Mandatory payrolling of Benefits in Kind from April 2027 – Are you ready?

From April 2027, it will become mandatory for employers to payroll most Benefits in Kind (BIK’s), rather than reporting them after the year end. This represents a significant change to how employee benefits are taxed and reported to HM Revenue and Customs (HMRC).

The change was initially expected to happen from April 2026 but was then postponed to April 2027. 

What is changing?

Almost all BIK’s will need to be included in payroll, with the exception of:

• Employer-provided living accommodation
• Interest-free and low-interest (beneficial) loans

These two benefits can still be payrolled voluntarily if employers choose to do so.

Why preparation matters?

Moving BIK’s into payroll means real-time reporting and taxation, which will place additional demands on payroll systems and processes. Employers should not underestimate the time required to ensure payroll is robust, accurate, and compliant ahead of April 2027.

Just as importantly, early communication with employees will be key. Many employees are currently unaware of how they pay tax on their benefits, and these changes may affect tax codes and take-home pay.

What employees will need to understand?

From April 2027:

• Tax on BIK’s will be paid in real time, in the year the benefit is received.
• Employees will no longer pay tax in arrears on their BIK’s.
• Any existing tax code adjustments for estimated BIK’s will be removed.

In some cases, employees may feel they are being taxed twice, when in reality they are paying real-time tax on current benefits while settling tax due on benefits from earlier years. Clear explanations will help avoid confusion and concern.

What should employers do now?

If payrolling BIK’s will affect your business, early planning is essential. This includes reviewing payroll processes, deciding which benefits are to go through the payroll, and preparing clear communications for employees well ahead of April 2027.

Employees will need to know about the changes and how it will impact their tax and pay.

We can support you with the transition to payrolling BIK’s and help ensure both your payroll and your employees are ready.