Mandatory Payrolling of Benefits in Kind (BiKs) Arrives April 2027

HMRC publishes draft guidance on major reporting overhaul, signalling the end of the P11D era for most employers.

The way UK businesses report and tax employee Benefits in Kind (BiKs) is set for its most significant change in decades. Following a delay, HMRC has confirmed that mandatory payrolling of most BiKs and taxable expenses will commence on 6 April 2027. The guidance was released on 26 November and provides an overview of how the new benefits in kind (BiKs) reporting system will operate to help businesses prepare for the new reporting system. However, this is subject to change as the policy positions may be further refined until the legislation is finalised in Autumn 2026

The shift requires moving from an annual, end-of-year reporting process to a real-time, per-pay-period calculation, a major administrative change for any business currently submitting P11D forms.

The Core Change: Mandatory Real-Time Reporting

The new system fundamentally changes the mechanics of BiK reporting:

1. The Default is Payrolling

From April 2027, the default and mandatory method for reporting most BiKs will be through your payroll system via the Full Payment Submission (FPS), which is already used for Real Time Information (RTI) reporting.

  • Income Tax and Class 1A NICs must be calculated and deducted on the cash equivalent of the benefit in each pay period (e.g., monthly).

  • The benefit’s annual value will be estimated, divided across the pay periods, and taxed accordingly. Adjustments must be made in-year if the benefit’s value changes.

2. End of the P11D

For any benefit that is payrolled, the corresponding Forms P11D and P11D(b) will no longer be required. This eliminates the annual reconciliation task for the majority of benefits provided.

3. Exceptions (Voluntary Payrolling)

Two specific types of BiKs are currently excluded from the mandatory requirement but can be payrolled voluntarily from April 2027:

  • Employment-related loans (e.g., beneficial loans).

  • Employer-provided accommodation.

If you choose not to payroll these exceptions, you will still need to submit a P11D/P11D(b) solely for these items. However, to simplify processes, most businesses are expected to voluntarily payroll these items to move to a single reporting system.

 Action Points for Businesses: Prepare Now

HMRC has published draft guidance to give businesses ample time to transition, noting that the final legislation will be released in Autumn 2026. The 18-month lead time is vital, and businesses must use it effectively.

1. Data Audit and Flow Review

The most immediate challenge is getting accurate BiK data to your payroll team (or agent) on time for every pay run.

  • Audit: Create a comprehensive list of every benefit you provide that is currently on a P11D.

  • Process Mapping: Review how BiK information flows from the point of provision (e.g., HR, Fleet Manager, Finance) to the payroll processor. This process needs to shift from annual data gathering to monthly or weekly real-time updates.

2. Software Review and Testing

You must ensure your current payroll software can handle the mandatory payrolling functionality and accurately process both the tax and the Class 1A NICs in real time.

3. Employee Communication

Employees currently pay tax on BiKs in arrears through their tax code the following year. From April 2027, they will pay tax on their BiKs in the same year they receive them.

You must prepare clear communications to explain this change to employees to prevent confusion and address concerns about perceived "double taxation" in the first year of the transition. HMRC has committed to helping employees spread any transitional underpayments.

How Mascolo & Styles Can Help

The complexity of mandatory payrolling, especially the technical calculation and timing, means a reliable outsourced payroll partner is essential. Do not wait until the legislation is finalised in 2026 to start preparing.

Contact Mascolo & Styles today to schedule review of the services we provide and ensure a seamless transition to the new real-time system.

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