Big changes are coming to the way employers report benefits in kind (BiKs) to HMRC.
From 6 April 2027, employers will have to report certain benefits through payroll in real time, rather than waiting until after the end of the tax year to report them on a P11D.
The changes are being introduced in phases, with company cars, fuel, vans and private medical benefits among the first to move to mandatory payrolling.
If your business provides benefits to employees or directors, now is a good time to understand what is changing and make sure your payroll processes are ready.
At A&C Chartered Accountants, we’ve broken down what employers need to know.
What are benefits in kind?
Benefits in kind are benefits or perks provided to employees or directors on top of their salary.
They can include things such as:
- company cars
- fuel for private use
- company vans
- private medical insurance
- beneficial loans
- living accommodation
- other taxable employee benefits.
Depending on the benefit and the circumstances, the employee may have to pay tax on its value.
Traditionally, many of these benefits have been reported to HMRC after the end of the tax year using form P11D.
That system is now changing.
What is changing from 6 April 2027?
From 6 April 2027, mandatory payrolling will initially apply to:
- company cars
- company car fuel
- vans
- van fuel
- private medical benefits.
Instead of reporting these benefits after the tax year has ended, employers will need to report them through payroll using Real Time Information (RTI).
This means the tax due on these benefits can be collected through PAYE during the tax year.
For employers, benefits in kind will therefore become much more closely connected to the monthly or weekly payroll process.
What happens to P11Ds?
The move to mandatory payrolling does not mean P11Ds will disappear immediately.
The new system is being introduced gradually.
From April 2027, the first five categories of benefits will become subject to mandatory payrolling.
From April 2028, mandatory payrolling is expected to extend to most other benefits in kind.
Employment-related loans and living accommodation are currently excluded from mandatory payrolling and can continue to be payrolled voluntarily.
This means some employers may still have P11D reporting requirements while the new system is being phased in.
How will mandatory payrolling work?
Under the new rules, employers will need to calculate the taxable value of the relevant benefit and include it within their payroll reporting.
The information will be submitted to HMRC through RTI.
Employers will therefore need accurate and up-to-date information about the benefits employees and directors receive throughout the year.
This is an important change.
Previously, businesses could often gather much of their benefits information after the tax year had ended when preparing P11Ds.
Under mandatory payrolling, employers will need processes that allow changes to be identified and reported much sooner.
What does this mean for employees?
Employees will also see a change in how tax on their benefits is collected.
Currently, HMRC may adjust an employee’s tax code to collect tax relating to a benefit in kind.
Under mandatory payrolling, tax on the relevant benefits will instead be collected through PAYE in real time.
Employees may therefore notice changes to their tax codes, PAYE deductions and take-home pay.
There could also be situations where an employee is still paying tax relating to benefits from an earlier year while tax on their current benefits is being collected through payroll.
This makes communication particularly important.
Employers should explain the changes before April 2027 so employees understand why their payslips or tax deductions may look different.
Do employers need to register?
Employers will not need to register to payroll the benefits that become mandatory from April 2027.
However, businesses that want to voluntarily payroll other benefits will need to register with HMRC.
HMRC is expected to open voluntary registration for the 2027/28 tax year from November 2026.
This will allow employers to choose to payroll certain benefits that are not yet included within the first phase of mandatory payrolling.
What should employers do now?
Although April 2027 is still several months away, employers should start reviewing their current arrangements.
A good starting point is to:
- Compile a complete list of benefits currently provided to employees and directors.
- Review previous P11Ds to identify which benefits are currently being reported.
- Check whether your payroll software can support real-time benefits in kind reporting.
- Speak to your payroll provider or accountant about how the changes will be managed.
- Establish a process for reporting employees who start, stop or change benefits during the year.
- Consider how underpayments and overpayments will be dealt with.
- Prepare communications explaining the changes to employees.
The key difference is that benefits information will increasingly need to reach payroll throughout the year rather than being dealt with retrospectively.
Will small businesses be affected?
Yes.
These rules do not only affect large employers.
A small limited company with one director who has a company car, for example, could be affected by mandatory payrolling from April 2027.
Likewise, a small business providing private medical insurance to a handful of employees will need to understand how those benefits should be reported.
For small employers, having a clear process in place could make the transition considerably easier.
Key dates for mandatory payrolling of benefits in kind
November 2026 – HMRC’s registration service is expected to open for employers wishing to voluntarily payroll additional benefits for the 2027/28 tax year.
6 April 2027 – Mandatory payrolling begins for company cars, company car fuel, vans, van fuel and private medical benefits.
April 2028 – Mandatory payrolling is expected to extend to most other benefits in kind.
How A&C Chartered Accountants can help
Mandatory payrolling represents a significant change to the way benefits in kind are reported.
For employers, the biggest challenge will be making sure accurate information reaches payroll at the right time.
Preparing early gives businesses the opportunity to review their benefits, payroll software and internal processes before the new system becomes mandatory.
A&C Chartered Accountants can help businesses understand their benefits in kind obligations, manage payroll reporting and prepare for the April 2027 changes.
If your business provides company cars, vans, fuel, private medical insurance or other employee benefits, speak to A&C Chartered Accountants about getting your payroll ready for the new rules.
This article is intended as general information only and does not constitute tax advice. Tax rules and HMRC guidance can change, and the treatment of benefits will depend on individual circumstances.