From April 2027, the way employers handle Benefits in Kind and expenses will change permanently.
HMRC is shifting the responsibility for reporting most non-cash benefits, expenses, and similar perks such as company cars, medical insurance, or staff loans directly into payroll. Instead of waiting until the end of the tax year to submit a P11D, the value of these benefits will be processed and taxed through the regular payroll cycle and reported to HMRC through RTIs (Real Time Information).
At first glance, it may seem like a technical adjustment. In reality, it represents a fundamental shift in how payroll and taxation operate together.
What Counts as a Benefit in Kind
A Benefit in Kind (BiK) is any perk that carries a financial value but isn’t paid in cash.
Examples include private health cover, an interest-free loan, or access to a company car, all of which must be taxed appropriately.
Until now, most employers reported these once a year using forms P11D for employees and P11D(b) for their own Class 1A National Insurance contributions obligations. The data would then feed back into HMRC systems, often months after the benefit was first provided. That time gap created unnecessary admin and confusion for both payroll teams and employees trying to reconcile tax codes.
Under the upcoming rule, the delay will disappear. The taxable value of each benefit will be processed directly through payroll, allowing HMRC to collect tax and NICs in real time.
This update follows official guidance from HMRC on reporting and paying Income Tax and Class 1A NICs on Benefits in Kind in real time, which outlines how employers will need to report benefits through payroll from April 2027.
What Will Actually Change
From the 2027/28 tax year onwards, employers will no longer rely on P11D forms for reporting most benefits in kind.
Instead, each month or pay period, payroll must include the cash-equivalent value of every BiK, ensuring that the correct Income Tax and Class 1A NIC are applied automatically.
There will be a few exceptions such as accommodation and certain loans which will remain outside the first phase of the change, but for most organisations, all other benefits will move fully within the payroll process.
Employers who have already chosen to payroll benefits voluntarily are unlikely to notice much difference.
Those who still handle benefits manually at year end will need to prepare in advance. Payroll software, data capture methods, and internal communication practices should all be reviewed and updated well before April 2027.
Why HMRC Is Making the Change
This reform isn’t about creating extra work; it’s about removing outdated processes.
For decades, benefits taxation has lagged behind modern payroll systems. When a benefit is given in May but taxed the following April, mistakes are almost inevitable.
HMRC aims to close that gap. Real-time payrolling will:
- Ensure employees pay the correct tax when they receive a benefit
- Remove the need for later tax-code corrections
- Reduce the number of P11D forms processed each year
The change also supports the government’s wider Making Tax Digital programme, which aims to simplify every stage of employer reporting. In short, less paperwork, fewer surprises, and faster communication between payroll and HMRC.
How This Affects Employers Day-to-Day
For most businesses, the impact will be practical rather than dramatic, but it will be noticeable across several areas.
Payroll Software and Systems
You will need a payroll software capable of calculating benefit values, including them in the Full Payment Submission (FPS), and storing the data securely.
Many mainstream providers already offer this, but it is important to confirm that your version complies with HMRC’s technical standards.
Accuracy and Data Checks
As reporting moves to real time, accuracy becomes critical.
If the taxable value of a car benefit changes halfway through the year, payroll must reflect that immediately.
Good record keeping and internal review processes will prevent over or under taxation.
Employee Awareness
Expect more questions when staff see benefit values listed on payslips.
A short explanation within onboarding materials or adding a note to payslips can help avoid unnecessary confusion.
Cash Flow Planning
Since liabilities will be settled monthly rather than annually, finance teams should model how this change will affect cash flow and working capital throughout the year.
Preparing for the Transition
Preparation doesn’t need to be complicated, but it should be organised. Start with a structured checklist.
1. Audit Existing Benefits
Document every non-cash benefit currently offered and identify which ones will need to be payrolled.
2. Review Your Payroll Software
Check that your payroll system supports Benefits in Kind (BiK) fields and real-time submissions. If not, speak with your vendor about updates or migration options during the 2026/27 year.
3. Try Voluntary Payrolling Early
HMRC currently allows employers to register voluntarily. Doing this before the deadline gives you time to test systems and train staff with minimal pressure.
Employers can also review HMRC’s official guidance on payrolling employees’ taxable benefits and expenses to understand the voluntary process and prepare for the 2027 transition.
4. Train Internal Teams
Ensure that Payroll and HR teams understand how to calculate cash equivalents, handle queries, and apply Class 1A NIC rules correctly.
5. Communicate with Employees
Keep communication simple and transparent. Explain what will appear on payslips and why it’s happening. A transparent approach builds trust.
How The Infinity Group Can Help
At The Infinity Group, we specialise in umbrella and payroll management services that help businesses stay fully compliant with HMRC regulations.
Whether you choose to employ your own workforce and outsource payroll to us, or prefer us to act as the employer under our umbrella service, we ensure all payroll processes, including Real Time Information (RTI) submissions, are handled accurately and on schedule.
Our experienced team provides end to end payroll management, compliance reviews, and up to date guidance, allowing you to focus on running your business with confidence.
If your organisation needs reliable support with payroll compliance or is exploring the benefits of using an umbrella arrangement, The Infinity Group is here to help every step of the way.
Common Questions
When does mandatory payrolling begin?
It starts in April 2027 marking the start of the 2027/28 tax year.
Will P11Ds still exist?
Only in limited cases. Most benefits move to payroll, but the P11D(b) will remain for Class 1A NICs until HMRC replaces it with a digital process.
Which benefits are excluded?
At launch, employer-provided accommodation and beneficial loans are excluded. HMRC may revisit these later.
Can I start now?
Yes. Voluntary registration is already open, and early adoption is the easiest way to prepare systems and staff.
How will this appear on payslips?
Each benefit’s taxable value appears alongside regular pay items, helping employees understand their total reward more clearly.