Does your business provide employees with benefits?
Things such as company cars, private medical insurance, or even accommodation?
If so, there's an important tax change incoming and we're finding many owner managers haven't yet prepared for it!
From 6 April 2027, the UK government will require most employers to payroll benefits in kind instead of reporting them at the end of the year using the traditional P11D process.
Sure, 2027 may sound a long way off, but the businesses that start thinking about payrolling benefits in kind now will likely have a far smoother transition than those who leave it until the last minute.
In this blog post we break this all down into simple terms so that you can get to grips with what's changing and know the exact next steps you need to take before the deadline.
Quick links to sections covered in this blog post include:
Benefits in kind (BIK) are non-cash benefits that employers provide to employees in addition to their salary. Common examples include:
You need to understand that these benefits still have a taxable value, which means employees have to pay Income Tax on them.
Traditionally, the process for this works whereby employers report these benefits to HMRC using a P11D form after the end of the tax year. HMRC then adjusts the employee’s tax code so the tax can be collected the following year.
While that system works, it can also create confusion for employees as they can suddenly see adjustments to their tax several months after receiving any benefit.
Payrolling BIK is the new process of taxing employee benefits through your payroll in real time. This is as opposed to the current method of reporting them at the end of the tax year using a P11D form.
From April 2027, this approach will become mandatory for most UK employers.
Common questions employers are asking right now include:
HMRC is now moving (somewhat gradually) towards a real-time tax reporting system.
This means there's a shift whereby payrolling BIK will become compulsory from April 2027, and this is with the aim of phasing out most of the P11D reporting aspect of the process.
The result of this is that employers will soon need to process most benefits through their payroll instead of reporting them after the tax year.
However, here’s the important point, you don’t need to wait until 2027 to start preparing. As an employer you can already register with HMRC and payroll benefits voluntarily before the deadline.
The benefit of this for many businesses is that trialling the process early can make your transition that bit easier. We’re already seeing businesses begin to trial payrolling benefits ahead of 2027 so they can test systems and processes early, rather than rushing things closer to the deadline.
We'll use a simple scenario for this.
Consider that your member of staff receives private medical insurance as part of their salary package and this costs an additional £1,200 per year.
By payrolling your benefits in kind, the following applies:
So, your employee pays tax in real time on the benefit as they receive it, instead of the following year under the current system.
| Feature | Traditional P11D | Payrolling benefits |
| When the tax is paid | The following tax year | In real time |
| Reporting method | P11D form | Through payroll |
| Impact on employees | Delayed tax adjustment | Immediate visibility |
| Admin timing and processing | Year-end | Spread across the year |
The P11D won't go immediately.
Prior to April 2027, as an employer you must still:
Just remember that HMRC's plan is to shift the reporting of benefits into payroll so as to phase out the P11D process as much as possible.
Payrolling benefits may actually simplify the tax process for you as an employer. Some of the key advantages can be as follows:
a) Real-time taxation
Your employees pay tax on the benefits they receive, when they receive them. So this helps to prevent unexpected tax bills down the line.
b) Fewer year-end surprises
Your employees tax is collected over the course of the year, this means they're less likely to see any tax code adjustments.
c) Reduced admin
Once you have this up and running, payrolling benefits removes the need to prepare most P11D forms.
d) Greater transparency
Employees can see the tax impact of their benefits clearly on their payslip.
e) Flexibility prior to 2027
For the 2026/27 tax year, you can choose which benefits you want to payroll as you prepare for the full transition.
A payroll change means there's now practical matters you'll likely need to consider.
a) System readiness
Your software needs to be able to support benefits, specifically benefits in kind.
b) Registration
As the employer, you'll need to register with HMRC before the start of the tax year if you want to payroll benefits voluntarily.
c) Communication with your employees
Employees are likely to notice an increase in the tax on their pay, we'd suggest you explain why and preferably before it takes place.
d) Some benefits may still require reporting
This all depends on HMRC's guidance. Some benefits may still need to be reported under specific circumstances.
Common concerns our clients are raising include:
a) Will this make payroll more complicated?
In the short term potentially yes, certainly during setup. Over time however, many businesses will find it actually simplifies year-end reporting.
b) Will this confuse employees?
This could happen given their taxable pay is likely to increase if they are in receipt of benefits. You'll need to communicate this to them clearly.
c) Do we need new payroll software?
It depends on what you have in place at present. Your current system will have to support payrolling benefits. So, now's the time to check this, sooner rather than later.
If your offering employees benefits, now's an opportune time to review your approach.
Consider the following practical steps to help get you started:
1. What are the current benefits your business provides to staff? Review them.
2. Does your payroll software support payrolling benefits? Check this as a priority.
3. Register with HMRC before 6 April 2026 if you want to begin early.
4. Be sure to update payroll processes and procedures.
5. Communicate with employees in advance as to how exactly benefits will be taxed.
By preparing early, you give yourself the opportunity to text your systems and payroll before the 2027 deadline arrives.
April 2027 might seem a long way off. The likely reality is businesses that leave this too late risk a rushed transition, unnecessary pressure on payroll teams, and avoidable potential errors.
Given this change is yet to start, now is an opportune time to review your benefits to put you in an optimal position for the 2027/28 tax year.
We suggest that if your business provides company cars, accommodation, or private medical insurance (amongst a list of potential benefits) then a useful first step would be to explore and understand how they will be taxed moving forward.
By following through with the above recommendations you can better position yourself to move to payrolling benefits so that the process is both smooth and easy for your teams and employees.
When does payrolling benefits in kind become mandatory?
From April 2027 for most UK employers.
Can all benefits be payrolled?
Most can, but some may still require separate reporting depending on HMRC rules.
Do employers need to register to payroll benefits?
Yes, registration with HMRC is required before the start of the tax year and can be done through this link.
The content of this post was created on 31/03/2026.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.