The UK government has announced a delay in the introduction of mandatory payrolling of benefits in kind (PBIK) from 6 April 2026 to 6 April 2027. This decision follows comprehensive feedback from stakeholders, including the ICAEW.
The delay provides employers with additional time to prepare for the transition, ensuring payroll systems and processes are well established before the mandatory deadline.
What is payrolling benefits in kind?
Payrolling benefits in kind (PBIK) means reporting employee benefits directly through the employer’s payroll software.
For many businesses, managing employee benefits in kind (such as company cars, medical insurance, and other non-cash perks) can be an administrative headache. Traditionally, these benefits have been reported annually to HMRC via form P11D, requiring separate tax adjustments for employees. However, payrolling benefits in kind offers a streamlined alternative.
Employees’ tax codes are adjusted accordingly, allowing them to pay tax on these benefits in real time throughout the year. This method eliminates the need for a P11D, simplifying administration for employers and reducing unexpected tax liabilities for employees.
Key considerations for Employers
- Eligibility: Most benefits can be payrolled, but employer-provided living accommodation and beneficial loans (low or interest-free loans) must still be reported on a P11D.
- Registration requirement: Employers must register with HMRC before the start of the tax year in which they wish to begin payrolling benefits. This is currently optional from April 2025, but will be mandatory from April 2027.
- National Insurance contributions: Regardless of how benefits are reported, employers must still complete form P11D(b) and pay Class 1A National Insurance Contributions (NICs) on the total taxable value of benefits provided. The deadline for filing the P11D(b) and making payment is 6 July following the end of the tax year.
Looking ahead: Mandatory payrolling from 2027
From 6 April 2027, PBIK will become mandatory for all employers, with the exception of beneficial loans and living accommodation, which will still be reportable via P11D unless voluntarily included in payroll.
The government has also announced a soft landing during the 2027/28 tax year, where penalties for BIK-related inaccuracies are unlikely to apply, except in cases of deliberate non-compliance. The existing penalty regime for RTI and P11D reporting will remain unchanged.
Employers will need to report payrolled benefits on a real-time basis through payroll, paying PAYE and Class 1A NICs during the tax year. Furthermore, the data fields on the Full Payment Summary (FPS) will be expanded to match the current P11D reporting.
Employees must be informed of the value of payrolled benefits by 1 June following the end of the tax year, although there is no prescribed format for this reporting.
What should Business Owners do now?
- Consider early adoption: Businesses can opt to move to payrolling benefits from April 2026. This could reduce admin burdens and ensure a smoother transition before the 2027 deadline.
- Review internal processes: Employers should assess their payroll systems and ensure they can accommodate PBIK reporting. Consulting with a tax professional can help navigate the transition efficiently.
Please contact Dee or Helen below if you are considering payrolling benefits in kind or otherwise have any questions about future obligations. Planning ahead will help ensure a seamless transition and compliance with the upcoming changes.
