Mandatory payrolling of Benefits in Kind (BIK), will now come into effect from 6 April 2027.
The payroll and tax industries campaigned for this change to be pushed back as the previously announced implementation of April 2026 left employers and software providers limited time to prepare. This delay gives employers crucial breathing space to prepare their systems and processes for what represents a fundamental shift in how benefits are reported.
From April 2027, most taxable BIKs (including taxable expenses) provided to employees and directors will need to be reported to HMRC via weekly or monthly payroll returns instead of on a P11D return at the end of the tax year. This will cover common BIKs such as company cars or vans and private health insurance.
The only exception to mandatory payrolling is in relation to employer provided loans and accommodation benefits due to their complex valuation requirements. These BIKs will still be reportable on P11D forms, though voluntary payrolling for these is expected to still be possible.
Transition to payrolling of BIKs
HMRC states mandatory payrolling of BIKs is a further move to modernise the way the tax system works for employees, and should help to reduce some of the operational and timing issues with tax codes caused by the P11D return process. However, the underlying complexities in how BIKs are taxed and calculated will not change, and so the shift to reporting via payroll from April 2027 will need to be carefully managed by employers to ensure full compliance from the outset and a smooth transition for all affected employees. Areas that will require most attention include:
Ensuring that payroll software is configured correctly for mandatory reporting of BIKs
Implementing robust data collection processes to ensure timely and accurate reporting of BIKs in real time (this is a major change as P11Ds have worked retrospectively)
Ensuring that the valuation and calculations of BIKs, and application of the complex tax rules, is embedded into the process
Managing the communication with employees in transitioning to the new system (especially important in the first year where employees may be paying tax on both real-time BIKs and retrospective BIKs at the same time).
Where using a payroll service provider, it is important to understand what information they will need and in what format. Bear in mind they may not have this information until January 2026 when software providers expect the final specification from HMRC. If you are looking to voluntary payroll prior to April 2027, it will be important to have that conversation as soon as practically possible.
Draft legislation and guidance is expected to be published by HMRC in Autumn 2025 with staged information flowing to employers, advisers and software providers in the following 12 months.
The 12-month delay to mandatory payrolling of BIKs should be taken as an opportunity for employers to assess their system and process requirements and to get changes in place in readiness for April 2027. It may be appropriate for some employers to consider voluntary payrolling some BIKs from April 2026 (registration to do this must be in place with HMRC before 5 April 2026) to test how this will work for the business before payrolling becomes mandatory.
If you would like advice and support about how to prepare for payrolling of Benefits in Kind, please get in touch. Call 0808 144 5575 or email help@armstrongwatson.co.uk.
