HMRC has announced a significant change to the timeline for the mandatory payrolling of Benefits in Kind (BiKs), pushing the implementation date from April 2026 to April 2027.

This delay offers employers additional time to adapt and prepare for what will be a substantial change in how employee benefits are taxed and reported.

What is payrolling of Benefits in Kind?

Payrolling of BiKs involves reporting and taxing employee benefits through the payroll system in real time, as part of the Full Payment Submission (FPS) under the Real Time Information (RTI) system. This is a shift away from the current system, where employers submit annual P11D and P11D(b) forms to HMRC after the end of the tax year.

Under the new mandatory regime, most BiKs, such as company cars, private medical insurance, and gym memberships, will need to be taxed monthly through payroll. Income tax and Class 1A National Insurance Contributions (NICs) will be calculated and reported at the time they are provided to employees.

Why the delay?

The delay to April 2027 follows feedback from employers, payroll software providers, and professional bodies. Many organisations expressed concern about the time and resources required to implement the necessary changes, especially amid other ongoing regulatory and economic pressures.

HMRC has acknowledged these concerns and agreed that a longer lead-in time is necessary. The additional year is intended to allow businesses to upgrade their payroll systems, train staff, and make necessary adjustments to internal processes.

Key changes to note

  • Voluntary Payrolling Continues: Employers can continue to payroll benefits voluntarily up until the mandatory start date. However, HMRC’s registration service for voluntary payrolling will close after 5 April 2026 to facilitate the transition.
  • Exclusions: Not all benefits will be subject to mandatory payrolling in 2027. Employer-provided accommodation and beneficial loans will remain outside the scope initially. Employers may still choose to payroll these voluntarily. HMRC is expected to provide further updates on when these exclusions may become mandatory in the future.
  • P11D and P11D(b) Forms: From April 2027, these forms will largely become obsolete for most employers, except in limited cases such as those involving internationally mobile employees with complex PAYE arrangements.
  • Tax Code Adjustments: To prevent the risk of double taxation, HMRC will begin removing BiKs from employees’ tax codes ahead of the 2027 implementation.
  • Penalties and Compliance: In the 2027/28 tax year, HMRC has confirmed it will take a ‘light touch’ approach to enforcement, with penalties only applied in cases of deliberate non-compliance. Standard penalties for inaccurate reporting will be enforced from 2028/29 onwards.

Preparing for 2027: What employers should do now

While the extra year provides some breathing space, employers are encouraged to begin preparations as early as possible to ensure a smooth transition. Here are some practical steps to take:

  1. Assess Current Payroll Capabilities: Review whether your existing payroll software can support payrolling of benefits in real time. Work with your software provider to make any necessary upgrades.
  2. Train Your Payroll and HR Teams: Ensure your staff are familiar with the upcoming changes, including the tax treatment of different benefits and the reporting requirements under RTI.
  3. Trial Voluntary Payrolling: If you’re not already doing so, consider adopting voluntary payrolling ahead of the mandatory deadline. This can help your team gain experience and highlight any issues before the system becomes compulsory.
  4. Communicate with Employees: Keep employees informed about how the changes may affect their payslips and tax codes. Clear communication can reduce confusion and prevent unnecessary queries.
  5. Monitor HMRC Guidance: Stay up to date with the latest announcements from HMRC, particularly regarding the inclusion of currently excluded benefits and any changes to the proposed timeline.

Final thoughts

The move towards mandatory payrolling of BiKs represents a significant shift in tax administration for employers across the UK. While the delay to 2027 offers welcome relief, it is not a reason to delay preparations.

At Williamson & Croft, we are here to help you navigate these upcoming changes. Whether you need help with payroll software, staff training, or strategic planning, our team of experts is ready to assist.

Get in touch with us today to ensure your business is ready.