What’s covered in this guide?
What are benefits in kind?
Benefits in kind are extras an employer provides that aren’t paid as wages, like private medical insurance. When you payroll a benefit, its value is added to the employee’s taxable pay, so they pay Income Tax on it through PAYE. As the employer, you pay Class 1A National Insurance on it.
Benefits don’t increase the employee’s take-home pay. They’re only there so the right tax is collected.
📝 Note: To take money off an employee’s pay, for example salary sacrifice, use a deduction instead. See Deduction Types (UK).
Create a benefit template
A benefit template sets up a benefit once, so you can assign it to any employee.
Go to Payroll > Settings > Benefit Templates.
Click New Template.
Enter:
Name: for example, “Private Medical Insurance”.
Benefit Type:
Private medical insurance: taxable medical or dental insurance or treatment paid for by the employer.
Other Class 1A items: any other taxable benefit that doesn’t fit a specific category, for example non-exempt meals or clothing, subscriptions, long-service awards, or holidays paid for by the employer.
Frequency:
Annual: a benefit provided over the year. Its value is split across each pay period.
One-off: a benefit provided once, on a set date.
Annual Value (or Value for one-off): the default amount. You can change it for individual employees.
Click Create.
When you choose a benefit type, examples and a link to HMRC’s guidance appear on screen to help you pick the right one. The form also shows the Tax Treatment: the employee pays Income Tax through PAYE, and you pay Class 1A NIC.
📝 Important to note: Once a template has been assigned to employees, you can’t change its benefit type or frequency, and you can’t delete it. If you change the value of an annual template, tick Apply new value to all active assignments to update employees who already have it.
Assign a benefit to an employee
Open the employee’s profile and go to Payroll > Payroll Details.
Scroll to Benefit Assignments and click + Add.
Choose the Benefit Template.
Check the amount. It defaults to the template’s value.
For an annual benefit, enter the Effective from date, and optionally an end date. For a one-off benefit, enter the Date provided.
Save.
Good to know:
An employee can’t have the same annual benefit twice for overlapping dates.
Dates can’t be set before the last posted pay run.
To stop an annual benefit, click Deactivate. It stops applying from today. This can’t be undone.
You can’t remove a benefit that’s already in a posted pay run.
To add benefits for lots of employees at once, use Benefit Assignments in Payroll > Settings > Import / Export. Create your benefit templates first. See Import/Export Data (UK Payroll).
How benefits appear on pay runs and payslips
Pay run: each employee’s payslip in the pay run shows a Payroll Benefits section, with the benefit, its Benefit Value for the period and the Class 1A NIC.
Payslip: benefits appear under Payrolled Benefits, with the value and year-to-date total. Employees don’t receive this amount as money. See Payslips – Preview and Send Payslips.
Annual benefits are split evenly across the pay periods in the year. For example, a £1,200 annual benefit on a monthly payroll adds £100 to each payslip.
Opening balances
If you’re moving to Workforce Payroll partway through the tax year, add the value of each benefit your previous provider has already payrolled this tax year.
Open the employee’s profile and go to Payroll > Opening Balances.
In Benefit Balance, click + Add.
Choose the Benefit Type, enter the Amount payrolled so far this tax year, and choose the Financial Year.
Click Create.
Reports
The Benefits Summary report shows each employee’s benefits, their total value and the Class 1A NIC.
FAQs
Does a benefit increase the employee’s pay?
Does a benefit increase the employee’s pay?
No. It’s added to their taxable pay so the right Income Tax is collected, but they don’t receive it as money.
Who pays the National Insurance?
Who pays the National Insurance?
As the employer, you pay Class 1A NIC on the benefit’s value. The employee pays Income Tax on it through PAYE.
Is this the same as salary sacrifice?
Is this the same as salary sacrifice?
No. Salary sacrifice is a deduction. See Deduction Types (UK).
Which benefit type should I choose?
Which benefit type should I choose?
Choose Private medical insurance for medical or dental cover and treatment. For anything else that’s taxable, use Other Class 1A items. If you’re not sure, check HMRC’s A to Z of expenses and benefits.
Why can’t I delete a benefit template?
Why can’t I delete a benefit template?
A template can’t be deleted once it’s been assigned to an employee.