On April 28, 2025, HMRC released an important update regarding the mandatory payrolling of Benefits in Kind (BiKs). The implementation has been postponed from the previously announced April 2026 date to April 2027, giving employers, payroll professionals, software providers, and other stakeholders additional time to prepare for this significant change.
What’s Changing?
Currently, employers have the option to process BiKs through payroll voluntarily, choosing which benefits to include. This can eliminate the need for P11D forms. However, under the new regulations:
- Mandatory Payrolling: From April 2027, employers must process all benefits through payroll, and P11D forms will be largely eliminated.
- Real-Time Reporting: For most BiKs and expenses, Income Tax and Class 1A National Insurance contributions (NICs) will need to be reported through Real Time Information (RTI) and paid in real time.
- Voluntary Options: Employers will be able to payroll employment-related loans and accommodation on a voluntary basis from April 2027.
How Will the New System Work?
Reporting Requirements
- Benefits will be reported through the Full Payment Submission (FPS) – the same process employers currently use to report salary and other employee details to HMRC.
- The FPS will include additional fields for reporting BiKs and taxable employment expenses, aligned with what is currently reported in the P11D and P11D(b) forms.
Benefit Value Calculation
- The taxable value of a BiK will be calculated in the same way as it is now for voluntary payrolling.
- Employers will divide the annual cash equivalent of the BiKs by the number of relevant pay periods for each employee.
- If the BiK value is not known at the beginning of the year, employers must use a reasonable estimate.
- If the cash equivalent changes during the year, employers must recalculate the taxable amount for the remaining pay periods.
Penalties and Interest
For a smooth transition, HMRC has confirmed:
- Customers who make errors related to mandatory payrolling in their RTI returns for 2027-2028 will not be charged penalties for inaccuracies unless there is evidence of deliberate non-compliance.
- Existing late filing and late payment penalties for RTI returns will still apply in the first year, as will statutory late payment interest.
Important Considerations for Employers
Registration Process
- Employers will not need to register to payroll benefits in kind from April 2027, with the exception of loans and accommodation benefits.
- HMRC will automatically remove benefits from employees’ tax codes in readiness for payrolling from April 2027.
- Employers can continue to voluntarily payroll most BiKs for Income Tax ahead of April 2027, but must register to do so prior to April 2026.
Employee Notifications
- In the first year of payrolling benefits, employers must provide written notice to their employees explaining:
- That benefits are being payrolled and what it means
- Assurance that employees will not be taxed twice
- That their tax code will be amended to remove the BiK adjustment
- That the BiK adjusted amount will go through payroll and be subject to tax
- After each tax year (by June 1st), employers must provide employees with:
- Details of the benefits that have been payrolled
- The cash equivalent of each payrolled benefit
- Separate details of any benefits not payrolled
Specific Scenarios
HMRC has provided clarity on several special circumstances:
- 50% Overriding Limit: When mandatory payrolling would result in tax deductions exceeding 50% of an employee’s cash pay, employers will carry forward taxable amounts to future pay periods in the tax year.
- No-Income Employees: For employees or directors who receive no income, employers must still send BiK details using an FPS and pay the Class 1A NICs.
- Post-Employment Benefits: BiKs provided in the tax year that an employment terminates should be reported on an FPS.
- Student Loans: The basis for calculating student loan repayments will not change.
Timeline for Implementation
|
Action |
Date |
|
HMRC to consider stakeholder feedback |
April – Autumn 2025 |
|
Draft legislation and guidance publication |
Autumn 2025 |
|
Initial software technical information release |
December 2025 |
|
Updated legislation and guidance publication |
July 2026 |
|
Voluntary registration for payrolling loans and accommodation to open |
November 2026 |
|
Voluntary registration to close |
April 2027 |
|
Mandatory Payrolling of BiKs implementation |
April 2027 |
Remaining P11D Forms
For a temporary period, HMRC will retain the P11D and P11D(b) for:
- Employment-related loans and accommodation (until voluntary payrolling becomes available)
- Specific scenarios like globally mobile employees under modified PAYE arrangements
Need Help With These Changes?
While the postponement to 2027 provides additional time to prepare, these changes represent a significant shift in how benefits are reported and taxed. If you’re unsure about what these changes mean for your business or need assistance preparing for the new requirements, Payroll Hub can help.
Our team of UK payroll specialists stays up to date with all the latest payroll legislation, ensuring your business remains compliant with minimal disruption. Don’t let these changes become a burden on your business.
Contact Payroll Hub today for expert guidance on preparing for mandatory BiK payrolling. Call us on 03333 202409 or email enquiries@payrollhub.co.uk to discuss how our fully managed payroll service can remove the stress of these upcoming changes.