HMRC has announced that the mandatory payrolling of Benefits in Kind (BIKs) will now come into effect from April 2027.
Previously, the change to require employers to report and pay the Income Tax and Class 1A national Insurance Contributions (NICs) on Benefits in Kind via payroll software rather than being submitted via annual P11D forms had been due to come into force from April 2026.
This is good news for employers who are not already payrolling benefits, as it gives them an additional 12 months to prepare.
If you are an employer and you are not already payrolling benefits, you will need to prepare for these changes before April 2027.
What is meant by payrolling benefits?
This means that benefits in kind are taxed through the payroll. To do this, the employer includes the cash equivalent of the benefit in the employee’s pay.
What are benefits in kind?
Benefits in Kind are any benefits given by an employer to their employees or directors which are not part of the salary or wages. Some of the most common examples of Benefits in Kind include company cars, medical or dental insurance, gym memberships and mobile phones.
What will the changes mean?
The changes announced this month mean that from April 2027, employers will no longer need to include benefits on a form P11D or P46 (car).
How does payrolling Benefits in Kind work?
Employers will need to use HMRC approved PAYE payroll software that includes payrolling Benefits in Kind functionality.
The employer needs to calculate the amount of the taxable benefit provided and divide that amount equally between the number of months in the tax year.
The monthly amount will be treated as a notional payment, subject to tax only.
For example, if an employee is paid monthly and the employer intends to payroll a benefit with a value of £1,500, an amount of £125 (£1,500/12 is put through payroll each month and taxed accordingly.
Although the new rules won’t come into effect until April 2027, payrolling Benefits in Kind is an option currently available to all employers.
To payroll your benefits, you need to register to use
HMRCs payrolling benefits and expenses online service before the start of the relevant tax year.
How Moore can help
Our experienced tax and payroll specialists can help employers meet their tax and NIC obligations regarding employment taxes. If you would like further advice on any of the above, please contact your
local Moore office.