Payrolling benefits in kind should make life simpler. Tax gets collected through payroll every month, so nobody gets a nasty tax code surprise a year later.
But payroll can only report what it knows, and for some benefits, you won’t know the real cost until well after 5 April.
HMRC has a fix for that. Early guidance talked about a separate “month 13” submission, and that idea has now gone. Instead, you’ll revise your final FPS of the year once the true figures land.
Why you might need to estimate
Most payrolled benefits are easy to value up front. A company car or a gym membership usually comes with a known annual cost, so you spread it evenly across the year.
The awkward ones are benefits where the final bill turns up after the tax year ends:
- third-party supplier invoices that arrive weeks or months after 5 April
- usage-based costs, like some fuel arrangements, that only settle at the year-end reconciliation
- reward or benefit schemes still being finalised with an outside provider
Rather than hold up payroll, HMRC lets you payroll a reasonable estimate and correct it later. Keep a note of how you reached each figure, because HMRC expects a sensible method behind it.
How the correction works
If the real figure arrives before the tax year ends, fix it in-year. Spread the difference over the pay periods you’ve got left, and HMRC collects the shortfall through the employee’s remaining pay.
If it arrives after the year ends, it’s an end-of-year correction. HMRC treats any update made after 19 April as one.
- Work out the true value. Once you have the actual costs, calculate what the benefit’s annual taxable value should have been.
- Find the difference. Compare it with what you payrolled. It can go either way, leaving too much or too little Income Tax and Class 1A National Insurance (the employer’s NIC on benefits).
- Revise your final FPS. Update the last Full Payment Submission of that tax year with the corrected figures. You don’t need to give HMRC a reason. There’s no carry-forward option, so each year’s estimates get fixed in that year’s final FPS.
- Reissue P60s if you need to. If the people affected already have their P60s, give them a revised P60 (or an alternative) showing the new figures.
- Leave the employee’s tax to HMRC. Extra Income Tax doesn’t come out of their pay. HMRC picks it up through their year-end reconciliation, either a P800, a Simple Assessment or their Self Assessment return.
- Pay any extra Class 1A NIC. HMRC adds it to your PAYE bill, and it’s due by 22 July (or 19 July if you pay by post).
If you have overestimated a benefit, the same routes work in reverse. The employee’s tax position is corrected through the same reconciliation, and your Class 1A figure comes down too.
The dates to know
HMRC hasn’t confirmed the deadline for revising your final FPS yet, but expects it to fall before 19 July. Plan for that.
| What | When |
| In-year corrections | Any FPS before the tax year ends |
| Updates treated as end-of-year corrections | After 19 April |
| Revised final FPS | To be confirmed, expected before 19 July |
| Extra Class 1A NIC paid | 22 July (19 July by post) |
Source: HMRC interim guidance on corrections and adjustments
Why this gets bigger from April 2027
Right now, payrolling benefits is voluntary, so estimates have mostly been a headache for employers who opted in. Mandatory payrolling changes that, in two phases:
- From 6 April 2027: company cars, car fuel, vans, van fuel and employer-provided medical benefits
- From 6 April 2028: most remaining benefits
Employment-related loans and living accommodation stay outside the mandatory rules for now. You can still choose to payroll them, but you’ll need to register with HMRC by 5 April 2027 to do it for 2027/28.
More employers payrolling more benefits means a lot more estimates, especially where supplier invoices don’t line up with the tax year. Correcting them will soon be a standard part of every payroll year end.
What to do now
- Log every estimate. Note which benefits were estimated, how you got the figure and why.
- Chase final costs early. Push suppliers for final invoices as soon as 5 April passes. 19 July comes round faster than you’d think.
- Build the correction into your year-end plan. Get it done before P60s go out where you can, so you’re not reissuing them.
- Give affected employees a heads-up. A P800 or tax code change out of the blue causes worry. A short explanation saves a pile of queries.
- Warn finance about Class 1A. A batch of underestimates can leave a lumpy bill due by 22 July.
- Keep the paper trail. Record the original estimate, the final value, why they differ and when you reported the change.
HMRC designed payrolling with estimates in mind. The part that catches people out is the clean-up afterwards.
At Ascend, our payroll pros are already building mandatory payrolling into our clients’ year-end plans, estimates and corrections included. If you’d like your benefits handled by people who stay ahead of every change, talk to our team.
