UK employers are facing a significant change in how benefits-in-kind (BiKs) and taxable employment expenses are reported and taxed. The government is moving towards a real-time payroll reporting system, and from 6 April 2027, this will become mandatory for most employers.
If your business provides employee benefits such as company cars, private medical insurance, or other taxable perks, these changes will affect your payroll processes, reporting requirements, and communication with staff.
What Is Changing with Payrolling Benefits?
Currently, many taxable benefits and expenses are reported to HMRC after the tax year ends using P11D forms. Tax is then collected through employee tax codes, and employers report Class 1A National Insurance separately.
Under the new system, most taxable benefits and expenses will instead be reported through payroll in real time. This means the value of benefits will be included alongside salary in each pay period, with tax and National Insurance deducted progressively rather than after year-end.
This move aims to modernise the system, reduce year-end reporting, and provide greater transparency for employees.
Which Benefits Are Covered?
From April 2027, employers must report most taxable benefits and expenses through the Full Payment Submission (FPS) each payday. HMRC is updating FPS data fields to capture benefit values in the same way as earnings.
While most benefits will fall under this new system, some items such as living accommodation and beneficial loans may initially be excluded, although further HMRC guidance is expected as implementation approaches.
When Do the New Rules Start?
The mandatory start date is 6 April 2027. The government delayed the original 2026 date to allow employers more time to prepare. HMRC has already released draft guidance to help businesses understand the requirements and update their systems.
How Should Employers Prepare?
Preparing early will help ensure a smooth transition to mandatory payrolling of benefits.
First, review your payroll software. It must be capable of reporting benefits and expenses through FPS submissions. Software providers are updating their systems, but employers should confirm compatibility.
Second, consider voluntarily payrolling benefits before 2027. Early adoption allows you to test systems, refine processes, and avoid last-minute disruption.
Third, review how you collect and record benefit information. Real-time payrolling requires accurate benefit values at the start of the tax year so they can be spread across pay periods.
Finally, communicate with employees. As benefits become visible in payroll, employees may notice changes in their net pay. Clear explanations can prevent confusion and build trust.
What Does This Mean for Your Business?
The new system should simplify year-end compliance, with less reliance on P11D and P11D(b) forms. Tax and National Insurance on benefits will be collected more evenly throughout the year, reducing unexpected tax bills for employees.
However, the change does bring additional administrative work upfront. Employers must ensure benefit data is accurate, timely, and integrated into payroll systems. If you would like support with this, or any other accountancy questions, pleasse contact us, we’d only be too happy to help.
