HMRC has updated its interim guidance on the mandatory payrolling of benefits in kind (BIKs) and taxable expenses, giving employers further detail on how the new regime will work from April 2027.
The move to real-time reporting represents a significant change for employers.
Instead of reporting most benefits after the end of the tax year through P11D forms, certain benefits will need to be processed through payroll, with Income Tax and Class 1A National Insurance contributions reported to HMRC through Full Payment Submissions (FPS).
The latest update focuses on three practical areas: how benefits should be payrolled, the data employers will need to report, and how corrections and adjustments should be handled. HMRC has also added examples to help employers understand the difference between mandatory and voluntary payrolling, including how medical benefits should be treated.
From 6 April 2027, the first phase of mandatory payrolling will apply to company cars, car fuel, vans, van fuel and employer-provided medical benefits. Most other benefits are expected to follow from April 2028, although loans and accommodation will remain outside mandatory payrolling for now and can continue to be dealt with voluntarily.
For employers, the practical impact will be felt across payroll, HR and finance teams. Payroll software will need to capture the correct information, calculate taxable values across different pay frequencies and report the relevant Class 1A National Insurance data through RTI. Where more than one mandatory benefit attracts Class 1A NICs, HMRC confirms that the taxable values can be combined and reported using the relevant data items.
HMRC has also provided more detail on corrections and adjustments, including examples for employees who leave during the tax year. This will be important where a benefit value changes, an estimate proves inaccurate, or information becomes available after an earlier payroll submission. For employers voluntarily payrolling accommodation or beneficial loans, HMRC expects reasonable estimates to be used at the start of the year, with adjustments made later where necessary.
Although April 2027 may feel some way off, this is not a change to leave until the last minute. Employers should start reviewing the benefits they provide, checking the quality of employee and benefit data, speaking to payroll software providers and considering how the change will be communicated to employees. The timing of tax deductions may change for some employees, so clear internal communication will help reduce confusion and payroll queries when the new rules take effect.
The update is a useful step forward, but further guidance is still expected before final implementation. Employers should use the lead-in period to identify gaps, test processes and make sure responsibilities between HR, payroll and finance are clear.
For more information on HMRC’s guidance, click the link here.
If you provide benefits in kind and would like to understand what mandatory payrolling means for your business, please speak to your usual Hillier Hopkins contact.
