Mandatory payrolling of Benefits in Kind: New implementation date

We cover an important update from HMRC regarding the reporting and payment of Income Tax and Class 1A National Insurance Contributions (NICs) on Benefits in Kind (BiKs).

Originally planned for April 2026, HMRC has announced that the mandatory real-time reporting of most BiKs and taxable expenses through payroll software will now come into effect from April 2027. This extension allows employers, payroll providers, and software developers an additional year to prepare for the transition to a fully digitalised process.

What employers need to know

Under the new system, employers will be required to report and pay Income Tax and Class 1A NICs on most BiKs directly through Real Time Information (RTI) submissions, aligning this reporting with standard payroll practices instead of the submission of Forms P11Ds and Forms P11D (b) following the end of the tax year.

The aim is to simplify processes, reduce the need for end-of-year forms like the P11D, and ensure that employees pay the correct amount of tax at the time they receive their benefits.

It is important to note that certain benefits, such as employment-related loans and accommodation, will initially remain outside of mandatory payrolling, however, employers may still opt to payroll these benefits voluntarily. HMRC confirmed that a timeline for mandatory payrolling of these BiKs will be set out in due course.

The government plans to engage with stakeholders over the coming months to finalise the detailed policy framework. HMRC will also release further guidance in due course to help employers and software providers adapt effectively.

Penalties and interest

HMRC has confirmed that errors relating to mandatory payrolling in their RTI returns for the 2027/28 tax year will not be charged for inaccuracies unless there is evidence of deliberate non-compliance.

However, existing late filing and late payment penalties for RTI returns will still apply in the first year of mandatory payrolling alongside late payment interest. 

From 2028/29 onwards, HMRC confirmed they will provide further details on the design of the new penalties and interest regime later this year when they publish further draft guidance.

What you should do now

Although April 2027 may seem distant, we recommend that employers take full advantage of this delay and start preparing early to avoid any potential errors with their reporting obligations.

We have highlighted some areas to consider as follows:

• Review your current benefits offering to identify which benefits will be subject to real-time reporting.
  
• Understand HMRC’s requirements on how taxable benefit values need to be calculated and reported through Full Payment Submission and how end-of-year reconciliations will be performed.
  
• Evaluate your payroll systems and benefits data eco-systems to ensure your software and providers can accommodate the new reporting requirements.
  
• Undertake user journeys for employees and other stakeholders to assess and communicate change impact.
  
• Provide training to HR, payroll, and finance teams on the upcoming changes.
  
• Stay engaged with HMRC updates, webinars, and stakeholder consultations to ensure you are fully informed.

Action required

We encourage you to start reviewing your benefits processes and payroll capabilities now to avoid a rushed transition later. Our team is here to support you through these changes. If you would like a tailored review of how these upcoming requirements will impact your business, or if you would like assistance updating your policies and processes to prepare for April 2027, please contact Dino Jangra, John Manis or your usual Crowe contact.

Get in touch with us now to ensure you are ready for the future of payroll and benefits compliance.