In a world where payroll and compliance are under more scrutiny than ever, the way organisations manage and report employee taxable non-cash benefits in kind is changing significantly. HMRC’s long-awaited move to mandatory payrolling of Benefits in Kind (PBiKs) will now come into effect from 6 April 2027, giving employers an additional year to prepare.

The extension may bring welcome breathing space. But organisations should use the time wisely, seizing it as an opportunity to test rather than rest.

What are payrolled benefits in kind (PBiKs)?

Benefits in Kind (BiKs) are any non-cash benefits provided by an employer to their employees, such as company cars, private medical insurance and gym memberships. Traditionally, organisations have reported these annually via the P11D process, with HMRC collecting the associated tax due either via self-assessment or through an adjustment to an employee’s tax code.

PBiKs change this dynamic. Instead of reporting taxable non-cash benefits in kind retrospectively, employers will process them in real time through payroll. This means employees will be taxed on their taxable non-cash benefits in kind monthly, improving transparency and reducing administrative burden at year-end.

Deadline shift: mandatory PBiKs now effective from April 2027

Originally, HMRC had indicated that mandatory PBiKs would take effect from April 2026. However, following industry consultation, and an update earlier this year, the authority postponed the date to April 2027.
Employers who want to voluntarily payroll their taxable non-cash benefits in kind for the 2026/27 tax year must still register with HMRC by 5 April 2026. For many, this transitional year offers a chance to road-test systems, processes and communications before compliance becomes compulsory.

Why mandatory PBiKs are a major change for employers

While a one-year delay might seem like a minor adjustment, it reflects the scale of change required across UK payroll functions.

For all employers, especially those with complex benefits packages, moving to mandatory payrolling involves:

• Technology readiness:  payroll systems must be configured to process benefits alongside salaries, ensuring accuracy in reporting and deductions.
• Data integration: HR, payroll and finance systems and teams must work together seamlessly, reducing duplication and minimising error.
• Employee communication: once you have registered for PBiKs, you are obligated to provide written notifications to employees, explaining that you’re payrolling taxable non-cash benefits in kind and what this means for them.
• Compliance and risk management: errors in payrolled benefits can create compliance risks that are harder to correct in real time.
• Ownership and responsibility: employers must determine who will have responsibility for each aspect of the PBiK process, including who is responsible for liaising with benefit providers, who will be responsible for calculating the cash equivalent of each benefit each month, and who is responsible for checking and ensuring any changes are captured.

This is not just a payroll adjustment; it is a business-wide change.

Opportunities for employers: early adoption of PBiKs

Employers who start planning now will benefit from:

1. Smoother transition: early adopters will be able to identify and resolve system issues before the mandatory deadline.
2. Employee confidence: clear, proactive communication helps avoid confusion and builds trust.
3. Strategic alignment: linking benefits reporting to payroll gives organisations a more accurate, real-time view of total reward costs.
4. Competitive advantage: organisations that modernise early can position themselves as progressive, compliant and employee-focused.

What employers should do now

Assess current processes

Review which taxable non-cash benefits in kind are currently reported on Forms P11D, how they are tracked and whether your payroll system can handle real-time reporting.

Talk to your payroll provider

If you outsource payroll, confirm whether your provider is ready for PBiKs, and what support they will offer during the transition.

Run a pilot

Consider registering voluntarily by 5 April 2026 to payroll certain taxable non-cash benefits in kind for the 2026/27 tax year. This gives your organisation a safe testing ground ahead of the mandatory deadline.

Update policies and communications

Employees need clear explanations of what payrolling means for them.

Invest in technology and training

Use the extra year to update systems, train staff, and ensure there is clarity as to who in your organisation will have responsibility for each aspect of the PBIK process.

A critical moment for payroll strategy

At RSM, we see this as more than a compliance exercise. It is an opportunity for businesses to rethink their payroll strategy, streamline processes and strengthen employee engagement. Payroll has often been viewed as a back-office function, but with changes like PBiKs, it sits firmly at the centre of the employee experience.

Done well, the shift to mandatory PBiKs will:

• Improve transparency for employees.
• Reduce year-end pressure for payroll teams.
• Enhance organisational insight into total reward and benefits.

But done poorly, it risks confusion, compliance breaches and reputational damage.

Next steps: leveraging the PBiK deadline extension for compliance

With the deadline now extended, organisations have the rare luxury of time. The smart move is to use this time wisely. Employers who start planning today will be the ones who transition smoothly, avoid compliance risks and deliver a better experience for their employees tomorrow.

While there are still some areas of uncertainty, especially around beneficial loans and living accommodation benefits, we are expecting further guidance from HMRC shortly.

We’re here to help organisations navigate these changes, turning regulatory shifts into opportunities for smarter, more efficient payroll and people strategies. If you have any questions, please do reach out to one of our team.

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