Mandatory Payrolling of Benefits in Kind: planning ahead

HMRC have confirmed the new PBiKs regime has been delayed and will now be introduced from 6 April 2027. We look at what this significant change means for employers.

From 6 April 2027, it will no longer be possible to report Benefits in Kind (BiKs) on a P11D (except for beneficial loans and accommodation). Instead employers will be required to report and process Income Tax and Class 1A NICs on most BiKs through payroll in real-time.

Originally HMRC announced that this regime was to be implemented from 6 April 2026. However, after recent discussions with stakeholders, it was announced to Parliament that the implementation is to be delayed by a year to provide more time for employers, payroll professionals, software providers and tax agents to prepare for the change.

The concept of payrolling benefits isn’t entirely new and, for some time, it’s been possible for employers to enter a voluntary payrolling benefits regime with HMRC. But the change from 2027/28 will see all employers forced to take action.

For the 2024/25, 2025/26 and 2026/27 tax years, employers will still need to file Forms P11D, and a Form P11D(b) summarising Class 1A NICs due. These must be submitted by 6 July following the end of the tax year, and Class 1A NICs remitted to HMRC by 22 July.

What should employers be thinking about?

Whilst in theory payrolling of benefits represents a simplification of the tax system, there are many practical points for employers to consider in advance of this change. Reliance cannot be placed on outsourced payroll providers to ensure new obligations are met. It is therefore important that employers use this additional 12 months before payrolling becomes mandatory to plan for the change.

Here are some key considerations:

Determine what benefits are provided and to whom. Brokers will need to set up a robust process to understand what BiKs are being provided in real-time, and which employees or Directors are receiving them. This may sound simple, but can be complicated by new joiners, leavers, individuals on long-term periods of absence (ie parental leave, sickness, sabbatical), or any new or one off benefits for example.

This period of change may provide a wider opportunity for brokers to revisit employee reward arrangements. With careful consideration, they could perhaps mitigate some of the increased employer NIC costs which took effect in April 2025 by offering their employees tax efficient benefits or reward schemes.

Third-party vendors and data management. The change means employers must ensure accurate benefit data is available more regularly, compared to the annual process under existing P11D obligations. This additional data management burden will require detailed planning with third party providers. Underlying contractual terms may need to be updated to establish new data delivery agreements in advance of 6 April 2027.

Calculating BiK values in real time. For some BiKs the taxable value is simply the cash equivalent of the amount paid by the employer. But for others there are more complex tax calculations to apply. Currently employers have until the P11D filing deadline to make these calculations. But in the future the window will be much shorter and limited to the payroll period, typically monthly for brokers.

Some employees receive multiple benefits, or they may vary during a tax year (eg changing medical insurance from single to family cover, receiving a one-off benefit, or changing company car. In these cases the cash equivalent calculations may be complex. Employers should plan a robust process to address this.

Updating payroll processes. Regardless of whether brokers manage payroll operations in-house or outsource this process, all businesses will need to review existing payroll processes and update them to account for the new obligations. It’s likely that stakeholders from a range of internal functions will need to input or be consulted. These might include tax, reward, payroll and HR roles. Given Class 1A NICs will be due in real time (rather than after the end of the tax year), finance teams should also be involved to assess cash flow impact.

Employee communications. In future, under the payrolling regime, the value of benefits must be added to the employee’s taxable pay as a notional payment for each pay period. So individuals that receive taxable benefits will likely see a change to their net pay in transitional years if benefits have not previously been payrolled. This is because PAYE codes will be amended to account for any underpaid tax related to BiKs reported on Forms P11Ds in 2026/27 and BiKs taxed in real time from 2027/28 onwards. The impact will be greatest for more expensive benefits.

As with all pay and remuneration-related changes, it’s vital to manage employee expectations carefully. Month-to-month payslip presentation will, of course, be important. But employers may also consider other communications ahead of the change to highlight the mandatory payrolling regime: what will change and how it could impact employees.

Governance and controls. HMRC will, in theory, have more immediate access to BiK data under the new regime. This places even more importance on setting up appropriate internal controls to ensure compliance. It is also worth noting that, as a payroll obligation, BiK reporting will now fall within the Senior Accounting Officer regime for those very large brokers (the Form P11D and P11D(b) process was not previously included).