Mandatory payrolling of Benefits in Kind (BiKs) is now due to become compulsory from 6 April 2027, a year later than originally planned, and will significantly change how most employers report and pay tax on employee benefits. For owner managed businesses, this delay provides breathing space, but the direction of travel is unchanged and preparation is still essential.

What are Benefits in Kind?

Benefits in Kind are non-cash perks provided to employees that have a taxable value, such as company cars, fuel, private medical insurance, employer-funded health plans, gym memberships and certain vouchers or allowances. These benefits are currently reported to HMRC each year on forms P11D, with a P11D(b) used to calculate the employer’s Class 1A National Insurance Contributions (NICs) bill.

At present, payrolling benefits is optional and only available to employers who register in advance through HMRC’s online payrolling benefits service. Even where benefits are payrolled voluntarily, employers still submit a P11D(b) to report and pay Class 1A NIC each year.

What’s changing from April 2027?

HMRC has confirmed that, from 6 April 2027, most taxable benefits and certain expenses will have to be reported and taxed in real time via payroll, using the Full Payment Submission (FPS) that employers already send under RTI. This represents a move away from annual, form-based reporting and towards a fully payrolled model for BiKs.

Key confirmed points include:

• Mandatory payrolling will apply to most non-cash BiKs and taxable expenses from 6 April 2027.
• Forms P11D and P11D(b) will continue to be required up to and including the 2026/27 tax year (filing deadline 6 July 2027).
• After that, P11Ds will generally only be needed for specific items that remain outside mandatory payrolling.

The change was initially scheduled for April 2026, but was postponed to April 2027 following industry feedback to give employers and software providers more time to prepare.

Which benefits are in – and which are out?

From April 2027, the default position is that taxable benefits and expenses that are currently reported on P11Ds will instead be reported through the payroll FPS. Income tax will be collected through PAYE during the year, and Class 1A NIC will also move into a more real-time framework via payroll.

However, there are some important exceptions and nuances:

• Employer-provided living accommodation and interest-free or low-interest employment-related loans will initially sit outside the mandatory requirement and will continue to use P11Ds and P11D(b) for the time being.
• From April 2027, it will become possible to payroll loans and accommodation on a voluntary basis, but employers will need to register in advance if they want to do so.
• HMRC has indicated that a timeline for bringing these remaining benefits into the mandatory regime will be set out separately in due course.

Some benefits may still be included within PAYE Settlement Agreements (PSAs), where the employer pays the tax and Class 1B NIC on certain minor, irregular or impracticable benefits. PSAs will continue to operate, but the interaction with mandatory payrolling will need careful handling once the detailed rules are finalised.

Why the change matters

Under the current system, employees can see the tax effect of benefits via tax code adjustments or one-off bills long after the benefit is provided, which can be confusing. From April 2027, taxable benefits will be rolled into pay as they arise, so the tax is deducted through PAYE and the impact is visible on the payslip at the time.

For employers, the shift:

• Reduces reliance on annual P11D cycles, moving compliance into the regular payroll timetable instead.
• Brings Class 1A NIC closer to real time, altering when and how liabilities are calculated and paid.
• Should, over time, reduce the volume of coding notices and queries from HMRC, because employees’ tax positions should be more accurate during the year.

The trade-off is that what has historically been a once-a-year exercise will become a monthly or weekly discipline, with greater emphasis on accurate and timely benefit data feeding into payroll.

Practical steps to take before April 2027

Although the start date has moved back, many advisers are stressing that employers should use the extra time to get ahead rather than pausing preparations. For owner managed businesses, the following steps can make the transition smoother.

1. Identify and document all benefits

Begin by building a clear picture of what you actually provide:

• List all taxable benefits and expenses, including cars, fuel, medical cover, health cash plans, life assurance, staff entertainment, vouchers and any staff perks with a monetary value.
• Note which items are currently reported on P11Ds, which are covered by a PSA, and which fall into existing exemptions such as trivial benefits or approved salary sacrifice schemes.

This mapping exercise will clarify which categories will move into payroll and where information currently sits (for example with HR, finance, payroll or external providers).

2. Review payroll software and data flows

Mandatory payrolling assumes that your payroll software can handle different benefit types, mid-year changes and Class 1A NIC within routine processing.

Points to check:

• Whether your current payroll system already supports payrolling of benefits, and for which types.
• How benefit data will reach payroll each pay period, and who is responsible for updating the records when employees join, leave, or change benefits mid-year.
• How Class 1A NIC on payrolled benefits will be tracked and reconciled, given the move away from an annual, stand-alone P11D(b) calculation.

If your software or internal processes are not yet set up for this, there is time to plan upgrades or process changes before April 2027.

3. Consider voluntary payrolling before it becomes compulsory

The delay means there is at least one more year when payrolling can be adopted voluntarily, giving you a “test bed” before it becomes mandatory.

Potential advantages of early or partial adoption:

• You can trial payrolling on selected benefits (for example, medical insurance or cars) to see how your systems and staff cope in practice.
• You can identify snags around data quality, timing, or employee queries while there is still room to refine processes.

For 2026/27, employers who wish to voluntarily payroll benefits still need to register with HMRC in advance, in line with current rules.

4. Plan your staff communications

From 2027, employees will see the taxable value of benefits in their pay and deductions, which may prompt questions about net pay.

Areas to cover when planning communications:

• Explain what payrolling benefits means and how it alters the way tax on perks is collected.
• Emphasise that the aim is more accurate and timely tax, reducing unexpected bills caused by tax code changes later on.
• Flag any transitional issues, for example adjustments to tax codes as HMRC removes benefits from codes in readiness for payrolling from April 2027.

Clear, early communication can reduce confusion and build confidence in the new approach.

5. Track HMRC updates and detailed guidance

HMRC has started to publish technical notes and draft guidance to help employers prepare, and more detail will emerge as April 2027 approaches.

Points still evolving include:

• Detailed operational rules for reporting Class 1A NIC via payroll and the exact payment timings.
• The longer-term plan for bringing accommodation and beneficial loans fully into the mandatory regime.
• Any special provisions for more complex situations such as internationally mobile employees or modified PAYE arrangements.

Keeping an eye on HMRC publications and reputable professional commentary will be important through 2025 and 2026. We’ll keep you posted too!

Time to start planning

Mandatory payrolling of Benefits in Kind is now firmly on the horizon for April 2027 and will reshape how benefits are reported and taxed for most employers.

Owner managed businesses that use the extra time to map their benefits, review payroll capabilities and plan communication will be in a far stronger position when the change arrives.

If you’d like to review your current position, understand how the 2027 changes will apply to your business, or explore voluntary payrolling ahead of the deadline, please get in touch .