Preparing for Mandatory Payrolling of Benefits in Kind ahead of 2027

The 2025 Budget brought many headlines, but one change that may not have grabbed the same attention is set to have a major impact on employers and payroll teams: mandatory payrolling of benefits in kind (BiKs).

This represents a significant change in how employee benefits are reported and taxed.

From Optional to Required

Since 2016, employers could choose to payroll BiKs voluntarily.

This allowed many organisations to simplify reporting, reduce P11D forms, and apply tax to benefits in real time.

While not all benefits were included e.g. loans and accommodation, the system worked reasonably well for many businesses.

From April 2027, however, this optional system will be replaced with a mandatory approach, bringing broader reporting obligations and tighter compliance requirements.

What Employers Need to Know

Under the new rules, payroll teams must report all taxable benefits through the Full Payment Submission (FPS) each time employees are paid.

HMRC has expanded the RTI specification to include over 120 new data points, effectively embedding P11D reporting into routine payroll submissions.

This change affects systems, processes, and the way employees experience payroll.

Key Considerations for Businesses

1. Timing and Early Adoption

Employers can still sign up for voluntary payrolling before April 2026.

However, the voluntary system won’t include all the new reporting fields, meaning businesses may face a second implementation stage before the mandatory rules take effect in 2027.

Planning carefully is essential to avoid duplicated effort.

2. Payroll Systems

Most payroll software will need significant updates to handle the new reporting requirements.

Employers should check with providers now to ensure systems will be ready for the extra data points and changes to Class 1A National Insurance reporting.

3. Cashflow Management

Class 1A NICs will no longer be paid as a single annual amount in July.

Instead, payments will align with monthly payroll, which could have a notable impact on budgeting and cashflow for companies with significant non-cash benefits.

4. Employee Experience

Benefits will now appear on payslips in real time.

This increases transparency but also raises the risk of questions or confusion if errors occur.

Employers should prepare to explain the changes clearly and ensure values are accurately estimated throughout the year.

Compliance and Risk

While HMRC has confirmed a grace period for penalties in 2027/28 for unintentional errors, deliberate non-compliance will still be subject to enforcement.

Employers should map all benefits and set up robust processes to avoid mistakes, especially for directors or employees with minimal salaries who may now see tax deductions in real time.

Next Steps for Employers

• Review payroll software: Ensure it can handle the new reporting requirements.
• Identify all taxable benefits: Map these for accurate reporting each payroll period.
• Plan cashflow: Adjust budgets for monthly Class 1A NIC payments.
• Communicate with employees: Prepare staff for changes on payslips and the shift from annual to real-time reporting.

How We Can Help

Mandatory BiK payrolling is a major operational and strategic change. Our team can guide you through:

• Payroll system preparation
• Process design and workflow implementation
• Cashflow planning
• Employee communications

Getting in touch

Ensure your payroll is ready and you and your employees aren’t caught out.

Contact us on 01634 731390 to discuss your needs and ensure you are ready for the 2027 implementation.

Our Services

To read more about what we do and who we work with please see our related pages below:

Reducing Tax

People & Payroll 

Blogs related to Payroll

Take a look at our other blogs on the topic of  Payroll:

5 Payroll Pitfalls and how to avoid them

Building a great remuneration package for your team

The content in this blog is correct as of 24th December 2025. See terms and conditions.