Mandatory payrolling of Benefits in Kind (BIK), will now come into effect from April 6 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 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 is expected to still be possible.
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:
- Correct configuration of payroll software
- Implementing robust data collection processes to ensure timely and accurate reporting of BIKs in real time (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
- Communication with employees in transitioning to the new system (especially 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 introduced in the autumn with staged information flowing to employers, advisers and software providers in the following 12 months.
