Car and fuel benefit in payroll

Car and fuel benefit overview

You can reach all of the car options in your payroll software by selecting Company > Configure Company Car Details. This will open the Company Cars screen.

Legislation introduced in the 2016/2017 tax year allowed employers to account for the tax on benefits in kind (BiKs) they provide to employees via PAYE instead of sending a P11D after the end of the tax year.

The value of the benefit is added to the employee’s taxable pay for each pay period and reported via FPS. You can payroll all BIKS apart from:

  • Employer provided living accommodation.

  • Interest free and low interest (beneficial) loans.

You must still report these excluded BIKS on a P11D, even if you are pay-rolling other BIKs for the same employee(s).

This means you can also choose to payroll company car BiKs instead of submitting the P46 (Car) form. The benefits are calculated in the same way as previously, but the cash equivalent is divided into an equal amount for each pay period, with any residual amount going through the final pay period for the year.

In your payroll software, you are able to add cars, allocate them to employees, calculate the cash equivalents of the car and fuel benefit for the year, and process a prorated amount through payroll.

To use the new car benefit fields, the company must be registered with HMRC to payroll benefits. You can do this using your HMRC online account.

There are three stages to managing company cars in the payroll software:

  1. Adding the cars.

  2. Allocating the cars to employees and calculating the cash equivalents.

  3. Processing the car benefit through payroll and reporting to HMRC via FPS.

In this section: