Payrolling Benefits in Kind Pushed Back: What the 2027 Start Date Means for Employers

In January 2024, HMRC signalled a big change: most benefits in kind (BIKs) would be taxed through payroll from 6 April 2026, replacing the annual P11D cycle. Since then, HMRC has confirmed an extra year to prepare mandatory payrolling now starts from 6 April 2027. This guide explains what's changing, why it was delayed, who's affected, and how to get ready without disrupting payroll.

Headline Change, New Timeline: Why Payrolling Is Becoming the Default

• The original plan (Jan 2024): payroll Income Tax and Class 1A NIC on most BIKs in real time from April 2026, largely removing P11Ds.
• The update (Apr 2025): HMRC pushed the go-live to April 2027 after feedback from employers, software providers and professional bodies, giving more time to build and test systems.

What “Payrolling BIKs

Instead of reporting benefits after year-end on P11D and paying Class 1A NIC via P11D(b), the taxable value of most benefits will be processed through payroll each pay period, with Class 1A NIC calculated and paid accordingly. Employees see tax deductions in real time, not via later code adjustments. HMRC has indicated it will remove payrolled benefits from employee tax codes automatically to avoid double taxation.

Scope: Which Benefits Will Be Payrolled and Which Won't (at first)?

HMRC's technical note indicates most benefits will be in scope from April 2027, with some complexities:

• Included (broadly): company cars & fuel, private medical insurance, subscriptions, most non-cash perks.
• Complex items: beneficial loans and accommodation have had special handling and, historically, carve-outs employers may still need separate processes/registration where applicable. Final scope and mechanics will be confirmed in detailed guidance before April 2027.

Why HMRC Delayed to 2027

• Software readiness: payroll vendors need time to build, test and certify changes.
• Data quality: employers must cleanse benefit data and align HR/expenses/payroll systems.
• Change management: communication to employees, policy updates, and pay-period testing all take time.
  HMRC's own update cites stakeholder feedback and the need for a smoother transition. Use the extra year to reduce risk, not to wait.

Your 6-Step Readiness Plan

1. Map your benefits universe
   List each benefit, provider, and data source. Note valuation method, start/stop rules, gross-up policies, and who “owns” the data.
2. Clean the data
   Standardise employee IDs, benefit start dates, CO2 data for cars, policy numbers, and pro-rations. Archive ceased benefits properly.
3. Decide pay-period treatment
   Monthly vs. weekly payroll implications; mid-year starters/leavers; retro adjustments; negative pay safeguards.
4. Model Class 1A NIC in-year
   Build a process to accrue Class 1A as benefits are payrolled so there's no year-end shock.
5. Employee communications
   Draft plain-English FAQs for payslip changes and explain why code reductions will happen automatically (per HMRC's approach).
6. Dry-run before go-live
   Parallel run with a subset of benefits. Reconcile to current P11D values to validate calculations.

Policy, Payroll & Controls: What to Update Now

• Benefit policies: eligibility, approvals, joiner/leaver rules, and reporting deadlines.
• Contracts/handbooks: reflect payrolling and deductions/payslip disclosures.
• Systems & integrations: align HRIS, expenses, fleet and medical providers with payroll; automate feeds where possible.
• Year-end process: design a lighter P11D clean-down (for carve-out benefits) plus an in-year Class 1A reconciliation.

Payrolling vs P11D: The Pros and Cons

Advantages

• Smoother employee experience: tax taken as you go, not corrected via coding months later.
• Fewer year-end forms: P11D volume drops dramatically for in-scope benefits.
• Cleaner forecasting: employers can budget Class 1A NIC during the year.

Watch outs

• Valuation accuracy: wrong monthly values create immediate net-pay issues.
• Change capture: late notifications (e.g., car swaps) cause back-pay adjustments.
• Edge cases: loans/accommodation and international moves may still need bespoke handling.

Governance: Who Owns What?

• Payroll: calculation, payslip presentation, real-time corrections.
• HR/Rewards: policy, valuation inputs, provider liaison.
• Finance/Tax: Class 1A accruals, reconciliations, filings and audit trail.
• Internal audit/compliance: control testing and data-quality checks.

FAQs: Payrolling Benefits in Kind (BIKs)

Why did HMRC delay the mandate to April 2027?
After consulting with stakeholders and software providers, HMRC allowed an extra year to ensure systems and employers are ready.

Will we still need to register to payroll benefits?
From April 2027, HMRC says employers will not need to register to payroll most BIKs; HMRC will remove payrolled benefits from tax codes automatically. (There may be exceptions historically loans/accommodation required specific handling/registration.) Final guidance will confirm details.

Do P11Ds disappear completely?
They should reduce significantly but may not disappear entirely (e.g., for benefits outside the initial scope, such as certain loans/accommodation depending on final rules). HMRC will publish the definitive list ahead of April 2027.

What was the original mandate?
In January 2024, HMRC confirmed the intention to mandate payrolling BIKs from April 2026 (now deferred to 2027).

How do we avoid “wrong tax” on payslips?
Clean data, clear cut-off dates, and a parallel run before switching. Consider exception reports (e.g., negative net pay, large retro adjustments).

Where can I read HMRC's latest technical note?
HMRC's April 2025 update confirming the April 2027 start is here. GOV.UK

What Good Looks Like by March 2027

• Benefit data is complete, standardised and reconciled to providers.
• Payroll can process monthly taxable values with real-time Class 1A accruals.
• Payslip templates and employee FAQs are final.
• Parallel tests completed; differences resolved.
• A slimmed-down year-end (for any carve-outs) is documented.

How yrf accountants Can Help

We'll map your benefits, cleanse data, design the pay-period logic, and run a parallel test so you can go live with confidence. If you prefer local, practical support from accountants in Bolton, we've got you covered.

Conclusion:

Mandatory payrolling of BIKs is still coming just one year later. Treat 2025–26 as your prep window and 2026–27 as your testing year. Clean up benefit data, align providers, harden payroll controls, and brief employees. Do that, and April 2027 becomes a smooth go-live rather than a scramble.

Want a one-page action plan and a parallel-run template? We can implement both through our Compliance Services (payroll procedures) and hand over clean, documented processes before the deadline.