UK and International Tax news
Mandatory Payrolling of Benefits
Friday 16th May 2025
HMRC has announced additional time to prepare for the introduction of the mandatory payrolling for benefits in kind and taxable employment expenses.
Following feedback from external stakeholders, mandatory reporting and paying of income tax and Class 1A NlCs on benefits in kind will be introduced from April 2027 instead of April 2026. This will provide more time for employers, payroll professionals, software providers, tax agents and other stakeholders to prepare for the change.
HMRC has published a technical note on the reporting of benefits in kind and expenses which provides more operational information on how businesses can adapt to these changes in time for April 2027.
HMRC advise that it may be worth considering registering to voluntarily payroll benefits in kind from April 2026. This will help to familiarise with the process of reporting benefits in kind using payroll software in readiness for mandatory payrolling. It will also provide an opportunity to test how an organisation’s payroll processes and systems work and adapt them for real-time reporting if required.
Organisations will need to register for voluntary payrolling by April 2026 in order to operate it on BIKs in the 2026/27 tax year which can only be started from the beginning of the new tax year.
Not all BIKs can be reported through the current voluntary payrolling system for the 2026/27 tax year. Interest free and low interest/beneficial loans and employment-related living accommodation will still need to be reported on a P11D for income tax.
For the 2026/27 tax year, Class 1A NICs for all BIKs will be reportable by submitting a P11D(b) online form. Completion and submission of P11D forms for any benefits and expenses which have not been payrolled will still be required.
Employers should inform their employees about moving from a P11D and P11D(b) reporting process to real-time reporting from April 2027.
From April 2027, the reporting process for BIKs and expenses will be through the Full Payment Submission (FPS). This is the same process employers currently use to report salary and other employee details to HMRC when payments are made to employees. The FPS will be used to report the taxable value of BIKs and expenses so that both income tax and Class 1A NICs can be reported in real-time. The number of fields for reporting BIKs and taxable employment expenses in RTI via an FPS will be increased to align with what is currently reported in the P11D and P11D(b) forms.
Under the present voluntary payrolling arrangements, limited data is collected on BIKs. To support the introduction of mandatory payrolling, HMRC will need visibility of the BIKs in the FPS to ensure that the correct tax is being reported and paid. Without this information, HMRC would need to conduct more manual compliance interventions to manage non-compliance risks. This would be administratively burdensome for both taxpayers and HMRC.
HMRC’s technical note includes a list of the information that employers will be asked to collate for their RTI returns. HMRC say they will confirm the data fields required later in the year when they plan to publish further software technical information.
If you would like more information on the above, please contact Keith Rushen on 0207 486 2378.
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