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Reporting of Benefits in Kind and Expenses Update

Reporting of Benefits in Kind and Expenses Update

The UK government has confirmed that mandatory payrolling for benefits in kind (BiKs) and taxable employment expenses will take effect from April 2027. This 12-month delay from the originally proposed April 2026 start date provides employers, payroll professionals, software providers, and agents additional time to adapt their systems and processes. This article outlines the core features of the new reporting system, highlights key design decisions made since 2024, and summarises the steps you can take now to prepare for a smooth transition.

Who is involved?

This update is aimed at employers, payroll teams, software developers, and tax specialists. It outlines how BiKs and expenses will be reported via Real Time Information (RTI) starting April 2027 and provides guidance on interim steps, draft legislation, and technical guidance expected in Autumn 2025.

Core Mechanics of Mandatory Payrolling

Real-Time Reporting
From April 2027, all taxable BiKs and employment expenses must be reported—and paid—through the Full Payment Submission (FPS) in RTI, alongside regular salary submissions. The FPS will include an expanded set of data fields to capture the same information currently collected on P11D and P11D(b) forms. This change ensures HMRC has sufficient data to calculate Income Tax and Class 1A National Insurance contributions (NICs) in real time, reducing the need for manual compliance reviews.

Voluntary Payrolling of Loans and Accommodation
Employers may choose to payroll employment-related loans and accommodation from April 2027. A separate registration process for these benefits will open in November 2026.

Calculating and Reporting BiK Values

Standard Calculation
Employers calculate the annual cash equivalent of each BiK as under the existing voluntary scheme, then divide by the number of pay periods. Each instalment is taxed as earnings, attracting both Income Tax and Class 1A NICs. Where the cash equivalent is not known at year-start, a reasonable estimate must be used, with later adjustments if values change.

Late-Discovered Benefits
If a BiK is identified after the tax year begins, it should be reported in the next available pay period. Early FPS submissions do not need to be amended, provided the total taxable value is fully covered before 6 April. However, this only applies if the employer has registered for payrolling benefits (PBIK) for that type of BiK. If not, they must report it on a P11D, register for PBIK, and include it from the next tax year onwards.

Penalties, Interest and Transition Relief

In the first year of mandatory payrolling (2027–28), HMRC will waive penalties for inaccuracies unless there is evidence of deliberate non-compliance. Standard late-filing and late-payment penalties for RTI still apply, and interest continues on late payments. From April 2028, penalties and interest will apply as under the current voluntary regime. P11D-related penalties remain unchanged for benefits that remain outside payrolling (for example, certain loans or accommodation).

System and Registration Updates

  • Basic PAYE Tools: HMRC’s free payroll software will support BiK payrolling from April 2027.
  • Automatic Code Changes: HMRC will remove BiKs from employee tax codes ahead of the transition. No action is required for most benefits; only loans and accommodation require registration for voluntary payrolling before 5 April 2026. The voluntary registration service will close on that date.

BiKs Update Process for Late-Determined Values

Where taxable values cannot be finalised during the tax year—common for fuel cards, loans and accommodation—employers must use the BiKs update process by 6 July following year-end. Any additional tax or NICs due will be reconciled via P800, Simple Assessment or Self-Assessment. No penalties will be applied for 2027–28 returns where reasonable care is shown.

Special Scenarios and FAQs

First-Year Cashflow Concerns
Tax deducted for prior-year benefits via payrolling, and code adjustments may overlap. HMRC already offers spreading options for P11D arrears. Updated guidance will help employers support employees facing higher early deductions.

50% Overriding Limit
Employers must not withhold more than 50% of pay in a single period. Under mandatory payrolling, excess amounts are carried forward within the tax year and collected via end-of-year reconciliation, or via Self-Assessment where applicable.

Zero-Income Directors and Employees
Even without earnings, employers must submit an FPS with zero pay and report any BiKs. Class 1A NICs remain payable, with uncollected tax reconciled after year-end.

Termination and Post-Leaving Benefits
All BiKs provided before or at termination (excluding bona fide termination awards) must be reported via FPS in the relevant tax year. End-of-year reconciliation applies to any outstanding tax.

Next Steps for Employers and Providers

  • Review Payroll Software: Confirm your provider’s timeline for RTI field updates.
  • Data Collection: Begin collecting detailed BiK and expense information now, mirroring P11D requirements.
  • Staff Training: Update payroll manuals and train your team on estimating, reporting and correcting BiK values.
  • Communications Plan: Draft communications to employees explaining real-time deductions, reconciliation and support options.
  • Register Where Needed: If you offer loans or accommodation benefits, register for voluntary payrolling before 5 April 2026.

HMRC is in the process of receiving feedback from April 2025 implementation to the Autumn Budget announcement happening this year, where they will reach the final policy decisions regarding the legislation, along with guidance and technical specifications for the new process. On HMRC's website, you can also view a calendar containing timelines of what they aim to deliver between now and April 2027.

Further draft legislation and guidance will be published from Autumn 2025. In the meantime, HMRC invites feedback from stakeholders to refine policy details. Early preparation will ensure a seamless transition to mandatory payrolling in April 2027.

If you have any questions or concerns, kindly reach out to HMRC directly for clarification.

Read the full update from HMRC here: Technical note: Mandating the reporting of benefits in kind and expenses through payroll software – an update - GOV.UK

Written by

Isabella Zermani
Pay Check
paycheck@staging.paycheck.co.uk
+44 (0) 20 7866 4600