The government recently announced a delay in making the payrolling of most benefits in kind (BiKs) and expenses mandatory, so that this will now take effect from 6 April 2027 as opposed to 6 April 2026 as previously announced. This gives businesses more time to get familiar with the procedures and requirements that will come into force in 2027, the most important of which we have outlined below.
Registration
There is no need for employers to register to payroll BiKs from April 2027 unless they’re payrolling loans and accommodation benefits. HMRC will automatically remove benefits from employees’ tax codes ahead of mandatory payrolling in April 2027.
There’s the option to voluntarily payroll most BiKs before it becomes mandatory, but registration is required to do so. Voluntary registration for applicable BiKs must be completed before the tax year begins, so you will need to register before 6th April 2026, to voluntarily payroll benefits for tax year 2026/27. Payrolling loans and accommodation are the only exception to this, as they cannot currently be payrolled. The Registration service for voluntarily payrolling loans and accommodation are expected to open from November 2026.
Reporting
When payrolling BiKs becomes mandatory, the taxable value of BiKs and expenses will be reported via the full payment submission (FPS), allowing tax and Class 1A National Insurance contributions (NICs) to be reported in real time, removing the P11D(b) requirement (which is currently still necessary when voluntarily payrolling BiKs).
In order to facilitate this, FPS fields need to be increased to match the information reported on P11D and P11D(b) forms. It’s currently estimated that over 100 new fields will be required to allow HMRC to ensure correct tax is being reported and paid!
Calculations
The calculation process will remain the same as that currently used for those voluntarily payrolling benefits; which is the annual cash equivalent of the benefit divided by number of pay periods per year and processed through payroll.
Where the value of the benefit isn’t known at the start of the tax year, a reasonable estimate of the taxable value must be made. Where cash equivalent changes mid-tax year, the revised taxable amount must be calculated and payrolled for the remaining pay periods that tax year.
Where employers and payroll haven’t been notified that an employee has received a BiK in a timely fashion, the BiK can be reported as soon as possible, with the full BiK value payrolled, in the remaining pay periods that tax year. No prior adjustment is required.
An additional update process will be established for BiKs and expenses where the income tax and Class 1A NICs couldn’t be confirmed within the tax year. This will be used to record any under or overpayments of tax and details must be reported by 6 July following the tax year and any Class 1A NICs owing paid by 22 July following the tax year.
Charges
There will be no penalties for inaccuracies charged where mistakes are made in relation to mandatory payrolling in RTI returns for 2027/28, unless there’s evidence of non-compliance. Late filing and late payment penalties will still apply that year and so will statutory late payment interest.
There will also be no changes to penalties for P11D and P11D(b) returns where employers are required to complete those returns, such as for employment-related loans or accommodation that aren’t payrolled.
We are currently awaiting draft guidance to be published that will give further details on penalties and interest that will apply from 2028/29 onwards.
The move to mandatory payrolling of benefits is a big change and represents just one of the challenges in keeping your payrolling processes up to date. If this sounds like too much hassle, why not outsource to us? Get a quote today!