Payrolling benefits in kind - mandatory from April 2027

The government has for some time sought to simplify the taxation and reporting procedure of all taxes. It previously announced plans to make the payrolling of benefits in kind (BIKs) mandatory from April 2026, and this has been extended to April 2027 to ensure employers have more time to prepare.

With this deadline fast approaching, we look at the current position and how employers can prepare for the changes.

What is the current position on benefits in kind?

The current method of reporting BIKs is via an online P11D form, which is completed by the employer for each individual employee that’s received taxable expenses or benefits that were not payrolled. This form must be submitted to HMRC each tax year.

An online P11D(b) form must also be submitted to HMRC each tax year for any Class 1A National Insurance owed.

Since the data is based on historical information, there is a delay in the benefit being provided and the tax being paid. Additionally, any changes to the value of benefits are not recorded and taxed until the following form is submitted.

What’s changing?

From 6 April 2027, all employers will need to report specified BIKs through payroll software, calculate income tax and Class 1A National Insurance contributions in real time and provide the relevant information through Real Time Information (RTI).

The forthcoming legislation aims to modernise the way BIKs are reported and taxed by moving reporting from end-of-year processes to real-time payroll reporting.

Under the new rules, designed to promote transparency and reduce the administrative burden, employers will have to report the value of benefits provided to employees directly through payroll, rather than having to submit a separate P11D form at the end of the tax year. This change ensures that employees are taxed on BIKs as they are received, rather than waiting until after the tax year ends.

Are any benefits in kind exempt from the changes?

Phase one of the new system will apply to the most commonly provided BIKs, including company cars and vans, fuel and employer-provided medical benefits. From 6 April 2028, phase two will extend to cover most other benefits. The only exception is for employer-related loans and accommodation, which won’t require mandatory payrolling until a later date.

What can employers do to prepare?

Employers can take several steps to prepare for the mandatory payrolling of BIKs starting in April 2027:

1. Review software: Ensure your payroll software is capable of handling real-time reporting of BIKs. This may involve upgrading existing systems or integrating new software.
2. Consider cashflow: Review the effect on your cashflow of paying these taxes throughout the year. If it’s going to leave you short, you may need to consider reviewing payment dates in other areas.
3. Employee communication: Develop a clear communication plan to inform employees about the changes. This includes explaining how their benefits will be taxed and what it means for their pay.
4. Data management: Review and streamline your data management processes to ensure accurate and timely reporting. This is crucial for handling real-time reporting requirements.
5. Training and guidance: Provide training for your team to ensure they understand the new requirements and processes. Utilise guidance from HMRC and other resources as they become published.

How do I register?

Employers will not need to register to payroll mandatory BIKs from April 2027, as it applies automatically to qualifying benefits. However, those wishing to voluntarily payroll non-mandatory BIKs will need to register to do so. The service to register is expected to go live in November 2026 and the deadline is 5 April 2027.

For support with payrolling BIKs or to discuss outsourcing your payroll completely, please contact our team.