Payrolling benefits in kind (BIKs) delayed until April 2027

As part of HMRC’s plans to simplify and modernise the UK tax system, from 6 April 2027, employers who provide taxable benefits in kind (BIK) to their employees will be required to report these benefits and the Class 1A national insurance contributions (NIC), via their payroll.

This is a major change for most employers who currently prepare and submit forms P11D and P11D(b), as the change is irrespective of the size of your payroll.

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

How can employers prepare in advance?

1. 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 still to announce.
2. Make sure your employees are aware of the changes, and how this will impact on them, well in advance of April 2027. Employees will need to be aware that their net income will be affected, as will the format and layout of their payslip. They will also need to check their coding notices. This will apply to existing employees in April 2027and to starters and leavers thereafter. At the moment HMRC have said that they will, where applicable, remove benefits from coding notices from 6 April 2027, to avoid employees being tax ed twice. There is some scepticism that this will be as seamless as HMRC suggest.
3. There will be situations where an employee will be taxed twice in 2027/28. For example, in April 2027 an employee’s tax code may reflect benefits from the 2026/27 year, once the P11Ds have been complete, whilst being taxed on the live benefits received in 2027/28.
4. All benefit data must be accurate and available in good time for each payroll pay period. Benefit information is sometimes held in multiple systems, with different people or departments responsible for each benefit. Errors in reporting could lead to penalties and would have a direct impact on the net pay of your employees. For example, if an error goes unreported until prior to the month 10 pay period, we are currently expecting that whole value of the error, will need to be reported across the remaining three months (months 10, 11 and 12). This could have an even bigger impact on an employees’ net pay.
5. Employers must be aware of employees who make good the cost of their benefit, to mitigate or avoid a benefit charge.

What about existing PAYE settlement agreements?

Some employers will already be reporting some employee benefits under a PAYE settlement agreement (PSA). They will be paying income tax on behalf of their employees, and Class 1B NIC on the value of the benefit and the tax paid. This will continue and is unaffected by the mandating of payrolling benefits in kind.

We are expecting HMRC to issue updated guidance during the 2025/26 tax year, and we will keep you posted on developments. Following the success of our webinar on Payrolling Benefits in Kind in January 2025 (link here?), we will also be running another webinar later this year. More details will be issued nearer the time.

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.