Payrolling benefits in kind (BIKs)

What can you do to prepare

These changes represent a significant shift for employers and employees. Do not underestimate how complex they are, how many parts of your organisation they might affect, and just how long they will take to embed.

You will need to report even more data than is currently required (even if you are already payrolling benefits), to provide a full breakdown of the benefits being reported through the payroll, and to reflect the Class 1A NIC being payrolled.

In order to get prepared, you should:

1. Make sure you have all the correct benefit information from within your business and from benefit providers.

2. Have systems in place for calculating benefit in kind values which are to be processed in the payroll for each of your pay periods, including adjustments for starters, leavers and benefit cost changes.

3. Communicate the impact of the changes to your employees. The tax adjustment for benefits has always been delayed to the following tax year, after the submission of form P11d. From April 2027 employees will see changes to their tax codes and payslips, and they will be paying tax on benefits in real time.

• In addition, if errors are made, the correction must be processed over the remaining months of the tax year, which could further impact on their net pay.
• Furthermore, if your employees have underpayments of benefits from an earlier year, they will be taxed twice; in real time for the 2027/28 benefit and for the unpaid tax on earlier year benefit adjustments.

4. Ensure that your 2027/28 forecasts include the financial impact of paying Class 1A NIC for both 2026/27 and 2027/28 in the same year.

5. Establish an end of year process if you do not know the value of taxable benefits in kind during the year. We are expecting HMRC to introduce a ‘month 13’ to allow employers to correct some benefits which they previously had to estimate.

6. We would advise your employees to set up their Personal Tax Account (PTA) with HMRC, if not done already. They will be able to access all their tax information, including the benefits in their PTA, and liaise with HMRC before and after April 2027.

In terms of penalties. HMRC have said that there will be a light touch approach in 2027/28, unless the errors are deliberate. From 2028/29 onwards, the penalty regime will be in force.

The HMRC guidance is still in draft format. They have said that they will provide the final specifications to software developers sometime between June and December 2026. This does not leave much time for software to be updated, tested and rolled out.

Their current timetable is as follows.