Changes to reporting of BiKs

Mandatory payrolling of benefits in kind (BiKs) and taxable employment expenses will be introduced from 6 April 2027. This represents a major change in reporting and means that for most benefits, the annual P11D form will no longer be required.

The requirement to report Income Tax and Class 1A National Insurance contributions through payroll aims to simplify the process for both employers and HMRC, reducing the administrative burden of year-end filings.

How payrolling benefits works

Under the new system, instead of reporting the value of a benefit (such as a company car or medical insurance) at the end of the tax year on a P11D form, the employer must add the cash equivalent of the benefit to the employee's pay each time they are paid. The employer then calculates and deducts the appropriate amount of Income Tax through the PAYE system in real time.

This means employees will pay the tax due on their benefits throughout the year, rather than facing a potential adjustment to their tax code or a lump sum tax demand at a later date. It provides greater certainty and transparency for employees regarding their tax liabilities.

Class 1A National Insurance

Currently, employers pay Class 1A National Insurance contributions on the value of most benefits in kind annually, using form P11D(b). Under the mandatory payrolling rules, the reporting and payment of Class 1A NICs will also be integrated into the regular payroll process. This will require software updates and a shift in how employers manage their cash flow, as these contributions will need to be paid more frequently.

Preparing for the change

While April 2027 may seem a long way off, the transition to mandatory payrolling requires careful planning. Employers will need to ensure their payroll software is capable of handling the new requirements and that their internal processes for tracking and valuing benefits are robust enough to operate in real time.

Employers who do not currently payroll benefits may wish to voluntarily register to do so ahead of the mandatory deadline. This can provide valuable experience with the new system and help identify any potential issues before the rules become compulsory. We strongly recommend discussing this transition with your payroll provider or accountant to ensure your business is fully prepared.