The Government has confirmed that the compulsory inclusion of benefits in kind (BIK) and taxable expenses in payroll will now take effect from April 2027.
This deferral offers employers more time to review their internal processes and address any inconsistencies in benefit reporting.
Current BIK reporting relies on a mixed approach
Employers currently have the option to payroll certain benefits if they register with HM Revenue & Customs (HMRC) in advance.
However, not all benefits are eligible for this treatment, and many still need to be reported through P11D and P11D(b) forms after the tax year ends.
This system results in minimal in-year data for HMRC and can lead to delayed collection of Income Tax via tax code changes.
It also creates additional workload for employers dealing with various reporting requirements.
Key changes coming in 2027
When the new rules take effect, most BIK and taxable expenses will have to be processed through payroll as part of regular Real Time Information (RTI) reporting. Employers will need to:
- Work out the benefit’s cash value
- Allocate that value across the relevant pay periods
- Apply tax and Class 1A National Insurance as part of the normal pay cycle
Where precise values are unavailable at the time of reporting, employers must use reasonable estimates, updating them as necessary.
Most benefits will no longer require separate P11D reporting, though specific items such as loans and accommodation will continue to be treated differently and require separate registration.
Payroll changes and their effect on take-home pay
There may be a temporary overlap in tax deductions when the new system begins.
Some employees may be taxed on both current-year benefits and past-year underpayments.
Employers will be expected to provide clear explanations to avoid confusion.
The current 50 per cent cap on tax deductions within any single pay period will remain in force.
This safeguard ensures that no more than half of an employee’s cash pay is withheld, with any unpaid tax being collected later by HMRC.
How to use the lead time effectively
Although the new deadline is further off, employers are encouraged to begin preparations now. Practical steps include:
- Listing and assessing the benefits currently offered to staff
- Ensuring payroll software can support RTI benefit reporting
- Reviewing how benefit values are calculated and adjusted
- Identifying training needs within finance, HR or payroll teams
- Creating a communication plan for employees
The additional time should not lead to delays in action. Early preparation will help reduce disruption when the new rules are enforced.
What to expect from HMRC over the next two years
Guidance and draft legislation will be issued by HMRC starting from Autumn 2025.
These documents will clarify technical details and help employers fine-tune their processes.
Registration will no longer be required for most benefits, but exceptions will apply for certain categories.
If you would like assistance reviewing your current payroll setup or assessing what needs to change, our team of tax professionals is ready to help you plan ahead. Contact us now.