The New Benefit-in-Kind (BIK) Rules for Payrolling Benefits: What Employers Need to Know

As businesses navigate the complexities of tax compliance, staying informed about changes in legislation is essential. One of the key updates involves the way Benefits in Kind (BIKs) are taxed and reported. To simplify processes and improve compliance HMRC is introducing changes to the rules for payrolling benefits in kind which were originally going to be mandatory from 6 April 2026.  However, on 28 April 2025, HMRC announced that the mandatory start date for payrolling benefits in kind would be delayed until 6 April 2027.

What is Payrolling Benefits in Kind (BIK)?

Payrolling BIKs means employers will include the taxable value of certain BIKs directly in an employee’s regular pay, taxing them via the Pay As You Earn (PAYE) system. This will eliminate the need to submit annual P11D forms for most benefits.

For example, if an employee has a company car, the taxable benefit will be added to their salary and tax on the value of the benefit will be deducted via PAYE. This simplifies the tax process and provides real-time accuracy for both employers and employees.

The New Rules: Key Changes

Mandatory Payrolling for most BIKs

Previously, payrolling benefits was voluntary. However this will become mandatory for most benefits in kind from 6 April 2027 including:

• Company cars
• Fuel benefits
• Private medical insurance
• Gym membership

Employers will need to register these BIKs through PAYE to payroll them.

Note that it currently not possible to payroll the BIKs for:-

• employer provided living accommodation
• interest free and low interest (beneficial) loans

HMRC also announced on 28 April 2025 that employers will be able to payroll employment-related loans and accommodation on a voluntary basis from April 2027.

Simplified Reporting Requirements

Under the new rules, businesses that payroll benefits no longer need to submit annual P11D forms for those benefits. This will reduce administrative effort and the risk of errors.

However, P11D(b) forms (for reporting employer Class 1A National Insurance contributions) must still be filed at the end of the tax year.

Improved Online Registration

If employers wish to start voluntarily payrolling benefits in kind for the 2026/2027 tax year they must register to do this by 5 April 2026 at the latest.

They will need to register by 6 April 2027 for the mandatory payrolling of benefits in kind from 2027/2028.

Easier BIK Calculations

To simplify payroll management, HMRC has introduced clearer guidelines for calculating taxable benefits, especially for low-emission company cars. This ensures accurate deductions and reduces confusion for payroll teams.

Flexibility for Salary Sacrifice Schemes

The new rules provide more flexibility for salary sacrifice arrangements, such as childcare vouchers or bike-to-work schemes. These benefits can now be taxed through PAYE, streamlining their management for both employers and employees.

Benefits of Payrolling BIKs

The updated system offers several advantages for businesses:

Reduced Administrative Burden: Payrolling benefits eliminates the need for most P11D forms, saving time and effort.

Predictable Tax Liabilities: Employees’ tax on benefits is deducted in real-time through PAYE, avoiding unexpected tax bills.

Improved Compliance: Monthly reporting ensures accuracy and reduces the risk of penalties for late or incorrect submissions.

Enhanced Flexibility: Employers can tailor their approach by payrolling some benefits while continuing to report others via P11D forms.

How to Prepare for the Changes

Review Eligible Benefits

Identify which benefits qualify for payrolling, such as company cars, medical insurance, and salary sacrifice schemes. Decide which benefits to payroll and which to report via P11Ds.

Register for Payrolling via HMRC

Log into your PAYE account through the Government Gateway and register benefits for payrolling. Ensure this is completed before the start of the tax year.

Update Payroll Systems

Ensure your payroll software is configured to handle payrolled benefits. Work with your provider to verify compatibility and test the system before implementation.

Communicate with Employees

Inform employees about the changes, explaining how payrolling works and how it impacts their tax deductions. Provide resources to address any questions or concerns.

Stay Informed

Monitor updates from HMRC regarding BIK legislation to ensure your processes remain compliant. Adjust payroll systems and procedures as needed to reflect any future changes.

Conclusion

The new payrolling rules for Benefits in Kind aim to simplify tax management, reduce administrative tasks, and improve compliance. By transitioning to payrolling, businesses can ensure accurate and timely tax reporting while offering employees greater predictability in their tax liabilities.

If you need guidance on implementing these changes or want to ensure your payroll systems are ready, reach out to a tax advisor or payroll specialist. Staying proactive will ensure a smooth transition and ongoing compliance with HMRC requirements.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.