Businesses have been given more time to prepare for the change to compulsory Payrolling Benefits in Kind. The start date has been moved from April 2026 to April 2027.
What Employers Need to Know
From April 2027, most benefits in kind must be reported under Real Time Information (RTI) and employers will also need to pay Income Tax and Class 1A National Insurance contributions (NICs) during the tax year.
To make this possible, HMRC will expand the number of RTI data fields. These extra fields will hold data that is currently reported in forms P11D and P11D(b).
Some benefits are not yet included in mandatory payrolling. Employment-related loans and accommodation remain outside the rules for now. For these, the P11D and P11D(b) process will continue temporarily, however, employers can choose to payroll them voluntarily.
To payroll benefits voluntarily for the 2026/27 tax year, you must register in advance. For the tax year starting 6 April 2027, registration will be open from November 2026 to 5 April 2027.
How Benefits Will Be Calculated
The taxable value of a benefit in kind will be calculated as follows:
• Take the annual cash equivalent of the benefit.
• Divide it by the number of relevant pay periods for each employee.
• The resulting figure will be liable to Income Tax and Class 1A NICs each pay period.
• Employers must report this figure alongside employee earnings in each period.
If the value of a benefit is not known at the start of the year, employers must use a reasonable estimate.
HMRC’s Further Guidance
HMRC has highlighted specific situations:
• Globally mobile employees within modified PAYE arrangements: HMRC is considering keeping the P11D and P11D(b) processes for these cases.
• Employees and directors receiving no income: Employers will still need to provide details of benefits in kind and expenses via an FPS. Class 1A NICs will be due in the same way as for employees with income. The FPS will show no payments of earnings and no tax paid. Any uncollected tax will be recovered through the P800 reconciliation process, simple assessment, or self assessment.
What Employees Should Expect
For employees, the change means tax on benefits will move into real time. Employers will need to explain this clearly to staff. In the first year of mandation, some employees could face a cash flow impact if they are already paying tax on benefits from a previous year.
Next Steps for Employers
More information is expected from Autumn 2025 onwards. In the meantime, it may be worth considering voluntary payrolling of benefits in 2026/27. This would give businesses a chance to test the system before it becomes compulsory. Advance registration is required for voluntary payrolling.
We are happy to advise on voluntary payrolling or any other steps you need to take to prepare for the change.