Payrolling benefits – what will change?

The UK government has announced a significant shift in the reporting of Income Tax and Class 1A National Insurance Contributions (NICs) for Benefits in Kind (BIKs).

As per the Autumn Budget 2024, from April 2027, the majority of BIKs will need to be reported to HMRC PAYE through Real Time Information (RTI), instead of the current method of completing and submitting P11D and P11D(b) forms after the end of the tax year.

The reporting process for BIKs will be through the Full Payment Submission (FPS), which is the same process employers currently use to report salary and other employee details to HMRC.

The reform aims to ease administrative burdens for both employers and HMRC while helping PAYE employees to understand their payslips better.

Implementing the change

Based on feedback from stakeholders, HMRC has agreed on the following approach for implementing the payrolling:

• From April 2027, all BIKs (except employment-related loans and accommodation) must be reported via payroll in real-time.
• Employers will have the option to voluntarily payroll employment-related loans and accommodation from April 2026. This will also be mandated at a later date, with a timeline to be announced in due course. In the meantime, these benefits can be reported on the P11Ds.
• An end-of-year process will be introduced to amend the taxable values of any BIKs that cannot be determined during the tax year.

Who will this change affect?

This change will affect:

• Employers who provide taxable benefits
• Employee who received taxable benefits
• Payroll administrators.

How to payroll the BIK

Employers will need to divide the cash equivalent of BIKs across the relevant pay periods for each employee. This amount should then be reported alongside employee earnings in each pay period, ensuring that the Income Tax due on the benefit is deducted through the employee’s payslip.

If the cash equivalent changes during the tax year, the employer will need to recalculate the taxable amount and adjust payroll accordingly for the remaining pay periods.

End-of-year process

Employers must ensure that the reported taxable values for all payrolled Benefits in Kind (BIKs) are as accurate as possible. Any necessary in-year corrections must be made as soon as information about the discrepancy is available and the payrolled figures must be rectified using the remaining Full Payment Submissions for the tax year.

However, an end-of-year process will be introduced to amend the taxable values of BIKs that cannot be determined during the tax year. HMRC will provide further details in due course on what corrections can be made and how they should be reflected.

Other customer groups

HMRC is developing solutions to ensure that mandatory payrolling of Benefits in Kind (BIKs) is effective for specific groups, such as globally mobile employees. Updates will be provided as plans progress.

The existing legislation and processes that exempt digitally excluded customers from reporting through RTI will remain in place. While they must continue to report and pay tax on the benefits they provide, they will not be required to do so in real-time using payroll software.

For further information or advice contact Ellie at espencer@geraldedelman.com.