HMRC has announced that mandatory payrolling of benefits-in-kind (BIK) will be delayed until April 2027, rather than proceeding in April 2026 as initially planned.
A payroll delay employers can take advantage of
Before the announcement, there were fewer than 12 months for you to get your payroll processes in order.
While the delay is good news, it is not a time to sweep the matter under the rug.
It instead presents an ideal opportunity to review your payroll processes and ensure you are fully prepared for the transition.
As part of HMRC’s plan to simplify and modernise the UK tax system, employers who provide taxable benefits in kind to their employees will be required from April 2027 (originally April 2026) to report these benefits (and pay the Class 1A national insurance contributions (NIC) due) via payroll.
This represents a significant change for most employers, who currently submit forms P11D and P11D(b) to HMRC following the end of the tax year.
Below, we look at some of the key questions which employers may have in advance of these changes.
What is a benefit-in-kind?
A benefit in kind is remuneration paid to an employee which is not paid to them in cash. Benefits in kind can be a cost and tax effective away of incentivising and rewarding employees and can be tailored for the needs and priorities of your workforce.
Termed as ‘fringe benefits’, these non-cash provisions do not meet the criteria of being ‘wholly, exclusively, and necessary’ for the conduct of business, and are therefore recognised as benefit-in-kinds.
A broad range of provisions can be classed as BIK, including (but not limited to) company cars, private medical insurance, and more.
What are payrolling benefits?
Payrolling benefits include the benefits received by each employee in their PAYE calculation, so the income tax is paid at source each month. The monthly benefit being payrolled can be adjusted throughout the year if the benefit position changes for employees ensuring the tax by them is adjusted more efficiently. The only benefits that cannot currently be payrolled are accommodation benefits and low or interest-free loans.
The benefits of payrolling
- The benefit amount is included as taxable pay and the income tax is paid through RTI so the tax is being paid at the right time rather than relying on HMRC to change tax codes, which can lead to underpayments/overpayments.
- Fewer queries in relation to tax codes as they will not need to be adjusted for benefits.
- Removal of the requirement to complete forms P46(car) to notify HMRC of changes to company cars.
- The annual P11d and P11db forms and payment will no longer be required unless benefits are provided that cannot be payrolled.
- Information held with HMRC is more up to date.
What should employers do in advance of these changes?
As an employer, you will need to:
- Check whether your current payroll software meets the functionality requirements to allow you to payroll benefits.
- Consider educating your employees on the changes. Employees in receipt of payrolled benefits for the first time (whether voluntary or mandatory) should be advised to check their PAYE code to make sure that any adjustments relating to the now payrolled benefits are removed to ensure that income tax is not collected twice on the same benefit.
- Employees will also need to be made aware of the potential impact the reporting may have on their net income and whether this may cause cashflow issues.
- Be aware that all benefit data throughout the year must be accurate, reliable and available in ample time for the payroll reporting so it can be processed. Errors when reporting could result in potential penalties and/or have a direct impact on the net pay of your employees.
- Consider whether it is time to review your overall benefit offering before the changes are brought in to ensure your benefit package is up to date.
Registration
Registration to payroll benefits can be done through the employer’s PAYE account. Some employers might choose to register early and start payrolling benefits from April 2026 to ensure they get processes in place before they become mandatory in April 2027.
What to do now
If you would like more information on payrolling benefits or if you would like M.B. McGrady & Co. to look after your payroll to ensure you meet your employer obligations under this new regime, please do not hesitate to contact us at info@mbmcgrady.co.uk