Understanding the shifting timeline for payrolling Benefits in Kind

The Government’s October 2024 budget confirmed it would become mandatory to payroll all benefits in kind (BIKs) from April 2026. However, in April 2025, HMRC announced this mandate will now come into effect from 6 April 2027, giving employers an extra year to prepare for this significant change in payroll processing.

Liz Marker, Payroll Manager at Westcotts, looks at the changes ahead and discusses why businesses should consider adopting the new regime early.

What are Benefits in Kind (BIKs)?

A quick refresher first on what are Benefits in Kind – BIKs are non-cash perks provided by employers, such as company cars, private healthcare or gym memberships, which because they have a value attached them are still taxable. Currently, most BIKs are reported to HMRC via annual P11D (and P11D(b) forms for employers National Insurance). Employees who are in receipt of these taxable benefits then pay the relevant income tax via a self-assessment. Alternatively, HMRC will collect the tax through a tax code adjustment through PAYE.

What’s changing – and when?

From April 2027, all relevant benefits in kind, income tax and Class 1A NICs will need to be reported to HMRC via PAYE and taxed through payroll. The service will work digitally using Real Time Information (RTI) via the Full Payment Submission (FPS). This change is designed to streamline reporting and remove the need for separate P11D submissions.

Under the previous April 2026 deadline, not all benefits were be included initially, such as beneficial loans and employer-provided living accommodation and would still be required to be dealt with via P11D reporting. It remains to be seen whether the additional time allowed by the revised deadline means these anomalies are being ironed out.

So, should employers adopt early?

The straightforward answer is yes, and indeed we are seeing many of our own clients doing this already.

While the April 2027 date marks the formal requirement, employers can voluntarily begin payrolling BIKs now. Registration with HMRC must be completed before the start of the tax year (i.e. by 5 April) for it to apply in the following year. So, if you haven’t already made the leap you have missed the boat for this tax year. But there is still the opportunity to be thinking ahead now in readiness for 2026/27 and at Westcotts we are actively encouraging clients to do so.

Early adoption offers several advantages:

• It simplifies future compliance
• Demonstrates proactive financial management
• Helps spread the learning curve for payroll and finance teams
• Allows time to refine internal processes and software integration.

There is a one-year crossover during which P11Ds will still be required. For instance, if an employer starts payrolling BIKs from April 2026, they’ll still need to submit P11Ds for the 2025/26 tax year, by 6 July 2026. From then on, assuming all relevant BIKs are payrolled, P11Ds will no longer be required for those benefits.

Software and reporting readiness

Most major payroll software providers have already updated or are in the process of updating their systems to accommodate BIK payrolling ahead of April 2027. Employers should speak to their providers now to confirm capabilities and identify any upgrade requirements or additional costs.

Communicating with employees

Once businesses have registered to payroll benefits, they must give their employees written notification either by payslip, email or letter. This must explain that you’re payrolling their benefits in kind and what it means for them.

Businesses must send the notification by 1 June after the end of each tax year. The notification should include information on the benefits in kind which have been payrolled, the amount payrolled for option remuneration and details of the benefits not payrolled. They will also need to know that their tax code will change to take out the adjustment for their benefits in kind.

Next Steps for Employers

With the extended deadline, now is the time to:

• Review your current BIK offerings and reporting processes
• Speak with your payroll provider to assess system readiness
• Consider voluntary registration for payrolling BIKs from April 2026
• And engage with payroll or tax advisers to ensure compliance

Our payroll team at Westcotts is supporting many clients through this transition. If you’d like to explore early adoption or want to discuss your options, we’re happy to help. Please contact Liz Marker (liz.marker@westcotts.uk), Jake Elms (jake.elms@westcotts.uk) or call 01752 666601.