The way employers report and collect tax on Benefits in Kind (BIKs) is changing. From 6 April 2027, mandatory payrolling will be introduced for specified Benefits in Kind, meaning that the tax due will be calculated and collected through payroll in real time each month/week.

Although April 2027 may still feel some way off, employers should begin preparing now. HMRC has been specifically warning businesses not to underestimate the time required to make payrolling processes robust enough to support real-time reporting. The implementation date was moved from April 2026 to April 2027 to give employers, payroll providers and other parties additional time to prepare.

What does payrolling BIKs mean?

At present, many taxable employee benefits are reported to HMRC annually through the P11D process. HMRC then usually collects the employee’s tax by adjusting their tax code in the following tax year.

Under payrolling, the taxable value of the benefit is included within the payroll calculation during the tax year in which the employee receives it. The benefit does not increase the employee’s cash salary, but it is taken into account when calculating the Income Tax due through payroll.

The employee will be able to see the BIK each month on their payslip (this will be a separate line underneath their other taxable earnings).

This change will be particularly relevant to employers offering benefits such as:

• Private Medical Insurance
• Health Cash Plans
• Group Critical Illness Cover
• Dental Insurance
• Company Cars

Employers should review each benefit they provide and confirm its tax treatment and whether it must be payrolled. HMRC’s guidance recommends creating a complete list of the benefits currently reported through P11Ds as a starting point.

Why employee benefit data will be important

Mandatory payrolling will require accurate and timely information to pass between benefit providers, employee benefit consultants, HR, finance and payroll.

For benefits such as Private Medical Insurance, Health Cash Plans and Group Critical Illness Cover, employers will need reliable information about the taxable value attributable to each employee. Processes will also need to capture changes during the year, including when:

• An employee joins or leaves the scheme
• Cover is added, removed or amended
• Dependents are included (if the employer covers the cost of this)
• Benefit levels change
• A policy renews and premiums are updated

HMRC advises employers to assess how quickly changes are currently communicated to payroll and whether those arrangements will meet payroll cut-off dates once real-time reporting becomes mandatory.

Preparing finance, payroll and HR teams

Employers should speak to their payroll provider or software supplier to confirm that their system will support HMRC’s real-time benefit reporting requirements from April 2027.

Employers should also consider the cashflow implications. During 2027, there may be a one-off overlap between Class 1A National Insurance contributions relating to benefits reported under the existing system for 2026/27 and real-time liabilities arising from benefits provided from April 2027. HMRC recommends that employers reflect this in their budgeting.

Communicating with employees

Clear communication will be essential. Employees should understand that tax on relevant benefits will be collected in the year the benefit is received, rather than being dealt with later through their tax code.

We recommend that a warm-up communication is sent well in advance to make staff aware of the change. This can be followed up with a reminder and a FAQ closer to the April changes.

Some employees may initially believe that they're being taxed twice, this is because a P11D will still be due for the 2026/27 tax year. However, the tax code adjustment will be for the 2026/27 tax year BIKs, and the payrolled BIKs will be for the 2027/28 tax year.

From 2028/29, only the payrolled BIKs will impact staff.

What should employers do now?

Employers should map their benefits, speak to payroll providers employee benefit consultants and establish responsibility for reporting changes.

An employee benefit consultant can help coordinate accurate benefit data and support communications between insurers, HR and payroll.

We recommend employers send an initial communication to staff now, giving them advance warning – followed up by another communication between January and March next year.

It's also an opportunity to raise awareness of the benefits you offer. This may be the first time many employees have seen the true cost to the business for the benefits you provide.

Important information

The information provided is for general guidance only and reflects our understanding of HMRC rules at the time of writing. It does not constitute legal, tax, or accounting advice. Employers should seek specific advice from their accountant or tax adviser to ensure the approach taken is appropriate for their circumstances.