HMRC has confirmed that mandatory payrolling of Benefits in Kind (BiKs) will now be introduced in two phases, beginning on 6 April 2027.
The changes will move the reporting of most employee benefits away from the annual P11D process and into real-time payroll. This means Income Tax and Class 1A National Insurance will be reported through payroll each pay period, whether that is weekly or monthly.
From 6 April 2027
The first phase will apply to:
• Company cars and car fuel
• Vans and van fuel
• Employer-provided medical benefits
From 6 April 2028
Most other taxable benefits will also become subject to mandatory payrolling.
The only exceptions will be:
• Beneficial loans
• Employer-provided living accommodation
These benefits will remain voluntary for payrolling and can continue to be reported using the existing process if preferred.
What does this mean for employers?
Instead of reporting benefits after the end of the tax year using P11Ds, employers will need to include relevant benefits in their payroll submissions throughout the year using Real Time Information (RTI).
Although this will reduce year-end administration, it also means payroll records must be accurate from the outset. Any errors are likely to be identified much sooner and may need to be corrected during the tax year rather than after it has ended.
What should you do now?
Although the new rules do not begin until April 2027, now is a good time to prepare by:
• Reviewing the benefits you currently provide to employees.
• Identifying which benefits will be affected in the first phase.
• Checking that your payroll software and processes will be ready for the changes.
HMRC is continuing to work with payroll software providers and is expected to publish further technical guidance during 2026, with final details anticipated ahead of the Autumn Budget.
This is one of the biggest changes to the taxation and reporting of employee benefits in many years. Planning ahead will help ensure a smooth transition and minimise disruption to your payroll processes.