Payrolling benefits in kind: What’s changing from April 2027 and April 2028

Key Takeaways

• HMRC has confirmed payrolling benefits in kind is becoming mandatory in two phases: from 6 April 2027 for certain kinds, and from 6 April 2028 for most others.
• Loans and employer-provided accommodation stay outside the mandatory rules for now.
• For most BiKs, taxes move from an estimated tax-code adjustment to a real-time deduction each pay period.
• You won’t need to register with HMRC.
• The P11D and P11D(d) are not disappearing overnight and might still be needed.

From company cars to gym memberships, offering employee perks as part of their employment with you is a proven way to boost retention and engagement.

In the UK these are referred to as benefits in kind. Usually employees pay a discounted cost of some kind, as part of a scheme provided by a third party and operated through your payroll.

For several years now, the government has been saying that reporting benefits in kind as part of payroll will become mandatory. The old way of reporting them on a P11D form after tax year end will be phased out.

But, as you might expect, it’s not been quite as clear cut as it might’ve been, and the rules have chopped and changed since the initial announcement.

The good news? It’s now all firmed-up. As per announcements made in June 2026, a first group of benefits in kind must be payrolled from April 2027, with most others following in April 2028.

And now’s the time to get ahead of the curve.

In this article, you’ll learn what payrolling benefits in kind means, how it differs from traditional P11D reporting, when each change takes effect, and what steps you need to take to stay compliant.

Here’s what we cover:

What does payrolling benefits in kind mean?

Payrolling benefits in kind (BiKs) means fully processing the tax on employee benefits through your payroll.

It’s what’s new as of 2027, and it means the employer adds the cash equivalent for the benefit to taxable pay each period, so the correct taxes are collected in real time—and listed on the payslip.

Compare that to how things are done up until now.

HMRC collects the income tax for the benefits in kind by adjusting the employee’s tax code. The tax code is retrospectively adjusted based on the value of the benefits reported on the P11D, for the previous tax year.

Effectively, as of 2027 the tax and employer National Insurance contributions (NICs) for benefits in kind move to real-time, and as such, the P11D form (and its sibling, the P11D(b) form) should no longer be required.

This gives employees more visibility into what’s being taxed and when. HMRC suggests it will save you time and admin effort, especially following the end of the tax year but commentators have suggested the admin burden for payroll managers could increase due to managing benefits throughout the year, instead of one point after the year end. This should be borne in mind when planning workloads.

Common types of benefits in kind

Some of the most common benefits in kind include:

• Company cars and fuel, including electric vehicles (EVs)
• Private or dental medical insurance
• Mobile phones, other gadgetry, and even broadband
• Gym memberships or wellness subscriptions
• Non-cash vouchers.

Not every benefit is treated the same way under the new rules.

As you’ll see below, some must be payrolled from April 2027, others from April 2028, and a couple—such as interest-free or low-interest loans and employer-provided accommodation—remain sat outside the mandatory regime altogether until further notice.

It’s worth reviewing what you currently offer and checking it against HMRC’s guidance to see where each benefit lands.

Why is payrolling benefits in kind becoming mandatory?

This move is all about making things simpler and more transparent.

Employees can see the impact of their benefits on their pay in real time, and employers can reduce the year-end reporting burden.

It’s part of HMRC’s wider push towards real-time tax reporting—the same direction of travel behind PAYE, RTI payroll, and Making Tax Digital.

What’s changing with BiK, and when

Following feedback from employers, payroll professionals and software providers, HMRC confirmed in June 2026 that mandatory payrolling will be introduced in phases rather than all at once.

Here’s how the timeline looks:

• Phase 1 — from 6 April 2027: Payrolling becomes mandatory for company cars, car fuel, vans, van fuel, and employer-provided medical (and dental) benefits. The Income Tax and Class 1A National Insurance on these benefits must be reported and paid in real time through your payroll.
• Phase 2 — from 6 April 2028: Most remaining benefits, such as gym memberships, non-cash vouchers and mobile phones outside the exemption, move into mandatory payrolling.
• Loans and accommodation: Interest-free or low-interest loans and employer-provided living accommodation stay outside the mandatory regime for the foreseeable future. You can continue to report them on a P11D, or payroll them voluntarily if you choose. HMRC has said it will publish a timetable for bringing these in at a later date.

So, the question you might be asking: What happens to the P11D?

It isn’t disappearing overnight. You’ll still need to file P11D and P11D(b) forms for 2025/26 and 2026/27, and for any benefits that aren’t yet in scope during 2027/28.

In practice, many employers will run payroll reporting and P11D reporting side by side through the transition. Moving loans and accommodation voluntarily to payroll reporting might seem to make sense, but the reason they remain optional is due how the benefit value is calculated. Payroll managers will only know the true value at the end of the tax year, so payrolling these benefits would likely require adjustments throughout the year. Ultimately, the decision is yours, pending HMRC developing alternative calculation methods.

Do you need to register for payroll BiK?

Here’s some good news: for benefits that fall within mandatory payrolling, you won’t need to register with HMRC at all. From April 2027, payrolling simply becomes the default—there’s no sign-up step to remember.

This is a change from the old voluntary system, where you had to register before the start of the tax year. That voluntary registration route closed for 2026/27 on 5 April 2026, and HMRC is no longer accepting new voluntary registrations for that year.

There’s one exception to keep on your radar. If you want to voluntarily payroll loans or accommodation (the two benefits outside the mandatory regime), you’ll still need to register to do so. HMRC expects to open that registration service in November 2026, with a deadline of 5 April 2027. If that applies to you, it’s worth diarising now.

