Compulsory payrolling of benefits in kind (BiK) will now be mandatory from April 2027 rather than April 2026. This will provide businesses more time to prepare for this change.
The Clayton & Brewill team explain this updated timeline and how it could affect your business in the blog below.
Upcoming changes
From an employer’s perspective, the change means that most BiK must be reported under Real Time Information (RTI) from April 2027. Income Tax and Class 1A National Insurance contributions (NICs) will also be paid during the tax year. To make the system work, the number of RTI data fields will be increased to accommodate data currently reported in forms P11D and P11D(b).
Employment-related loans and accommodation are not yet brought within mandatory Payrolling and so the P11D and P11D(b) process will continue temporarily for these benefits – though it will be possible to payroll them on a voluntary basis. Unlike most other benefits (which will be automatically payrolled from 2027), these two benefits will still require employers to register in advance. To payroll them for the tax year starting 6 April 2027, you would need to register between November 2026 and 5 April 2027.
The taxable value of a BiK will be calculated by taking the annual cash equivalent of the benefits and dividing by the number of relevant pay periods for each employee. The resulting figure for each pay period is liable to Income Tax and Class 1A NICs each pay period and must be reported alongside employee earnings in each period. A reasonable estimate must be used where the BiK value is not known at the start of the year.
Other areas that HMRC has specifically commented on include:
- Globally mobile employees that are part of modified PAYE arrangements – here HMRC is considering keeping the P11D and P11D(b)processes.
- Employees and directors receiving no income – the employer will still need to provide details of benefits in kind and expenses via an FPS, paying Class 1A NICs due in the same way as for employees receiving income. The FPS will show no payments of earnings and no tax paid. Any uncollected tax will be recovered through the P800 end of year reconciliation process, simple assessment or self-assessment as applicable.
Impact of BiK changes on employees
From the employee’s perspective, payment of tax will move into real time, and it will be important for employers to communicate this effectively to staff. In the first year of mandation, there could be an additional cash flow impact for any employees already having tax deducted in respect of a previous year.
Employers will also need to consider HMRC’s rules to ensure that BiK tax deductions do not exceed 50% of an employee’s pay in any pay period, with any balance carried forward.
Looking ahead
Further information is expected from Autumn 2025 onwards, but in the meanwhile, it might be sensible to trial payrolling benefits voluntarily in 2026/27, to see how the system works. The Clayton & Brewill team would be happy to advise if this is something you are interested in doing. Get in touch today to find out more about how we can support you and your business.
