HMRC has announced that the introduction of mandatory payrolling for most Benefits in Kind (BiKs) will be delayed by one year, until 6 April 2027. This extra time will allow employers and payroll providers to make the necessary preparations for this significant change in how benefits are taxed and reported.
Implementation Timeline
To support the transition, HMRC has outlined a phased timeline, so you can make preparations accordingly:
| Action | Timescale |
| HMRC will consider all feedback received from impacted stakeholders to support HMRC’s drafting of legislation, guidance and technical specifications | April – Autumn 2025 |
| Draft legislation to be published alongside draft guidance for consultation | Autumn 2025 |
| Initial software technical information to be made available to software developers for feedback | December 2025 |
| Responses to the consultation of draft legislation and guidance to be considered | February – April 2026 |
| Updated legislation and guidance to be published | July 2026 |
| Primary and secondary legislation to be laid before Parliament | In line with 2026 Finance Bill timings |
| Real time information technical specifications to be published | Second half of 2026 |
| Voluntary registering for the payrolling of loans and accommodation in April 2027 to 2028 to go live | November 2026 |
| Voluntary registering for the payrolling of loans and accommodation in April 2027 to 2028 to close | April 2027 |
| Mandating payrolling of BiKs planned to go live | April 2027 |
Reporting Requirements
Under the new system, BiKs and expenses will be reported through the Full Payment Submission (FPS) process in real time. This shift removes the need for most P11D and P11D(b) forms. To accommodate the change, HMRC expects to introduce over 100 new data fields in FPS submissions, ensuring comprehensive reporting. The Basic PAYE Tools will be updated accordingly ahead of April 2027.
Calculation Process
The calculation process for payrolling BiKs will largely mirror existing voluntary methods. Employers must divide the annual cash equivalent of a benefit by the number of pay periods. If the value is not known at the start of the tax year, a reasonable estimate must be used.
When the value of a benefit changes during the year, the remaining amount should be recalculated and spread over future pay periods. If a BiK is identified late, it can still be added during the tax year without amending previous payments.
For certain benefits, such as fuel cards or accommodation where final values are unavailable within the year, a separate reporting process will apply, with details due by 6 July and Class 1A NICs payable by 22 July after year-end.
Penalties and Compliance
During the first year of mandatory payrolling, HMRC will not apply penalties for reporting errors unless there is evidence of deliberate non-compliance. However, late filing and late payment penalties, as well as interest, will still apply.
Existing penalties for P11D and P11D(b) returns will remain in place where they are still required—particularly for benefits not included in payrolling. Further details on penalties from 2028/29 onwards will be provided in due course.
Registration Requirements
Employers will not need to register to payroll most BiKs from April 2027. HMRC will automatically remove related adjustments from employee tax codes ahead of the change. However, employers wishing to payroll loans and accommodation will still need to register, with the service expected to go live in November 2026. Those who wish to voluntarily payroll benefits before April 2027, must continue to register as currently required.
Considerations
Several specific situations have been addressed by HMRC. For example, employees may face first-year cash flow issues if they are taxed on both historic and current-year benefits. In these cases, HMRC may allow underpayments to be spread over multiple years to ease financial pressure.
In cases where taxing BiKs would exceed 50% of an employee’s pay, employers can either opt out of payrolling that employee and revert to P11D reporting or carry forward the excess tax within the same year. Any remaining tax not collected in-year will be handled via HMRC’s year-end reconciliation or through self-assessment.
Where employees or directors receive no income, employers must still report BiKs through FPS and pay any applicable Class 1A NICs. The FPS will reflect zero income and earnings, and uncollected tax will be reconciled after the tax year.
For employees on non-monthly pay cycles (e.g., weekly, fortnightly, four-weekly), the cash equivalent of benefits must be appropriately spread across the number of pay periods. Employers should be mindful of years with 53 pay periods, adjusting calculations accordingly.
Employee Involvement
There is no requirement to show BiKs on payslips and there are currently no plans to introduce this. Employees can access their benefit details through their personal tax account or via the HMRC app, which employers should encourage them to use.
Employers will still be responsible for issuing a statement to employees by 1 June following the end of each tax year, confirming which benefits were provided and their values.
Next Steps
If you have any questions and/or would like advice on the above topic, please contact us at: hello@dixcartuk.com or your usual Dixcart contact.
The transition to mandatory payrolling is a major operational shift. Employers are encouraged to begin preparing systems and processes now. Further updates from HMRC are expected in the coming months.
