Mandatory payrolling of benefits in kind - What’s changing in April 2027?

Currently, employers report BIKs via a P11D form. This must be submitted online to HMRC at the end of the tax year and completed for each employee that’s received taxable expenses or benefits that were not payrolled.

In addition, employers must also submit an online P11D(b) form to HMRC at the end of the tax year for any Class 1A National Insurance owed.

With this approach, there is a delay in the benefit being provided and the tax being paid because the data is based on historical information. What’s more, any adjustments to the value of BIKs aren’t recorded and taxed until the following form is submitted.

Under the new rules, employers will be required to report certain BIKs through payroll software, calculate income tax and Class 1A National Insurance contributions in real time and provide relevant information through Real Time Information (RTI).

The changes come into effect on 6 April 2027 and will see reporting moved from end-of-year processes to real-time payroll reporting in a bid to modernise the way BIKs are reported.

This means that employers will have to report the value of benefits provided to employees directly through the payroll, instead of submitting a separate P11D form at the end of the tax year – promoting transparency and reducing the administrative burden for employers. Because of this, employees will be taxed on BIKs as they are received, rather than waiting until after the tax year ends.

The new system will be implemented in two phases. In phase one, mandatory payrolling will apply to the most commonly provided BIKs such as company cars and vans, fuel and employer-provided medical benefits. Phase two will then be implemented from 6 April 2028, extending to cover most other benefits. The only BIKs not affected are employer-related loans and accommodation – these won’t require mandatory payrolling until a later date.

To prepare for the mandatory payrolling of BIKs in April 2027, there are several steps employers can take to prepare:

1. Review your payroll software and ensure it’s capable of handling real-time reporting. If it isn’t, you may need to upgrade existing systems or integrate new software.
2. Take a look at cashflow forecasts and see how paying these taxes throughout the year will affect you. Paying them in real time instead of at the end of the tax year may mean you need to review payment dates in other areas.
3. Clearly communicate the changes to your employees, explaining what it means for them – including how their benefits will now be taxed and what it means for their pay.
4. Accurate and timely reporting is vital for handling real-time reporting requirements, so review and streamline your data management processes well in advance.
5. Create a training plan for your team to ensure they understand the new requirements and processes. Guidance and resources from HMRC will be a useful tool for this.

Mandatory payrolling will apply automatically to qualifying benefits from April 2027, so employers do not need to register. However, they will need to register if they wish to voluntarily payroll non-mandatory BIKs. This can be done from November 2026, and the deadline is 5 April 2027.

For further information about the upcoming changes, or for support with implementing them, please get in touch.