Payrolling Benefits in Kind (BIK) to become mandatory in 2027

Payrolling Benefits in Kind (PBIKs) delayed until April 2027

HMRC has announced that the mandatory PBIKs, due to be implemented from 6 April 2026, has been delayed until 6 April 2027.

This decision was made to allow stakeholders, such as software agents and employers, more time to prepare for the change. The technical note issued by HMRC provides additional operational information, enabling employers to adapt in time for April 2027.

Price Bailey strongly encourages voluntary registration for PBIKs before 6 April 2026, to allow sufficient time for employers to fully understand the implications and seek expert advice to educate and support their employees, particularly on the impact on their net pay and payslips, and in resolving any coding notice errors directly with HMRC.

Starting 6 April 2027, employers must report taxable Benefits in Kind (BIKs) and Class 1A NICs via payroll, under the Government’s plan to simplify UK tax.

This is a significant shift for employers who file P11D and P11D(b) forms, regardless of payroll size. P11Ds are still required for the both the 2025/26 and 2026/27 tax years, unless you register for Payroll Benefits early. Then from 2027/28, only the P11D(b) form will be needed to arrange Class 1A NICs payment.

In advance of this change, employers may have the following questions:

How will Benefits in Kind be reported from April 2027?

From 6 April 2027, taxable benefits will be reported to HMRC in real time via the payroll. This will be done through the Full Payment Submission (FPS) submitted to HMRC on each pay period, typically monthly, but it could also be weekly, quarterly, or annually.

The employer will need to work out the yearly value of the benefit and divide it by the number of pay periods in the year, to arrive at amount taxed in each pay period. If the benefit changes, the yearly value must be recalculated and adjusted equally through the remaining pay periods in the tax year.

Employers will also need to determine whether the benefit is liable to Class 1A NIC, so that the appropriate contributions can be deducted within the FPS submission as well.

Except for employer-provided accommodation and beneficial loans, employers will not need to submit forms P11D or P11D(b) for BIKs from the 2027/28 tax year onwards. While it will be possible to voluntarily payroll those two benefits from 6 April 2027, this is not mandatory.

How can employers prepare in advance?

Check whether your current payroll software meets the functionality requirements to allow you to payroll benefits. This is important even if you are already payrolling benefits, as some older and more established software providers may not be investing in the further expected changes which HMRC are yet to announce.
Make sure your employees are aware of the changes and their direct impacts, well in advance of April 2027. Employees will need to be aware of the effects on their net income, as well as the format and layout of their payslip. They will also need to check their coding notices. This will affect existing employees from April 2027, and new starters or leavers thereafter. HMRC intends to remove benefits from coding notices from 6 April 2027 to prevent double taxation, but past errors with coding notices mean issues are still likely to arise.
During the 2027/28 tax year, employees might face double taxation in some situations. For example, in April 2027, an employee’s tax code may factor in benefits from the 2026/27 period, which are processed after P11Ds are completed, as well as current benefits received in 2027/28.
All benefit data must be accurate and provided promptly for each payroll period. Sometimes, benefit information is spread across multiple systems, managed by various people or departments. Mistakes in reporting can result in penalties and directly affect employees’ net pay. For instance, if an error is not found until just before the tenth month’s pay period, it may be necessary to report the entire value of that error over the final three months (months 10, 11, and 12). This could further reduce employees’ net pay during those months.
Employers should ensure they are aware of employees who reimburse the cost of their benefits, as this can help to mitigate or eliminate potential benefit charges.

Why should businesses register early?

You will have more time to understand how PBIKs will impact your business.
You can educate your employees about changes to their net pay and payslips.
You will be able to resolve any coding notice issues with HMRC before the changes become mandatory.
Your employees can set up their personal tax accounts or download the HMRC app in advance.

How will these changes impact on employers already payrolling Benefits in Kind?

Those who have previously registered to voluntarily payroll their employees’ benefits should find the transition relatively easy to navigate, as their employees are already familiar with the process.

The main changes will be as follows:

Class 1A NIC will now be paid through the payroll so, as mentioned above, they will need to determine which benefits are liable to NIC.
Starting in April 2027, you will have the option to voluntarily include employer-provided accommodation and beneficial loans in payroll.

What about existing PAYE settlement agreements?

Some employers report employee benefits through a PAYE settlement agreement (PSA), paying income tax and Class 1B NIC on both the benefit’s value and the associated tax. This process remains unchanged by the requirement to payroll BIK.

We are expecting HMRC to issue updated guidance during the 2025/26 tax year, and we will keep you posted on developments. Following our successful Payrolling Benefits in Kind webinar in January 2025, we are planning to host another session in early 2026 (date to be confirmed). In the meantime have produced a one page FAQ flyer from some of the key questions we had during the webinar.

Download our FAQ flyer

In the meantime, if you should require any assistance with the proposed changes to payrolling benefits in kind, or advice on other payroll matters, please use the form below to contact one of our payroll team.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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