The move to mandatory payrolling of Benefits in Kind (BIKs) from 6 April 2027 represents one of the most significant shifts in employer reporting obligations in recent years. The extension from the original 2026 start date provides employers, accountants, and payroll agents with time to plan—but the complexity and scope of the changes mean that preparation must begin now.

Drawing on insights from Ros Hendren and Stephen Hendren’s session on Mandatory Payrolling of Benefits, this article explains what payrolling of BIKs actually means, why it is complex, and how employers and agents can prepare for the transition.

1. What Payrolling of Benefits In Kind Actually Means

At its core, payrolling a benefit means that the taxable value of an employee’s benefit is processed through payroll in real time, rather than reported retrospectively via P11Ds.

This transition fundamentally changes how benefits are administered:

Real-time taxation

Employees will pay tax on their benefits throughout the tax year via payroll, rather than receiving a tax code adjustment or waiting for HMRC to recalculate at year-end.
Because of this, the payroll function must be made aware of any changes in benefit provision immediately. Delays will result in incorrect tax deductions.

Mandatory-Payrolling-of-Benefits

Tax will fluctuate throughout the year

The webinar highlights that real-time payrolling introduces multiple moving parts:

• Cumulative vs non-cumulative tax codes
• In-year tax code changes
• Salary changes affecting marginal tax rates

These factors mean that the amount of tax due on a benefit may vary month to month, increasing the administrative burden on payroll teams.

Class 1A National Insurance Contributions (NICs) become ‘in-year’

Currently, Class 1A NICs are calculated annually and paid by July following the tax year.
Under payrolling, employers will face:

• continuing the annual Class 1A liability for the previous tax year
• in-year Class 1A NICs arising from payrolled benefits

This dual burden in the first transitional year (2027–28) is a major budgeting challenge.

2. Identifying Who Handles Payroll – A Critical First Step

A central theme of the session is the importance of knowing who currently processes payroll for each client or employer.

Because the responsibility for payrolling BIKs will sit with payroll, not with year-end reporting teams, this shift requires:

• mapping out who currently completes payroll
• determining whether they already handle BIKs
• identifying where benefits reporting must transfer to a different party

Many accountants are accustomed to receiving BIK information after year end to complete P11Ds. This will no longer be viable. All parties must be aligned well before April 2027.

3. Communication Channels Must Change

Historically, benefit information may have been shared annually, often informally, or as part of P11D processes. Under mandatory payrolling:

• Benefit changes must be communicated immediately
• Employers, advisors, and payroll agents must implement new real-time processes
• Systems must ensure that fluctuations in benefit value are captured accurately
• Service structures and staffing may need to be reviewed

Clients who manage their own payroll will need guidance and education, particularly smaller employers unfamiliar with benefit tax rules.

4. Determining the Cash Equivalent Value of Benefits

Every Benefit in Kind must have a cash equivalent value.
The session emphasises that even benefits that do not have an obvious monetary worth—such as accommodation—still require valuation. HMRC provides detailed guidance for working out cash equivalents when the value is not straightforward.

Examples include:

• Company accommodation
• Beneficial loans
• Salary sacrifice arrangements (OpRA)
• Health insurance, gym memberships, dental cash plans

Optional Remuneration Arrangements (OpRA) add further complexity: the taxable benefit is whichever is higher—the benefit’s value or the cash foregone. This often catches employers out.

5. Which Benefits Can Be Payrolled?

Currently:

• Accommodation and beneficial loans are exempt from payrolling, but
• From April 2027, these will enter a voluntary trial phase, with a plan to make payrolling of these benefits mandatory later.

This transitional stage introduces further uncertainty; employers who opt in may still need to submit P11Ds for these benefits until HMRC fully confirms the reporting mechanism.

6. Replacement of P11Ds – But New Employer Obligations Emerge

Once benefits are fully payrolled, P11Ds will no longer be required for those benefits.
However, employers must instead provide:

An annual itemised benefit statement

This must be given to employees by 31 May following the end of the tax year and must include:

• year-to-date benefit values
• individual values for each benefit type
• amounts “made good” by the employee
• any other mandatory details set out by HMRC

Payslips may be used only if they include accurate year-to-date benefit values and list each benefit separately—something most payroll systems do not currently do.

7. The Transition: Preparing Employers, Accountants, and Payroll Agents

Ros and Stephen emphasise that planning must start now, even with the revised 2027 deadline.

Key questions employers and agents should address include:

Do we know all benefits currently offered?

Many employers do not maintain comprehensive benefit logs. Under the new regime, missing or late information creates tax inaccuracies.

Do we have real-time communication processes?

Annual information flow is no longer sufficient.

