Mandatory Payrolling of Benefits in Kind: Extension to April 2027

In our previous article, Reporting Benefits in Kind through Payroll, we discussed HMRC’s plan to mandate the real-time reporting of Benefits in Kind (BiKs) via payroll from April 2026. This initiative aimed to simplify tax processes by eliminating the need for annual P11D submissions.

What has changed?

HMRC has now extended the deadline for mandatory payrolling of BiKs to April 2027. This decision was influenced by feedback from employers and industry professionals, after extensive consultation with stakeholders who highlighted challenges related to system readiness of payroll software providers and the need for comprehensive guidance. The additional year allows software developers and employers to better prepare for the transition to real-time reporting.

Key updates

• Implementation Date: Mandatory payrolling of most BiKs will commence from 6 April 2027.
• Reporting Mechanism: Employers will report BiKs through the Full Payment Submission (FPS) system, aligning with current salary reporting practices.
• Voluntary Payrolling: Employers can continue to voluntarily payroll most BiKs for Income Tax ahead of 6 April 2026 but will have to register to do so prior to this date. The voluntary service will work in the same way as it does now in that not all BiKs can be payrolled. This will enable you to “test” the systems in place for payrolling.  Also, there will be no facility to register for payrolling mid-year prior to April 2027.
• Penalties: To support the smooth introduction of this change, customers who have made an error related to mandatory payrolling in their RTI returns for 2027 to 2028 will not be charged penalties for inaccuracies unless there is evidence of deliberate non-compliance. Existing late filing and late payment penalties for RTI returns will still apply in the first year of mandatory payrolling, as will statutory late payment interest.

Why the extension?

The extension reflects HMRC’s responsiveness to stakeholder concerns regarding the readiness of payroll systems and the need for detailed guidance. By delaying the mandatory implementation, HMRC aims to ensure a smoother transition for employers and software providers.

Next steps for employers

• Assess Readiness: Evaluate current expenses and benefits and review when data can be provided and how these fit into current payroll cut offs and processes to ensure accurate reporting. 
• Consider Voluntary Payrolling: Register before 5^th April 2026 to start payrolling from 2026/27 tax year. The ideal time to register is before mid-Feb 2026.
• Final preparations: Prepare employee communications and support.  
• Stay Informed: Monitor HMRC updates for further guidance and technical specifications related to the new reporting requirements. We aim to keep you updated or attend one of our payrolling benefit sessions in person. 

For more detailed information on the upcoming changes and how to prepare, refer to our original article: Reporting Benefits in Kind through Payroll.