Mandatory payrolling of benefits in kind to be phased in

In a move that has been described as a ‘welcome step’, the mandatory payrolling of most benefits in kind will be introduced as a phased rollout.

This will give employers more time to prepare for the changes.

What Are Benefits in Kind?

Benefits in kind (BiKs) are non-cash perks such as company cars or private medical insurance.

Currently, most employers report these once a year using a Form P11D, with tax collected through adjustments to employees’ tax codes.

For more information on BiKs and how they work, take a look at our What are benefits in kind? page.

Why the Current System Can Lead to Inaccuracies

These yearly reports can lead to inaccuracies as the amounts are often based on estimates or outdated information.

This can result in the employee receiving an unwelcome tax bill after the end of the tax year for any underpaid tax.

Payrolling Employee Benefits

Under payrolling, the value of these benefits is added to employees’ pay in real time, so the correct tax is deducted through the payroll each month.

While this should improve accuracy and transparency, it also requires employers to gather detailed information more frequently about the benefits they provide and ensure their payroll and other internal systems can handle the changes.

Phased Rollout of Mandatory BiKs

Employers have been able to payroll benefits voluntarily since April 2016, although the information to be reported has been fairly limited.

HMRC had planned to introduce mandatory payrolling for all benefits and more detailed information requirements from April 2027.

However, following discussions with the Association of Taxation Technicians (ATT), other professional bodies and the software industry, it has now been confirmed that a phased approach will be taken.

This means that:

• From April 2027, only the most common, usually straightforward benefits – company cars and fuel, vans and fuel and private medical insurance – will now have to be payrolled.
• Most other benefits, other than loans and living accommodation, will follow from April 2028, although employers can choose to payroll them in the 2027/28 tax year voluntarily if they wish.

For more information, please contact Jaime on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.