Payrolling benefits in kind (BIKs)

New: HMRC has published further interim guidance

On 31 July 2026, HMRC updated its interim guidance across three areas: how to payroll different benefit scenarios, which data fields will be required for reporting, and how corrections and adjustments will work. Taken together, this is the most concrete picture offered yet of how phase 1 will operate in practice.

How reporting will work: Full Payment Submission (FPS)

From April 2027, phase 1 benefits will be reported through the Full Payment Submission (FPS), the same mechanism employers already use to report salary, other income and tax liabilities. The FPS will carry the taxable values of BIKs and expenses so that Income Tax and Class 1A NIC can be reported at each payroll date throughout the tax year, rather than once a year on a P11D.

Where an employee has more than one mandated benefit that attracts Class 1A NIC, for example a company car and private medical insurance, the taxable values can be combined and reported through the relevant Class 1A NIC data items on the FPS, rather than reported individually.

Fewer data fields than originally proposed, but new ones for phase 1 benefits

HMRC has confirmed it is removing around 94 real-time information (RTI) data fields originally included in the proposal of all benefits. However, because only five benefit types are mandated from April 2027, the data requirements for everything else have been removed for now.

Additionally, the FPS will gain new fields specific to the phase 1 benefits themselves. Annex 3 of the guidance sets these out in detail: separate data items for cars (including make and model, CO2 emissions, zero-emissions mileage, cash equivalent and fuel details), vans, and private medical benefits, as well as new Class 1A NIC fields to capture the real-time contributions due. HMRC has also confirmed that the ‘Description of Other Asset’ field, which had been under consideration, has been removed from the phase 1 requirement.

If you run payroll in-house, this is the moment to ask your software provider what its phase 1 build looks like against Annex 3, and when it will be tested. Updated technical specifications are due to be made available to software providers in autumn 2026.

Corrections and end-of-year adjustments

HMRC has also sharpened its guidance on what happens when the value of a benefit changes during the year, or is not known until after the tax year ends. Employers can revalue a benefit in-year and adjust the remaining pay periods accordingly, or use the end-of-year BIKs update process to correct figures once actual values are known, for example for benefits like accommodation or loans that are voluntarily payrolled on an estimated basis. HMRC has clarified that there is currently no requirement to give a specific reason for a late correction when using the end-of-year update process, and has improved its worked examples for scenarios such as an employee leaving partway through the tax year.

The guidance illustrates the calculation mechanics with worked examples, including how a benefit’s annual cost is divided across the remaining pay periods (monthly, weekly or irregular), and how a revised in-year value is apportioned between what has already been reported and what is still to come. The underlying principle for phase 1 benefits is straightforward even though the examples get detailed: divide the annual cash equivalent by the number of remaining pay periods, and recalculate the remaining periods whenever the value changes.

Registration: what you do and don’t need to do

Employers do not need to register to payroll the phase 1 mandatory benefits, cars, car fuel, vans, van fuel and medical benefits, from April 2027. HMRC will automatically remove these benefits from affected employees’ tax codes ahead of 6 April 2027.

Registration is only needed if you want to voluntarily payroll benefits that fall outside phase 1, principally loans and accommodation. That registration service opens in November 2026 and closes on 5 April 2027 for the 2027/28 tax year. Be aware that the voluntary service will not carry the same extra RTI data fields as the mandatory service, so it is a materially different process, not simply an early version of phase 1.

The previous voluntary payrolling service, which some employers used to get ahead of the old single-phase timetable, closed to new registrations on 5 April 2026. That route is no longer available.