From April 2027, employers will be required to payroll most benefits in kind (BiKs) provided to employees. This means that tax on BiKs will be collected through payroll in real time, rather than being reported after the end of the tax year.
All benefits in kind will need to be payrolled except for employer-provided living accommodation and interest-free or low-interest (beneficial) loans. These two benefits may still be payrolled on a voluntary basis.
Employers should plan ahead for this change. Payroll systems and internal processes will need to be capable of handling the real-time reporting of benefits, and the time required to implement these changes should not be underestimated.
Employees will also need to be made aware of how the taxation of their benefits will change from April 2027. In particular, it will be important to explain that:
-
employees who currently pay tax on benefits in arrears will instead be taxed in the year the benefit is received
-
any deductions currently included in tax codes to collect tax on estimated benefits will no longer apply
-
tax on benefits in kind will be collected in real time through payroll
For some employees, this change may appear to result in paying tax twice on a benefit in the first year. This will usually reflect a transition period, where tax is being paid in real time on current benefits while tax relating to benefits from earlier years is still being settled.
Further guidance is expected from HMRC ahead of April 2027. Employers affected by this change should review their payroll arrangements and employee communications in good time.