HMRC has recently announced that the mandatory payrolling of Benefits in Kind (BIKs) will be delayed until the 6th of April 2027, which was originally planned to take effect in April 2026.
As part of their plan to simplify and digitise the UK tax system, the delay causes a further obstacle for the government, as businesses are granted additional breathing room to prepare for this significant HMRC tax change.
This decision follows consultations with employers, tax agents, software providers and other stakeholders to grant more time, with the main view that the initially planned date was too ambitious and there may be more complications afoot than initially imagined.
As chartered accountants and tax advisors managing clients who fall into this category, we felt it prudent to break down what’s changing and how businesses can prepare for this new process well ahead of time.
What Are BIKs?
Firstly, it’s important to establish the definition of Benefits in Kind. BIKs are forms of non-cash remuneration provided to employees, which can include company cars, private medical insurance, gym memberships, and other perks that form part of an employee’s total compensation package.
At present, most employers report these benefits to HMRC after the tax year ends by preparing and submitting forms P11D and P11D(b), irrespective of the size of the company’s payroll.
How Will BIKs Be Reported From April 2027?
From the beginning of the 2027/2028 tax year (the 6th of April 2027), employers will be required to:
- Report taxable benefits to HMRC through the payroll system in real-time
- Calculate and pay Class 1A National Insurance Contributions (NICs) via payroll throughout the year
- Submit this information through the Full Payment Submission (FPS) that goes to HMRC following each pay period
Employers will need to calculate the yearly value of the benefit(s), divide it by the number of pay periods in the year, to arrive at the amount taxed in each pay period. Should that benefit change, yearly values must be recalculated and adjusted accordingly.
The main takeaway is that this spells the end of the annual P11D and P11D(b) reporting process for most benefits.
Which BIKs Are Affected?
From 2027/2028 onwards, form P11D and P11D(b) will not be required unless reporting interest-free or low-interest loans, or accommodation to employees.
However, these benefits can be voluntarily reported through payroll, although it’s not obligatory. That said, HMRC has indicated that these benefits may become mandatory for payrolling in the future, with further guidance to be issued in due course.
The mandatory payrolling requirement will apply to most BIKs, including (but not limited to):
- Company cars
- Gym memberships
- Private medical insurance
- Childcare vouchers
- Mobile phones
- Long-service awards
Are PAYE Settlement Agreements Affected?
If your business currently reports certain employee benefits under a PAYE Settlement Agreement (PSA), this arrangement will remain unaffected by the introduction of mandatory payrolling.
You can continue to pay the income tax on behalf of your employees and the Class 1B NICs as before.
We expect that HMRC will issue updated guidance during the 2025/26 tax year, and we will keep you informed of all developments and whether your incumbent PSA reporting process will be affected.
How to Prepare for the HMRC Benefits in Kind Reporting Change
Despite the extended timeline, the business tax experts at Hamlyns recommend that you begin preparations well in advance.
We recommend that you:
- Review your payroll software: Check if your current payroll and accounting software can accommodate payroll of benefits. Some legacy systems may need upgrading or replacing.
- Condense benefit information: Ensure all benefit data is accurate, accessible, and available in time for each payroll period. This may require you to coordinate between departments if information is scattered across multiple systems.
- Communicate with employees: Staff should be informed about how these changes will affect their payslips and net income. They should be advised to check their PAYE codes to ensure they aren’t taxed twice on the same benefit.
- Consider voluntary registration: HMRC continues to encourage voluntary registration for payrolling benefits by 5 April 2026 for the 2026/27 tax year. This can provide invaluable peace of mind.
- Review your benefits package: This transition period offers an ideal opportunity to review your overall benefits offering to ensure it remains competitive and cost-effective.
How Hamlyns Can Help
In the meantime, if you require any assistance or guidance regarding the proposed forthcoming changes to payrolling BIKs, or expert advice on any payroll or accounting matters, the team at Hamlyns are always willing to help.
We recommend that you stay clued into benefit data and ensure it’s accurate for each payroll period, manage your employee communications properly, and remain proactive if benefit values change throughout the tax year.
We can also review your current benefits reporting processes, advise on payroll software and system upgrades, and help you develop a tangible and scalable implementation plan so that you can comply with HMRC regulations without it getting in the way of your long-term business growth objectives.
Contact our team today to give your business the best possible chance of maximising your returns with taxable BIKs and not being encumbered with unnecessary reporting obstacles. Let us take the stress and worry away for you.
