Benefits in kind: Is your payroll ready for April 2027?

A major change to the way employers report and tax certain benefits in kind (BiKs) is coming from 6 April 2027.

Rather than waiting until after the end of the tax year to report affected benefits through the P11D process, employers will need to report them through payroll in real time.

The new rules are being introduced in phases, but employers should start preparing now to make sure their payroll systems, processes and employees are ready for the change.

Which benefits will be affected from April 2027?

During 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
  

Instead of employees generally paying tax on these benefits through adjustments to their tax codes, the taxable value will be processed through payroll, with the relevant Income Tax collected through PAYE.

This should eventually simplify the reporting of benefits, but it also means employers will need accurate and up-to-date information throughout the year.

What happens to other benefits in kind?

Mandatory payrolling is expected to extend to most other benefits and expenses from April 2028.

Ahead of this, employers will be able to voluntarily register from November 2026 to payroll certain benefits that aren't included in the first mandatory phase.

These could include benefits such as beneficial loans and living accommodation.

Employers may therefore want to consider whether voluntarily bringing additional benefits into payroll could make the eventual transition easier.

What will employees notice?

The changes won't just affect payroll and finance teams.

Employees who currently have the tax due on benefits collected through adjustments to their tax codes will instead see tax on affected benefits collected through PAYE in real time.

For some employees, the transition could initially be confusing. They may be paying tax on their current benefits through payroll while their tax code is also being adjusted for benefits received in an earlier period.

This could affect take-home pay, making clear communication particularly important.

Employers should therefore consider explaining the changes to affected employees well before the new system goes live.

What should employers be doing now?

Although April 2027 may still seem some way off, reviewing your processes now can help avoid problems closer to the deadline.

We recommend employers:

1. Review your current benefits – compile a complete list of all benefits currently provided to employees and reported on P11Ds.

2. Check your payroll software – if you manage payroll internally, make sure your software will be capable of handling real-time benefits reporting from April 2027.

3. Consider changes during the year – establish how you'll manage new starters, leavers and changes to the value of benefits.

4. Prepare for corrections – make sure you have processes for dealing with any underpayments, overpayments or changes to benefit values.

5. Communicate with employees – explain how the changes could affect PAYE deductions, tax codes and take-home pay.
   

Start preparing before April 2027

Mandatory payrolling represents a significant change to the administration of employee benefits.

For employers providing company cars, fuel, vans or private medical cover in particular, 6 April 2027 is an important date to have on the calendar.

Taking the time to review your benefits, payroll software and internal processes now should make the move to real-time reporting much smoother.

If you're unsure how the changes to benefits in kind will affect your business or would like support preparing your payroll, speak to the team at SJC, Chartered Accountants. We can help you get ready ahead of the new rules.