The way employers report and pay tax on Benefits in Kind (BIK) is changing, although the move towards mandatory payrolling will now take place in stages.
From April 2027, employers will be required to payroll certain BIK, with the wider reforms taking effect from April 2028.
For businesses that had expected the P11D process to largely disappear next year, this means there will be a longer transition period and businesses will need to understand which reporting method applies to each benefit.
Which Benefits in Kind will need to be payrolled from April 2027?
From April 2027, mandatory payrolling will apply to:
Income Tax and employer National Insurance Contributions (NICs) relating to these benefits will need to be dealt with through payroll using the Real Time Information (RTI) system.
Most employers will still need to complete and submit P11Ds for 2026/27 and, where benefits have not yet moved into payroll, for 2027/28.
The next stage is expected to arrive from April 2028, when HMRC intends most remaining BIK to be handled through RTI.
Employment-related beneficial loans and living accommodation are expected to remain outside mandatory payrolling, meaning employers providing these benefits will continue to have P11D obligations.
HMRC is also considering whether P11Ds should remain for certain other circumstances, including some internationally mobile employees using modified payroll arrangements.
How could mandatory payrolling affect my business?
Moving BIK into payroll means employers will have more information to process accurately and within tighter timescales.
Businesses should therefore make sure their payroll software, internal processes and employees responsible for payroll are ready before the changes arrive.
There may also be a short-term cash flow impact when mandatory payrolling begins.
During 2027/28, employers will pay their final P11D-based Class 1A National Insurance bill relating to 2026/27 in July 2027 while also beginning to account for Class 1A National Insurance on applicable 2027/28 benefits in real time.
This could result in costs relating to two years of benefits being paid within the same financial year.
Employees may experience something similar.
An employee could still be having the tax due on a previous year’s benefits collected through their tax code or Self Assessment while also paying tax on their current benefits directly through payroll.
Clear communication with employees will therefore be important, particularly where their take-home pay could change noticeably during the transition.
Preparing your payroll for the BIK reforms
April 2027 may still seem some way off, but employers should use the time available to review how they provide and record taxable benefits.
Identifying which benefits will move into payroll first and understanding the potential cash flow consequences can help make the transition much easier to manage.
Our team can help you prepare your payroll processes for the new requirements and ensure that your reporting remains accurate as the rules change.
