HMRC has announced that the mandatory payrolling of benefits in kind (BIKs) will now commence from April 6, 2027, a year later than initially planned. This extension provides employers with additional time to prepare for the upcoming changes in how employee benefits are reported and taxed.
What are benefits in kind?
Benefits in kind are non-cash perks provided by employers to employees, which hold monetary value and are subject to tax.
Common examples include:
• Company cars;
• Private health insurance;
• Interest-free or low-interest loans;
• Employer-provided accommodation.
Traditionally, these benefits have been reported annually through forms P11D, with taxes adjusted via the employees’ tax codes.
What is changing?
Starting in April 2027, employers will be required to report and tax most BIKs in real-time through the payroll system, a process known as “payrolling.” This means:
• Taxes on BIKs will be deducted from employees’ salaries as the benefits are provided;
• The need for annual P11D forms for these benefits will be eliminated;
• Employers will still need to submit a P11D(b) form annually to report the total Class 1A national insurance contributions due.
HMRC says this shift aims to simplify tax processes, reduce administrative burdens, and provide employees with more immediate clarity on their tax obligations.
Why the delay to April 2027?
The implementation has been postponed by a year, from April 2026 to April 2027, in response to feedback from employers, payroll providers, and tax professionals. The additional time allows:
• Payroll software developers to update systems to accommodate the new reporting requirements;
• Employers to adjust their payroll processes and train staff accordingly;
• HMRC to provide comprehensive guidance and support to ensure a smooth transition.
Exceptions and Special Cases
While most BIKs will be subject to mandatory payrolling from April 2027, certain benefits, such as employer-provided loans and accommodation, will initially be excluded due to the complexities involved in valuing these benefits in real-time. Employers will have the option to voluntarily payroll these specific benefits starting from April 2027.
Preparing for the Change
Employers can take the following steps to prepare:
1. Review current benefits: Assess which benefits are provided to employees and determine which will need to be subject to payrolling;
2. Update payroll systems: Ensure payroll software is capable of handling real-time BiK reporting and tax deductions.;
3. Train staff: Educate HR and payroll teams on the upcoming changes and new processes.;
4. Communicate with employees: Inform employees about how the changes will affect their pay and tax deductions, and that once their benefits and included in the payroll, they will need to ensure that HMRC has not continued to include them in their coding notice;
5. Consider voluntary payrolling in advance: Employers not currently payrolling benefits may choose to adopt the system voluntarily before it becomes mandatory, allowing for a smoother transition.
For more detailed information and updates, employers can refer to HMRC’s official guidance on the mandatory payrolling of benefits in kind.