Payrolling Benefits in Kind: update

The UK government has announced an extension to the timeline for the mandatory payrolling of Benefits in Kind (BiKs) and taxable employment expenses. This change will now take effect from April 2027, giving everyone more time to prepare.

To help us all understand how this mandatory payrolling will work in practice, HMRC has issued a technical note.

Key changes to Benefits in Kind reporting

The previous government had announced mandatory payrolling of BiKs in January 2024 as part of a pledge to “modernise the tax administration framework and make better use of real-time information”. This change was set to happen from April 2026, but little information was provided for employers and software developers to plan effectively. We now have more clarity.

Starting from April 2027, reporting BiKs and expenses will be integrated into the Full Payment Submission (FPS) system. Employers already use this system to report salaries and other employee details to HMRC during payroll. The FPS will now include fields for the taxable value of BiKs and expenses, enabling real-time reporting of both Income Tax and Class 1A national insurance contributions (NICs). 

The number of fields for reporting BiKs and taxable employment expenses in Real Time Information (RTI) through FPS will be expanded to match the current P11D and P11D(b) forms. As employers are restricted from deducting more than 50% of an employee’s pay for tax purposes, HMRC will collect any amounts exceeding this limit after the tax year ends. This process will happen through the existing end-of-year reconciliation (P800) process or Self Assessment.

In the meantime, employers can continue to voluntarily register to payroll most BiKs. The next available opportunity is ahead of 6 April 2026 for the 2026/27 tax year. There will be no facility to register for payrolling mid-year prior to April 2027. The voluntary service will work in the same way as it does now in that not all BiKs can be payrolled. Voluntary payrolling of loans and accommodation will apply from the 2027-2028 tax year, but these benefits will eventually be subject to mandatory payrolling too.

What should employers do to prepare for the mandatory payrolling of BiKs?

The extension to April 2027 is a valuable opportunity to prepare for the mandatory payrolling of BiKs. Employers should take advantage of this additional time to plan and consider: 

• Avoiding under- and over-reporting: Reviewing benefits to check if they are currently being reported correctly. Over-reporting benefits might mean including benefits on P11Ds that might be exempt or deemed trivial by HMRC. If so, there could be opportunities for repayment.
• Benefit charges: Review where employees should reasonably cover costs to avoid a benefit charge, ensuring that repayments take place within the allowed time limits. This is especially relevant for benefits like private fuel.
• PAYE Settlement Agreement (PSA): Ensuring there is a PSA in place. This agreement with HMRC allows employers to cover the employee’s tax and NICs on taxable expenses or benefits directly. For non-exempt benefits and expenses, a PSA is needed to avoid declaring them on P11Ds or taxing them through payroll.
• Accuracy in reporting: Consider steps to correctly identify benefits that are subject to Class 1 NICs instead of Class 1A NICs.
• Location of benefit information: Benefit details are often stored across systems, with different individuals responsible for managing each benefit, including external providers. Consider ways to gather this information on a pay-period-by-pay-period basis.
• Payroll and/or benefit software: Review which software or software changes will be needed along with who will provide this. Early discussions are recommended.
• Handling complexities: Consider how you will manage employees who leave or join during the tax year, or benefits that change in value. This includes changes in company cars, flexible benefit arrangements and salary sacrifice schemes. Also consider whether benefit application windows should be aligned with the tax year.
• Overseas secondments or global mobile employees: Managing employees on secondment from overseas or benefits that other group companies provide can be complex. It’s important to be prepared to handle payrolling responsibilities, even when reliant on another company.

What’s coming next for BiKs?

We recommend employers use this time to plan and keep an eye out for further developments. It is expected that HMRC will consider producing draft legislation and guidance for consultation in autumn 2025, with responses considered between February and April 2026. Updated legislation and guidance will be released in July 2026. Get in touch with Susan, Lee Knight or your usual RSM contact if you would like to discuss BiKs further.