HM Revenue & Customs (HMRC) has announced a significant update regarding the mandatory payrolling of benefits in kind (BiKs). Originally slated for implementation in April 2026, the requirement has now been postponed to April 2027. This extension provides employers with additional time to prepare for the transition to real-time reporting of BiKs through payroll systems.
Understanding the Delay
The decision to delay the mandatory payrolling of BiKs follows extensive feedback from stakeholders, including employers, payroll professionals, and software providers. Concerns were raised about the readiness of payroll systems and the need for comprehensive guidance to ensure a smooth transition. In response, HMRC has extended the timeline to allow for adequate preparation and system updates.
Key Changes Effective from April 2027
From 6 April 2027, employers will be required to report most BiKs through payroll on a real-time basis. This shift aims to streamline the tax process by integrating BiK reporting into the existing Pay As You Earn (PAYE) system. Key aspects of the new requirements include:
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Real-Time Reporting: Employers must calculate the cash equivalent of each BiK and report it through the Full Payment Submission (FPS) with each payroll cycle.
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Class 1A National Insurance Contributions (NICs): These will be calculated and paid in real-time alongside income tax, rather than through the annual P11D(b) process.
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Elimination of P11D Forms: For most BiKs, the need to submit P11D forms at the end of the tax year will be removed, reducing administrative burdens.
Exceptions and Voluntary Payrolling
Certain BiKs, such as employer-provided accommodation and interest-free or low-interest loans, will not be subject to mandatory payrolling from April 2027. However, employers will have the option to payroll these benefits voluntarily. HMRC has indicated that guidance on the future mandatory treatment of these benefits will be provided in due course.
Preparatory Steps for Employers
The extended timeline offers a valuable opportunity for employers to:
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Review and Update Payroll Systems: Ensure that payroll software is capable of handling real-time BiK reporting and calculations.
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Assess Internal Processes: Evaluate current procedures for tracking and reporting BiKs to identify areas requiring adjustment.
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Train Staff: Provide training for payroll and HR personnel to familiarize them with the upcoming changes and reporting requirements.
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Communicate with Employees: Inform employees about how the changes may affect their pay and tax deductions to manage expectations and address concerns
Timeline for Implementation
HMRC has outlined the following schedule leading up to the mandatory implementation:
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Autumn 2025: Publication of draft legislation and guidance for consultation.
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February – April 2026: Review of consultation responses and finalization of legislation.
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July 2026: Release of updated legislation and guidance.
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November 2026 – April 2027: Registration period for voluntary payrolling of accommodation and loan benefits for the 2027/28 tax year.
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April 2027: Mandatory payrolling of most BiKs comes into effect.
Conclusion
The postponement of mandatory payrolling of BiKs to April 2027 provides employers with a crucial window to prepare for significant changes in payroll reporting. By proactively updating systems, training staff, and communicating with employees, businesses can ensure a seamless transition to the new requirements. Staying informed and engaged with HMRC’s forthcoming guidance will be essential in navigating this shift effectively.
For further information and assistance in preparing for these changes, please contact Your Payroll Team Ltd. Our experts are ready to support your business through this transition.