You also don’t need to worry about double taxation during the switch. HMRC has confirmed it will remove payrolled benefits from employees’ tax codes before 6 April 2027, so they’re not taxed twice. Any underpayments from previous years will still be collected through the tax code, as happens today.

Why do businesses offer benefits in kind?

Benefits in kind are more than just perks. They’re a strategic way to attract and retain top talent in today’s competitive job market.

Perks such as flexible working tools, wellness allowances, and electric vehicle (EV) schemes show that your business cares about more than just productivity.

For growing businesses, offering thoughtful benefits can help your organisation stand out without requiring large salary increases.

When structured well, they show that your business values wellbeing, convenience, and long-term growth—making benefits a powerful part of your employer brand.

If you’re thinking about your broader people strategy, it’s worth considering how benefits fit into the overall employee experience you want to create.

How to payroll benefits in kind

Once the rules apply to you, payrolling becomes part of your regular payroll cycle.

Here’s what’s involved:

• Work out the annual taxable value of each benefit, divide it across the remaining pay periods in the year, and include that amount in each employee’s taxable pay.
• Report the Income Tax and Class 1A National Insurance through your Full Payment Submission (FPS) each pay period—the same submission you already use for salaries.
• Keep clear records of all benefits provided, and adjust the figures if a benefit changes during the year.

If you don’t know the exact value of a benefit in-year—for example, where it’s provided by a third party—HMRC will let you payroll a reasonable estimate and then correct it after year-end.

There’s a correction window up to 22 July following the end of the tax year to true up any estimates.

For benefits you’re payrolling under the mandatory rules, you won’t need to submit a P11D or pay Class 1A separately at year-end. It’s all handled in real time. You’ll only still use the P11D(b) process for benefits that remain outside payrolling, such as loans and accommodation you haven’t chosen to payroll.

Tips for setup and employee communication of payrolling benefits in kind

A smooth rollout depends on good internal communication and clear systems. Here are a few helpful steps:

• Host a brief team session or record a short explainer video.
• Follow up with an email that includes key dates, links, and FAQs.
• Update payslip formats so benefit deductions are easy to understand.
• Appoint someone in HR or payroll as the go-to for questions.
• Test your payroll setup well ahead of time to avoid any surprises.

It’s also worth reassuring employees that HMRC will adjust their tax codes ahead of the change, so they shouldn’t see the same benefit taxed twice. A little clarity here goes a long way. It’s a chance to build trust while handling an important change well.

How payroll software can help with payrolling benefits in kind

Good payroll software will make the entire process far easier. It can:

• Calculate the tax due on each benefit.
• Submit data directly to HMRC through your FPS.
• Maintain records for audits or employee questions.
• Make sure Class 1A National Insurance is calculated correctly in real time.

HMRC is finalising the technical specifications for software developers during the second half of 2026, so it’s worth checking in with your provider about when their update will land and what you’ll need to do.

For more practical tips, check out our guide on how payroll automation works.

You can also explore how Sage’s HR solutions support compliance and simplify tax reporting.

Common mistakes to avoid when payrolling benefits

Getting ready for payrolling is fairly straightforward, but there are a few easy missteps that can cause issues if you’re not prepared:

• Assuming the P11D disappears completely in 2027: It doesn’t. You’ll still file P11Ds for earlier years and for benefits not yet in scope, so don’t switch off your year-end process too soon.
• Overlooking the cash flow impact: In 2027/28 you could be paying Class 1A National Insurance for both 2026/27 and 2027/28 in the same year. Model this early so it doesn’t catch your finance team out.
• Assuming your software handles it all automatically: Not every payroll system is configured for real-time benefit reporting yet. Check with your provider that your setup, benefit values and tax codes are correct.
• Not communicating clearly with employees: If your team sees new deductions on their payslip without warning, it can cause confusion. A clear explanation ahead of time helps everyone feel informed and reassured.

Avoiding these issues will help ensure compliance, reduce employee questions, and set the stage for a smooth transition.

Planning ahead: What to do now for payrolling benefits in kind

With Phase 1 arriving in April 2027, now is the perfect time to review your benefits strategy.

Start by listing every benefit your employees currently receive, then identify which fall into Phase 1 (April 2027), which follow in Phase 2 (April 2028), and which sit outside mandatory payrolling.

From there:

• Speak to your payroll provider about when their software will be ready and what setup or training you’ll need.
• Model the financial impact, including the potential of paying Class 1A National Insurance for two tax years in the same year.
• If you want to voluntarily payroll loans or accommodation, note the registration window opening in November 2026, with a 5 April 2027 deadline.
• Build an internal timeline that includes testing before the 2027/28 tax year begins.

It’s also worth involving your finance and HR teams early. Payrolling benefits affects both tax reporting and employee engagement, so cross-functional planning helps catch issues before they become problems.

Final thoughts

Payrolling benefits in kind is becoming a legal requirement, starting with Phase 1 in April 2027 and widening in April 2028. The sooner you prepare, the easier the transition will be.

By getting familiar with the phased timeline, understanding which benefits apply when, and making sure your employees know what to expect, you’ll reduce stress for everyone. And with the right software and systems in place, payrolling can become one of the simplest parts of your year.

There’s a little breathing room built in, too: HMRC has said it will take a light-touch approach to penalties in the first year (2027/28), with the full penalty regime applying from 2028/29—provided errors aren’t deliberate. That’s not a reason to wait, but it does give you room to get things right. Start now by reviewing your benefits, aligning with your payroll provider, and keeping your team in the loop. Take it one step at a time, test your systems early, and you’ll be in a strong position well before the rules take hold.

This blog was first published in June 2025 and has been updated since with new information and for relevance.

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