From 6 April 2027, HM Revenue & Customs (HMRC) will require all employers to payroll most Benefits in Kind (BiKs), marking a fundamental shift in how these benefits are reported and taxed.
For many employers, this represents one of the biggest changes to payroll reporting in recent years.
Instead of reporting benefits once a year using P11Ds, employers will need to tax them in real time through employees’ pay. This means Income Tax and National Insurance will be deducted automatically, just like salary.
Although the change has been delayed by a year to give businesses more time, it will require significant updates to payroll systems and processes. For employers offering taxable benefits, early preparation will help avoid last minute disruption.
A shift away from P11Ds
Under the new rules, the familiar end-of-year P11D process will largely disappear. The reporting process for BiKs and expenses will be through the Full Payment Submission (FPS). This is the same process employers currently use to report salary and other details to HMRC when payments are made to employees.
In practical terms, this means:
- Employees will pay tax on benefits as they receive them, not later via tax code adjustments;
- Employers will report benefits alongside pay through their regular payroll submissions; and
- Class 1A National Insurance will also be paid during the year, rather than after year end.
While this may ultimately simplify reporting, it introduces new demands on systems, processes and data accuracy.
Who will be affected?
Any employer that provides taxable benefits will need to comply with the new rules from April 2027.
That includes common benefits such as company cars, private medical insurance and other perks currently reported annually.
What is changing in practice?
From April 2027:
- The value of benefits will need to be spread across pay periods and included in payroll;
- Payslips will show the taxable value of benefits alongside earnings; and
- Tax and National Insurance will be deducted in real time.
Where benefit values are not known upfront, employers will need to estimate and adjust as needed during the year. This will add a new layer of complexity to payroll administration.
Are any benefits excluded?
Yes – at least for now. The following are not yet included in the mandatory regime:
- Employer-provided living accommodation; and
- Employment-related loans.
However, HMRC has indicated these may be brought into scope in the future. Employers will also have the option to payroll these voluntarily from November 2026 if they wish to get ahead.
What does this mean for your business?
Although April 2027 may seem some way off, the impact should not be underestimated. Moving to real-time taxation of benefits will require:
- Updates to payroll software and systems;
- More detailed and timely data on employee benefits;
- Clear communication with employees about changes to their net pay; and
- Careful cash flow planning, particularly with earlier National Insurance payments.
What should you do now?
Early preparation will make all the difference. Over the next year, employers should:
- Review all benefits currently provided to employees;
- Assess whether payroll systems are ready for real-time benefit reporting;
- Update internal processes to capture benefit changes as they happen; and
- Consider seeking specialist payroll advice.
The move to mandatory payrolling is designed to modernise the tax system, but for employers, it is a significant operational change. Those who start preparing early will be best placed to manage the transition smoothly and avoid implementation challenges when the new rules take effect.
How M+A Partners can help
For more detailed guidance on mandating the reporting of benefits in kind and expenses download our factsheet.
We are experienced in the process of taxing employees’ benefits and expenses through payroll. For any queries on registering for payrolling benefits and expenses with HMRC or the impact that the mandating of payrolling might have on your organisation, please get in touch with your usual M+A Partners’ contact or one of our experts below.
Mandatory Payrolling for Benefits in Kind (BiKs)