Mandatory payrolling of benefits in kind (BiK) from 2027

Originally planned for April 2026, the mandatory payrolling of benefits in kind (BiK) is delayed until 6 April 2027.

This change marks a major shift away from the traditional P11D/P11D(b) reporting cycle.

Now, while the change is delayed until 2027, we strongly advise employers to begin preparing, as payrolling benefits will create significant operational and cash‑flow changes.

Why is this change happening?

HMRC’s aim is to modernise the reporting system to help simplify tax administration, improve accuracy and collect tax in real time.

Payrolling benefits in kind is a key part of this ambition.

What is a benefit in kind?

Benefits in kind are a non-cash benefit that employers provide staff, which has a monetary value and is therefore taxable.

For example, this includes benefits such as:

• Company cars
• Private medical insurance
• Low interest loans

What does mandatory payrolling of benefits mean for your business?

Payrolling benefits means moving away from annual P11Ds reporting and instead processing the taxable value of each benefit through payroll in real time.

This change will require you to:

• Include the cash equivalent of each benefit on your employees’ payslips each month (or pay period)
• Calculate tax and National Insurance contributions (NICs) on those values
• Report the details via the Full Payment Submission (FPS)

Class 1A NICs will also move from an annual July payment to proportional payments each payroll cycle, creating cash-flow considerations for businesses that currently only plan for a single annual payment.

Note: P11Ds won’t disappear immediately. Employers will still need to submit P11Ds for 2026/27 in the usual way, covering any benefits that weren’t voluntarily payrolled during that tax year. Mandatory payrolling then takes effect from 6 April 2027, meaning it’s the 2027/28 tax year onwards where the new rules fully apply. In practical terms, many businesses will be running their last P11D process in 2027 at the same time as they’re getting to grips with payrolling benefits for the first time – a key reason why early preparation matters! 

What’s the impact of mandatory payrolling benefits in kind on employees?

Under the 2027 change, employees will pay income tax on benefits included in each pay cycle rather than through PAYE coding adjustments or self-assessment.

For many employees, this will result in a noticeable change to their payslips.

The taxable value of their benefits will appear alongside their salary, and their take-home pay may look different as a result.

Clear communication ahead of the change will be essential to avoid confusion and unnecessary queries to your payroll or HR team.

Which benefits are excluded from mandatory payrolling?  

Following the 2027 change, only two benefits will fall outside mandatory payrolling:

• Employment related loans, such as overdrawn director loan accounts, below the official interest rate
• Employer provided living accommodation

Mandatory payrolling timeline   

HMRC provided a handy timeline to support preparation.

Will there be penalties for non-compliance with mandatory payrolling of benefits?

HMRC has stated that they will not charge penalties for payrolling benefits inaccuracies in 2027/28 unless non-compliance is deliberate.

However, it’s important to flag that this leniency only applies to inaccuracies, not to a failure to comply; employers who make no effort to implement payrolling of benefits by the deadline shouldn’t assume they’re protected.

What should businesses be doing now to prepare for payrolling benefits?

The change will need to be managed carefully ahead of April 2027.

Now is the time to review your payroll processes and data to ensure you can report the correct benefit value each month.

Consider the following areas:

1. Audit your benefits: identify all the benefits currently provided to help with understanding which data points need to be captured monthly.
2. Review systems and data: map where your benefit data lives, whether that’s in your HR system, a third-party provider or spreadsheets – a single, accurate data flow is needed.
3. Engage software or service providers early: payroll systems will need to evolve to comply with the change, so find a reliable provider who can support you.
4. Plan a testing period: test and refine your processes ahead of the official go-live.
5. Communicate with employees: changes to payslips and tax codes can lead to concerns, so communicate with employees and explain the upcoming changes.

Preparation is necessary

Payrolling benefits is a modernisation long overdue.

David Kisiaky, Senior Product Manager, told us: “For quite some time, the Government has aimed to phase out the processing and submission of P11Ds.”

Now, while 2027 may seem in the distant future, to ensure compliance, early preparation is essential.

If you’re looking for support, we offer a range of payroll solutions, from software to outsourcing, helping you manage the change.

What are the benefits of payroll outsourcing?

Payroll outsourcing can help ease the transition to the mandatory payrolling of benefits.

Suppliers, such as IRIS, are on hand to support with the changes, giving you peace of mind that your payroll is compliant and correct.

Our managed benefits in kind service handles the end-to-end process on your behalf, from calculating and updating benefit values each pay period to reporting income tax and Class 1A NICs via RTI – it’s all processed as part of your regular pay run, with no separate system or manual workarounds required.