Mandatory Payrolling of Benefits in Kind – What Employers Need to Know Before April 2027

The UK payroll landscape is set for a major change from April 2027, as HMRC introduces mandatory payrolling of most Benefits in Kind (BiKs). This reform will fundamentally change how employee benefits are taxed and reported, requiring employers to move away from the traditional annual P11D process and towards real-time reporting through payroll.

For many businesses, early preparation will be essential to ensure compliance and avoid disruption.

What Is Changing?

From 6 April 2027, employers will generally be required to process taxable employee benefits through payroll in real time using PAYE and RTI reporting.

This means employers will need to:

• Report taxable benefits through payroll as they arise.

• Deduct Income Tax on benefits during the tax year, rather than after year-end.

• Move away from most annual P11D and P11D(b) reporting requirements.

• Pay Class 1A National Insurance contributions in real time instead of following the end of the tax year.
  

The aim is to improve accuracy, reduce underpayments and overpayments of tax, and align taxation more closely with when benefits are actually received by employees.

Which Benefits Will Be Included?

Most commonly provided employee benefits are expected to fall within the scope of mandatory payrolling, including:

• Company cars and fuel benefits

• Vans and van fuel benefits

• Private medical insurance

• Gym memberships and staff perks

• Certain employee expense-related benefits currently reported on P11D forms
  

At present, two benefits are excluded from mandatory payrolling, although employers may still choose to payroll them voluntarily:

• Employment-related loans

• Living accommodation
  

What Does This Mean for Employers?

Although the changes do not take effect until April 2027, businesses should begin planning now to ensure systems and processes are ready.

Key considerations include:

Reviewing Payroll Systems

Businesses will need to ensure their payroll software and internal processes can accurately calculate and report Benefits in Kind in real time.

Improving Data Accuracy

Benefit information will need to be identified, updated and processed promptly throughout the year, particularly where employees join or leave mid-year or where benefits change.

Employee Communication

As tax will be collected during the year, some employees may notice changes to their monthly net pay. Clear communication will help manage expectations and avoid confusion.

Working Closely with Payroll Providers

Employers may need additional support from payroll providers and advisers to ensure reporting requirements are fully integrated and compliant.

How SJC Chartered Accountants Can Help

At SJC Chartered Accountants, we are already helping businesses prepare for the upcoming changes to Benefits in Kind reporting.

Our support includes:

Payroll Readiness Reviews

Assessing whether your current payroll systems and processes are prepared for mandatory BiK payrolling.

Systems & Software Support

Working alongside payroll providers to ensure systems are correctly configured and compliant ahead of implementation.

Business & Employee Impact Analysis

Helping employers understand the financial and practical implications for both the business and employees.

Benefits & Tax Efficiency Reviews

Reviewing existing benefit packages to ensure they remain efficient and commercially effective under the new rules.

Implementation Planning

Providing a practical roadmap to help your business transition smoothly before the April 2027 deadline.

Start Preparing Early

While April 2027 may seem some time away, businesses that prepare early will be in the strongest position to manage the transition efficiently and minimise disruption.

If you would like advice on how these changes could affect your business, speak to the team at SJC Chartered Accountants.