first made available to employee

On 1 May 2027 a company buys a car for £15,000 and immediately starts renovations. The car is not provided to any employee for private use until 1 December 2027. On the 1 December 2027 its market value is now £25,000 due to renovations which have increased its value. It was first registered in 1981 and had a list price then of £2,800 (assume this can be established with reasonable certainty).

In this example, the market value of £25,000 determined on 1 December 2027 is to be used at step 3 of s.121(1) ITEPA.

This is because the market value is determined at the start of the year or when first made available to the employee (whichever is later).

Normal calculation: steps 1 to 4 for 2027 to 2028

Step	Method	Amount	Running total
Step 1	List price in 1981	£2,800	£2,800
Step 2	Accessories — assume that renovations simply involve provision of replacement accessories (read the Employment Income Manual (EIM24255)) and that no additions are necessary at step 2	£0	£2,800
Step 3	Less capital contributions from the director	Not applicable	£2,800
Step 4	Interim sum (figure at step 4 without the classic car rules; amount carried forward from step 3 from 2011 to 2012)	Not applicable	£2,800

Consideration of classic car rules

You also need to consider classic car rules for this calculation. The conditions in section 147(2) are fulfilled: 

• the age of the car at 1 December 2027 is at least 15 years 
• its market value on this date is assessed as £25,000, which is more than £15,000 
• that market value exceeds the amount carried forward from step 3 of section 121(1) (£2,800) 

The car is therefore a classic car within section 147 (read the Employment Income Manual (EIM24400) onwards). Section 147(2) therefore specifies the following action for the amount carried forward from step 3 of the normal calculation. Substitute the market value of the car for the year less any deductions under subsection (6), capital contributions to classic cars.

Calculation using classic car rules: steps 1 to 4 for 2027 to 2028

Section 121, step 3 — substitute the amount carried forward from step 3 under section 121(1) with the market value of the car less any capital contributions (£25,000). This figure is the interim sum (final figure at step 4).

The general rule is that employers will need to divide the cash equivalent of the benefits in kind and expenses they will be providing across the number of relevant pay periods for each employee. In some tax years, employees may have additional pay periods so the calculation must take into account that this will be the case (for example, where there are 53 pay periods in a tax year divide the cash equivalent by 53). The number of pay periods in a tax year will need to be calculated for quarterly, weekly, fortnightly and 4-weekly payrolls.

For annual payrolls, the full cash equivalent can be payrolled without dividing it down.

When payrolling benefits in kind for specific payroll intervals, follow the guidance for irregular pay periods.

To work out the taxable amount of the benefit that you payroll each payday, you need to know the number of times you will pay your employees during the tax year. The number of paydays is determined by the interval between each payday (the pay period).

If accounting for taxable amounts after the end of the tax year, a Full Payment Submission must be sent to HMRC showing the correct year-to-date amounts. Any additional Income Tax must be paid by 19 April (or 22 April if paying electronically), and any additional Class 1A National Insurance contributions must be paid by 19 July (or 22 July if paying electronically).

Jonathan is provided with medical benefit where the cash equivalent for the year is £1,248.

There are 52 weeks in the tax year and so there are 52 pay days. The cash equivalent of the medical benefit in kind is divided by 52 and the value added to Jonathan’s taxable pay at each pay day.

Jonathan is paid weekly and there are 52 pay days in the tax year. The medical benefit cash equivalent is £1,248. The taxable amount of the benefit is £1,248 ÷ 52 = £24.

Add £24 to Jonathan’s taxable pay at each pay day.

Cathleen is provided with a company car where the cash equivalent for the year is £5,200.

There are 12 months in the tax year and therefore 12 pay days. The cash equivalent of the company car is divided by 12 and the value added to Cathleen’s taxable pay at each pay day.

Cathleen is paid monthly and there are 12 pay days. The company car cash equivalent is £5,200. The taxable value of the company car benefit is £5,200 ÷12 = £433.

Where an employee receives more than one benefit in kind, calculate the taxable value of each benefit separately. Divide each value across the relevant pay periods and add the amounts to payroll. The process does not change because the employee receives multiple benefits. 

For example, an employee receives a company car for the full tax year with an annual taxable value of £9,000. They also receive a medical benefit valued at £200 from April to December, increasing to £250 from January to March. 

The employer should calculate and payroll each benefit separately:

• company car — £9,000 divided across the employee’s pay periods for the full tax year
• medical benefit — calculate the value for April to December (£150) and the revised value for January to March (£62.50), then payroll the appropriate amount for each period. 

The employer should then add the amounts for both benefits to payroll. They should not combine the annual values before calculating each benefit.

Irregular pay periods are payments of employment income which have no set pattern. To work out the taxable amount of the benefit, you should:

• divide the cash equivalent by the number of days in the tax year
• multiply that by the number of days to the pay period date from the start of the tax year
• multiply by the number of days between subsequent pay days

Imran is paid on 31 May, which is 56 days into the tax year and is provided with gym membership with a cash equivalent of £2,000.

£2,000 ÷ 365 × 56 days = £306.84 which will be added to his taxable pay in that period.

The next time his employer pays him, they will need to work out the period the benefit was provided from their last payday, rather than from the start of the tax year.

The 50% rule protects employees from hardship if they have a large amount of extra tax to pay as a result of receiving benefits in kind from the employer. Up to 50% of their pay can be deducted during any pay period, with any remaining amounts owed carried forward to the next pay period.

Therefore, not all Income Tax will be able to be collected in real time from employees who are impacted.  Any tax that cannot be deducted may be carried forward to a later pay period, if the code in operation is cumulative or collected after the end of the tax year through usual HMRC processes.  

For example, an employee is paid monthly and has a company car throughout the tax year. The taxable value of the benefit is reported through payroll each month.  

The employee then goes on unpaid leave and receives no pay in June and July. The employer must continue to report the taxable value of the company car for both months, but no Income Tax can be deducted because the employee has no pay. The 50% overriding limit means that the employer cannot deduct tax where there is no pay from which to make the deduction. 

When the employee returns to work, the employer must operate the tax code issued by HMRC. Depending on the tax code in use, some or all of the tax that could not be deducted in June and July may be collected from future payments. The 50% overriding limit will continue to apply. 

The employer must continue to report the full benefit values and the correct year-to-date figures. HMRC will use this information to calculate any tax still due through the end-of-year reconciliation process. The employee’s tax code may also need to be reviewed when they return to work, particularly if the period of unpaid leave has resulted in unused allowances.