Mandatory payrolling of benefits in kind (BiKs) will begin from 6 April 2027, with a phased introduction designed to give employers and payroll providers time to adapt.
Under the first phase, covering the 2027/28 tax year, mandatory payrolling will apply to:
- Company cars
- Company car fuel
- Vans
- Van fuel
- Private medical benefits
These benefits will need to be reported through payroll in real time rather than being reported after the end of the tax year on form P11D.
Mandatory payrolling will then be extended to most other benefits and expenses from April 2028. HMRC has confirmed that employers will be able to register voluntarily from November 2026 to payroll other benefits not included in the first phase, such as beneficial loans and living accommodation.
The change will affect employees as well as employers. Employees who currently pay tax on benefits through adjustments to their tax codes will instead pay the tax in real time through PAYE. Some employees may also be paying tax on BiKs from earlier years at the same time, which could create confusion about their take-home pay. HMRC is encouraging employers to communicate these changes well in advance.
What should employers be doing now?
If you have employees in receipt of BiKs, we recommend that you:
- Compile a complete list of all benefits currently reported on P11Ds.
- If you carry out your own payroll reporting, review whether your payroll software can support real-time BiK reporting from April 2027.
- Consider how you will deal with joiners, leavers and changes in benefit values during the year.
- Establish procedures for managing underpayments and overpayments.
- Develop an employee communication plan explaining how the changes will affect tax deductions and tax codes.
Although the first mandatory reporting deadline is still several months away, employers that start preparing now are likely to face a much smoother transition when the new regime takes effect in April 2027.
