HM Revenue & Customs (HMRC) has announced that the initiative to mandate the payrolling of Benefits-in-Kind (BiKs) and other taxable employment expenses, has been delayed.
Initially scheduled to take effect in April 2026, compliance will now become mandatory from April 2027.
The hope is that this will give those impacted – including software vendors, employers, tax agents and payroll service providers – more time to prepare for the changes to how benefits are managed and reported.
How are BiKs currently reported?
Employers are currently able to choose how BiKs are processed; whether voluntarily through payroll, or by submitting a P11D and P11D(b) form.
To be able to process BiKs through payroll, employers need to have registered with HMRC to do so. This must be done before the start of the tax year they wish to begin payrolling benefits. In addition, not all benefits can be payrolled as it stands. In a previous article, we provided a useful ‘step-by-step’ of how the process works.
Currently, even if benefits are payrolled, employers are required to submit a P11D and P11D(b) form after the end of the tax year.
These forms detail the value of the benefits provided and enable the calculation of any Class 1A National Insurance contributions (NICs) that are due.
With the traditional P11D structure, at this point any tax the employees owe on their benefits is also calculated and their tax code is changed retrospectively for the following tax year so the outstanding tax can be collected. The aim of payrolling is to enable tax to be collected in real time as the benefits occur, rather than in the following tax year.
What’s changing from April 2027?
From April 2027, the payrolling of most BiKs and taxable expenses will become mandatory.
As a result, Income Tax and Class 1A NICs will need to be calculated and reported through Real Time Information (RTI) using Full Payment Submissions (FPS).
Employers will need to calculate the relevant BiK value for each pay period and include that information within the payroll cycle, to facilitate the collection of tax in real-time. Where the exact value is not yet known, a reasonable estimate must be used. These figures will also be shown on employees payslips.
Preparing for mandatory payrolling of BiKs
Whilst the delay gives stakeholders some breathing space in terms of preparing for the changes, employers should still be thinking proactively about compliance, and getting ahead of the curve if they can.
Communication with employees is key, as cashflow may be impacted for some in the first year following the changes.
Despite HMRC suggesting that there will be provisions in place to support those who have underpaid or overpaid, it is important that your staff understand what the new approach means for them.
Now, employers have an ideal opportunity to review payroll processes and ensure they are ready for the transition. This might include:
- Identifying the BiKs provided to your employees and understanding how they are currently reported.
- Reviewing your existing payroll software to ensure it can support real-time reporting of BiKs.
- Considering whether you have the right support in place to assist you with the transition.
- Communicating the changes internally, to ensure all those impacted understand what is happening and who they can direct any queries to.
HMRC will begin releasing draft legislation and technical guidance from Autumn 2025, with updates continuing through to April 2027. As there are still many questions to answer about the mandatory changes our payroll and tax teams here at GH will be keeping up to date with HMRC’s announcements as they happen.
Payrolling benefits: support from payroll professionals GH Payscheme
To talk to our dedicated team of payroll professionals about payrolling benefits in kind, how it might impact you and how you can begin to prepare, email payroll@ghpayscheme.com, or speak to your usual George Hay adviser.
With business tax specialists under the same roof, we can also help you to understand the tax implications of your existing benefits package.