Do we understand how this affects resources and costs?

Clients will need budgeting support, particularly around in-year Class 1A NICs.

How will we support clients who manage payroll themselves?

18% of webinar attendees indicated their clients handle payroll internally. These employers will require guidance, templates, internal process changes and potentially software upgrades.

Payrolling BIKs Is More Than a Reporting Change—It Is a Fundamental Process Shift

The mandatory payrolling of Benefits In Kind will reshape how employers, payroll providers, accountants, and tax agents work together. It introduces:

• real-time tax liabilities
• new compliance obligations
• increased financial planning needs
• major changes in communication and workflow

With mandatory implementation set for April 2027, organisations must start preparing now. Understanding the requirements, redesigning processes, training staff, and supporting clients will be essential to ensuring a smooth and compliant transition.

FAQ:

1. What is “payrolling of Benefits in Kind”?

Payrolling BIKs means that the taxable value of employee benefits is processed through payroll in real time, so tax is deducted immediately rather than through year-end P11D reporting or HMRC tax code adjustments.

2. When does mandatory payrolling begin?

Mandatory payrolling begins 6 April 2027, following a one-year delay from the original 2026 start date due to industry feedback.

3. Why is this change happening?

HMRC intends to modernise and simplify BIK reporting, reduce reliance on tax codes, and ensure more accurate, real-time taxation for employees.

4. What does this mean for employers?

Employers must:

• feed benefit values into payroll each pay period
• ensure real-time communication of any changes to benefits
• calculate and budget for in-year Class 1A NICs
• issue annual benefit statements to employees by 31 May each year
• review their internal processes and systems ahead of 2027
  
  

5. What are the main challenges employers will face?

Key challenges include:

• keeping payroll informed of benefit changes immediately
• handling fluctuating tax codes and marginal tax rates
• increased administrative time and complexity
• budgeting for both annual and in-year Class 1A NICs during the transition
• communicating the new processes to employees
  
  

6. What do accountants and payroll agents need to do?

Agents will need to:

• identify who currently handles payroll and P11Ds
• support clients in transitioning benefit reporting to payroll
• update engagement scopes and responsibilities
• establish new, more frequent information-gathering processes
• educate clients about real-time reporting and compliance
  
  

7. Will P11Ds still be required?

For benefits that are payrolled: No—P11Ds will no longer be needed.
However, employers must still produce an annual itemised benefit statement for employees by 31 May after the tax year.
Payslips can only replace this if they show correct year-to-date breakdowns for each benefit.

8. Will Class 1A National Insurance still apply?

Yes. But instead of being calculated solely at year end, Class 1A NICs will become an in-year liability that accrues as payrolled benefits are processed. This is a major change for budgeting.

9. Which benefits can be payrolled?

Currently, most benefits can be payrolled except:

• accommodation
• beneficial loans

These will be included in a voluntary trial from April 2027. HMRC expects them eventually to become mandatory, but final confirmation is pending.

10. How is the taxable value of a benefit determined?

Every BIK must have a cash equivalent value.
If the value isn’t obvious (e.g., accommodation), HMRC provides detailed calculation rules to determine the taxable amount.

11. What about salary sacrifice arrangements?

Salary sacrifice remains in scope, including:

• health or dental cash plans
• gym memberships
• company cars
• other exchanged benefits

Under OpRA (Optional Remuneration Arrangements), the taxable amount is the higher of the benefit value or the salary foregone.

12. How should employers prepare their staff and employees?

Communication is essential. Employers should:

• explain how payrolling affects employees’ monthly tax
• highlight that tax may fluctuate due to tax code or benefit changes
• prepare employees for receiving benefit statements instead of P11Ds
  
  

13. What internal changes should businesses expect to make?

Businesses must consider:

• new communication channels between HR, payroll, and finance
• more frequent data collection on benefit changes
• software updates or module activation
• possible increases in staffing or outsourcing
• revised workflows for benefit setup, adjustments, and processing
  
  

14. What happens if benefit changes are reported late?

Late updates may lead to:

• underpaid or overpaid tax
• corrections later in the tax year
• possible employee confusion or dissatisfaction
• additional administrative work for payroll teams
  Real-time reporting requires timely information flow.

15. What should employers do now to prepare for 2027?

Preparation should begin immediately:

1. Map out who handles payroll and who handles benefits.
2. Identify all current benefits offered and who manages them.
3. Review payroll system capability to process benefits in real time.
4. Create new communication processes for reporting benefit changes promptly.
5. Budget for in-year Class 1A NICs and transitional costs.
6. Educate employees and clients about the upcoming changes.
7. Review contracts, policies, and adviser responsibilities.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.